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June 2, 2005

EC approves Spanish shipyard reshuffle

The European Commission has given its approval to the latest reshuffle in Spanish shipbuilding. But it has put a number of restrictions on the commercial shipbuilding activities of the newly created Navantia.

The solution allows Spain to protect its essential security interests by rescuing its military shipyards, while ensuring that there will be no undue distortion of competition in the market for civil shipbuilding and ship repair, says the Commission. "The solution also takes account, to the greatest possible extent, of the social and regional problems involved in this case."

The EC Treaty's rules allow member states to take measures to protect essential security interests linked to defense industries and the reorganization of the Spanish public military shipyards comes into this category.

The yards were formerly owned by IZAR but have recently been taken over by the new company Navantia.

Until the end of last year, IZAR was the main shipbuilding company in Spain. Its activities were spread over 11 sites in Galicia, Asturias, Basque Country, Valencia, Murcia, Andalucia and Madrid. It had around 10,700 employees. Around half of its sales related to military production.

However, in two decisions in 2004 the Commission ruled that Euros 864 million of state aid to IZAR was not in line with EC State aid rules and had to be recovered.

Spain invoked Article 296 of the EC Treaty, which allows a Member State to "take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war materials," with the objective of rescuing military shipbuilding activities from a foreseen bankruptcy of IZAR. This rescue involved transfering IZAR's military shipyards to a new public company (Navantia).

Following discussions with the Commission, Spain has agreed to a range of measures and commitments in accordance with Article 298 of the EC Treaty that are valid for ten years:

  • Navantia's civil sales will not exceed 20 percent of total sales, as a 3-year moving average
  • Navantia will act on the basis of market conditions as regards its civil activities. It will therefore keep separate internal accounts for civil and military activities. For each contract for a new civil ship, a cost calculation will be provided to the Commission. For ship repair, information will be provided annually
  • Navantia's civil activities will not benefit from any state aid, except export credits and development aid in line with the shipbuilding state aid framework and OECD criteria.
  • The workforce of Navantia, will not exceed 5,562 persons.
  • IZAR was put into liquidation on April 1, 2005.

    The liquidators plan to sell the remaining assets (shipyards in Gijon, Sestao and Sevilla and the engine factory in Manises).

    The Commission notes that "the sale of these assets should take place under market conditions, on an open, transparent and unconditional basis, as otherwise the buyers might find themselves obliged to pay the outstanding amounts of illegal state aid due to be recovered from IZAR."

    Competition Commissioner Neelie Kroes said "This is an important step in the reorganisation of the public Spanish shipbuilding sector. Combined with the foreseen sale of IZAR's civil shipyards and generous social measures, this reorganization will safeguard Spain's military shipbuilding needs, and eliminate distortions of competition in civil shipbuilding."

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