That Sinking Feeling

By bne IntelliNews June 26, 2008

Matthew Day in Warsaw -

While the struggle for democracy has given Poland's shipyards permanency in the history books, whether they have a permanent place in the country's economic landscape has become a moot point. From the legendary Gdansk yard, the birthplace of Lech Walesa's Solidarity movement, to other yards in Szczecin and Gdynia, these are troubled times for Poland's ship producers as the European Commission prepares to take measures that could force some of them to close.

The current sea of problems engulfing the yards stems from the state subsidies given to them with the goal of making them self-supporting economic entities. Amounting to the hefty sum of about €1.3bn, the aid, following an investigation going back to 2005, has been deemed as unfair public support by the Commission. The Commission has demanded the Gydnia and Szczecin yards, which remain in state hands, hand back the money unless the Polish government presents Brussels with a restructuring plan that, according to Commission spokesman Jonathan Todd, spells out "new concrete and credible solutions that could be implemented immediately to assure the long-term viability of these shipyards."

Poland's treasury minister, Aleksander Grad, duly presented EU Competition Commissioner Neelie Kroes with a proposal on June 13 that would see the Gdynia shipyard sold to ISD Polska, the company controlling Gdansk, along with substantial cuts in capacity. Grad will formally submit the plan to the Commission on June 26, though the omens aren't good: Kroes has already expressed "serious doubts" that this plan would meet EU conditions for approving state aid. On June 25, Kroes also told a group of Polish shipyard workers who had travelled to Brussels to appeal to the Commission against the possible loss of their jobs that unless the plan to be presented by the Polish authorities complies in full with EU requirements over aid, she would have "no option" but to recommend that the EU executive demand the repayment of aid.

Scuppered

The Polish shipyard workers are indeed right to worry about their jobs, as the Commission's demands could have serious consequences for the Gydnia and Szczecin yards. Unlike the Gdansk yard, which was also a recipient of state aid until it was sold to the Ukrainian firm Donbass in 2006, they still await privatisation and thus live in a precarious world where Brussels is demanding a coherent restructuring plan that would lead to their privatisation, but at the same time buyers are hard to find.

The Polish government had hoped that Zlomreks, a scrap metal company, would buy the two yards and thus implement its own restructuring plan that would satisfy Brussels. But to Warsaw's dismay the firm backed out in late May, scuppering the government's plans, and leaving the Commission frustrated with what it sees as Poland's foot dragging over the whole affair. "You not only have to have a buyer, but also to satisfy the commission that serious restructuring will be implemented," Kroes has said. "The commission's patience is becoming very thin."

Even so, the Polish treasury ministry has announced it intends to pour yet more money, to the tune PLN515m, into the yards. "We are starting a programme of aid to Polish shipyards, which had been prepared earlier," Grad told reporters in June. "Among other things, this programme involves financial aid, so that the shipyards are privatised when they are in good condition, and operating, and not in danger of bankruptcy."

While this should help, economic hawks may interpret the move as yet another attempt to delay either the yards' closures or a major shakedown of the two that sees capacity and workforce cut owing to a lack of cash. The hawks may also see it as further government procrastination over the future of the Polish shipbuilding industry. Critics point to the failure of successive Polish governments to launch effective and efficient restructuring plans, which could have turned the yards into viable economic concerns, ripe for privatisation.

In part this can be explained by the revered status the yards have. At the forefront of Poland's fight against communist rule, governments have been reluctant to force pain upon yards once seen as bastions of Polish freedom. But now the clock has developed an audible tick and the government needs to act quickly.


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That Sinking Feeling

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