Polish shipyards flounder as EU demands return of state aid

In the summer of 2008, trade unions in the shipbuilding sector staged protests in Warsaw and other cities on the Baltic coast in an effort to persuade the government and European Commission to resolve the issue of restructuring and privatisation of Polish shipyards. The main reason for the protests was the late June deadline for Poland to present a programme for privatising the country’s largest shipyards. The Commission extended the deadline to 12 September, on which date Polish government submitted the amended programme. The Commission, however, found the new documentation unsatisfactory, therefore the enterprises will have to return the public aid they received after Poland’s accession to the EU in 2004.

Background

Following Poland’s entry to the EU in May 2004, restructuring and, ultimately, privatisation of the shipbuilding industry remains one of the key issues facing the Polish government with regard to heavy industry. Due to the interaction of economic and political factors, the restructuring of Polish shipyards was not concluded at the time of the country’s EU accession. Throughout the 1990s and 2000s, the Polish shipyard industry received a considerable amount of national state funding. Due to the protracted restructuring process, state support continued to be granted after Poland joined the EU. As an EU Member State, Poland must now comply with European regulations on public aid; accordingly, continued support to the shipyards after 2004 was made conditional on the Polish government’s preparation of a restructuring and privatisation programme and downsizing of output capacity. If this condition is not fulfilled, European regulations state that the enterprises concerned must return all of the state aid they received after Poland’s accession to the EU.

Rising tension

During the four years following EU entry, the plans for restructuring and privatising of Polish shipyards were not consolidated into anything close to a finished document which might be submitted to the European Commission, even though the latter issued repeated reminders to the Polish government. In late spring and early summer of 2008, the Commission made it clear that Poland should not hope for any extension of the imminent deadline for submission of the requested programme, and that the sanctions provided for by EU law would be applied without delay.

The tardiness of the Polish public authorities in preparing the restructuring and privatisation programme gave rise to increasing disquiet among the Polish social partners. As the deadline for the programme’s submission approached, shipbuilding trade unions decided to hold a protest in order to mobilise the government to speed up work on the programme and to complete it on time; to this end, several hundred demonstrators marched in Warsaw on 20 June 2008.

Problems regarding documentation

The final deadline set by the Commission for dispatch of the necessary documentation by the Polish government was 26 June. On that day, programmes for restructuring the shipyards in Gdańsk, Gdynia and Szczecin on the Baltic coast, and for privatisation of the latter two yards (the Gdańsk shipyard is controlled by Gdynia), were duly passed on to Brussels. Over the ensuing two weeks, no conclusive information about the further progress of talks between the Polish government and the Commission was released to the public. News of another deadline extension was accompanied by warnings that patience in Brussels had run out and that the shipyards must now repay the public aid. On 11 July, the Polish Minister of the Treasury, Aleksander Grad, supplemented the relevant documentation. Despite the fact that the Polish government had met the deadline, the EU Competition Commissioner, Neelie Kroes, pointed to serious shortcomings in the documentation submitted. This gave rise to doubts over whether the documentation could be accepted by the Commission as a satisfactory restructuring and privatisation programme.

Possibility of having to return state aid

Whatever the exact amount of state aid which would have to be returned – with estimates ranging from PLN 5 billion (about €1.5 billion as at 3 September 2008) to PLN 7 billion (€2 billion) – any decision by the European Commission to request the return of the aid would most likely entail bankruptcy of the largest shipyards in the country and the loss of thousands of jobs. Thus, the shipbuilding trade unions continued their protests. A delegation of trade union activists travelled to Brussels and set up a picket line outside the Commission’s Directorate General for Competition on 26 June. A number of domestic demonstrations followed, with the largest held in the home towns of major shipyards – in Szczecin on 10 July involving some 3,000 participants and in Gdynia on 11 July involving 2,000 demonstrators. The unions’ actions received the support of the European Trade Union Confederation (ETUC). In a statement published on 25 June, ETUC’s executive committee appealed to the Polish government to honour its commitments, as well as to the Commission to show understanding for the difficult situation of the Polish shipyards.

Commission extends deadline

In general, the trade unions’ protests were addressed not only to the Polish government, but also to the European Commission. The unions hoped that the Commission would once again extend the deadline by which Poland must submit a viable programme for its shipbuilding industry. The Polish government has also been pushing for another reprieve, as evidenced by the letter of 11 July sent by Prime Minister Donald Tusk to the President of the Commission, José Manuel Barroso. Eventually, on 16 July, the Commission decided in favour of the Polish shipyards by postponing the submission date for the final programme by the Polish government until 12 September.

Amended programme rejected

Throughout the summer the government continued negotiations with the investors in order to meet the extended deadline and provide the Commission with satisfactory documentation. Eventually, on 12 September, the amended programme based on the investors’ offers was delivered. The Commission agreed to review the programme swiftly and take the final decision in October. Meanwhile, another delegation of trade unions travelled to Brussels to continue putting pressure on the EU authorities by holding a short rally in front of the Commission’s premises and meeting the Commissioner Kroes afterwards.

Despite the efforts of the Polish government supported by the social partners, the Commission assessed the new programme negatively and requested that the enterprises return the entire amount of public aid received from the state since 2004. For that reason, bankruptcy of the shipyards seems inevitable, and a wave of social unrest will certainly follow.

Jan Czarzasty, Institute of Public Affairs (ISP)

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