EU asks Polish government to sell off shipyards to repay state aid

The European Union will have its way to get the Polish government to sell off two loss-making shipyards that had been the place of origin of the anti-Communist Solidarity movement, to reclaim hundreds of millions of euros in illegal state aid.

EU competition commissioner Neelie Kroes told the media that state aid granted to the shipyards in Gdynia and Szczecin gives rise to disproportionate distortions of competition, breaching EC Treaty state aid rules, and therefore, must be repaid.

She said that the Polish authorities have committed to sell the yards' assets by the end of May 2009.

The shipyards in Gdynia and Szczecin along with a similar facility in Gdansk were the point of origin of the Solidarity trade-union movement, which became famous globally in 1980 for posing a challenge to Poland's then-Communist regime. However, since the fall of communism, the shipyards have run into severe financial difficulties, and since 2002 have been kept alive by state aid and production guarantees much higher than €3 billion ($3.9 billion), according to Kroes.

The EU's competition commission initiated an investigation into the state aid schemes to the shipyards in June 2005. Under the EU's competition rules, aid not used to rescue and restructure companies is illegal. Kroes said that ''very large subsidies'' received by the shipyards were consistently used for day-to-day operations, in order to keep the yards running in the short term, instead of being invested to make the shipyards viable in the long term.

Proceeds from the asset sales will go towards repaying the yards' creditors, and towards repaying the unlawful aid back to the state. She said that the existing shipyard companies, along with any remaining assets and liabilities would then be liquidated.

Poland's treasury minister Aleksander Grad welcomed EU's decision, terming it as "good for Polish shipyards and for Poland", while saying that the plan is not a complete success, but around 80 to 90 per cent, and that the Polish government intends ''in the next seven months'' to turn it into a complete success.

This agreement between the competition commission and the Polish government is directed at enabling future investors in the two shipyards to carry out economic activities without the fearing an impending payback of the earlier state aid.

Additionally, competition commissioner Kroes said that the sales procedure adopted by the Polish government needs to be open and unconditional in order to allow ''all types of potential buyers, irrespective of the purpose of their investment."

The prospect of an open sale has alarmed Poland, with Polish media speculating the yards would be picked up by investment funds with no interest in maintaining industrial production or keeping jobs. Now, the Gdynia branch of Solidarity is demanding a meeting with treasury minister Grad "fast'' to find out the details of the plans.

Speaking to the Polish Press Agency (PAP) the head of Solidarity in Gdynia said that the union is especially interested in the consequences that the plan will have on workers, terming them as the most valuable assets of the shipyards, without which the ''facility's value is zero.''

The case has stoked intense feelings in Poland, and is seeing Solidarity trade unionists drawing parallels between the EU's competition commission's stand and the Soviet attempts to shut them down in 1980. Commissioner Kroes also acknowledged the political sensitivity of the case, tagging it as "without a doubt one of the hardest proposals to the commission that I have had to make as competition commissioner."