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November 6, 2008

EC forces Polish shipyards into liquidation

The European Commission and Poland have agreed a deal that will see the assets of the Gdynia and Szczecin shipyards sold to pay back state aid granted in breach of EU regulations.

The EC has set very tough conditions for the sale that mean there are no guarantees that the facilities will continue building ships or that, if they do, any of the current employees will be rehired. There are also big question marks over what happens to ships currently on the yards' order books.

The Commission decided after four years of investigation that state aid granted to Poland's Gdynia shipyard and Szczecin shipyard gives rise to disproportionate distortions of competition in breach of EC Treaty state aid rules, and must be repaid.

The Polish authorities have committed to sell the yards' assets through open, transparent, non-discriminatory and unconditional tenders and subsequently liquidate the Gdynia and Szczecin shipyard companies, claiming the state aid back through this process. As a result, companies acquiring the assets will not be liable to repay the illegal subsidies, even if they choose to continue shipbuilding.

To help any workers that are made redundant, the Commission has offered assistance in devising support measures under existing EU programs (European Social Fund or European Globalisation Adjustment Fund).

Competition Commissioner Neelie Kroes commented: "I am confident that this solution will maximize opportunities for viable economic activity to continue at these historic sites, with good prospects for sustainable jobs there, while putting an end to the disproportionate distortion of competition caused by the huge subsidies received by these shipyards in recent years. This solution has been made possible by the very positive cooperation we have enjoyed with the Polish Government in recent weeks. I can well imagine that the buyers of certain assets would want to engage in shipbuilding at the sites, and that would not be a problem for the Commission because there would be no new subsidies and they would buy the assets at a market price. And if those acquiring the assets want to pursue other economic activities than shipbuilding, they must be allowed to. What matters most is the break with the past, viable economic activity at these sites and sustainable jobs."

Since 2002, Gdynia Shipyard benefited from various aid measures (in particular capital injections, loans and tax write-offs) amounting to €700 million and from production guarantees of €916 million (both in nominal value). Szczecin Shipyard received aid of €1 billion as well as production guarantees of €697 million (again, in nominal value). The decisions require that Poland recovers from the yards all state aid unlawfully granted since May 2004.

The two yards have been in difficulties since the 1990s. In April 2004, Poland notified restructuring aid for the two yards and the Commission opened formal investigations in June 2005. Poland submitted restructuring plans for both yards in September 2005 and September 2006, both with substantial delays. None of the plans would have ensured long-term viability to the yards and the restructuring would have been financed entirely by state aid.

In December 2006, Poland decided to privatize the shipyards, a process, delayed several times, that eventually progressed in the course of the year and lead to potential investors submitting restructuring plans for the two yards on September 12, 2008. The plans represented an "improvement in comparison to previous versions," from the Commission's viewpoint. However, it says that despite further large amounts of state aid and substantial job losses foreseen in these plans, the yards would still not have been commercially viable.

The Commission therefore concluded that the subsidies received by the Gdynia and Szczecin shipyards did not comply with the guidelines on rescue and restructuring aid but rather constituted illegal operating aid. The Commission decision requires repayment of the illegal aid.

Asset sale

In order to reduce the potential negative social and regional effects of these decisions, the Commission agreed with Poland on specific forms of implementation.

Poland has to take legislative action to implement the sale of assets but has committed that the recovery will be implemented by way of a sale of assets or small bundles of assets in an open, transparent, non-discriminatory and unconditional tender. The proceeds will be used to repay creditors, including the recovery claim of the state related to the unlawful aid. The existing companies owning the yards, with the remaining assets and liabilities, will be liquidated.

The assets have to be sold at market price to the highest bidder. The tender must be non-discriminatory, ensuring access to all profiles of potential buyers, irrespective of the purpose of their investment.

No conditions can be attached to the tender (for example, a requirement that a bidder purchases all the assets of a given yard).

The sole award criterion for the selection of the winning bid will be revenue maximization for the benefit of the yard's creditors.

An automatic transfer of employees to the new economic activity cannot be imposed.

Any write-off or repayment of public or private liabilities, financed by the State, would amount to additional state aid and could not be accepted.

All creditors and clients must be treated in the same way as they would be in the framework of insolvency procedures. The sale must be conducted by an independent sales administrator under the close supervision of the creditors ensuring that it is conducted on market terms. In addition, Poland and the Commission will appoint jointly a monitoring trustee with the specific task to verify that the sale and the recovery of the aid take place in full compliance with the decisions. Poland committed to complete the sale by the end of May 2009.

Poland was assured today in a letter from Commissioner Kroes that, provided that these conditions are respected, this sale would not be considered to involve new aid to buyer(s) of the yards' assets and the assets could be transferred to the buyer(s) free of any liability concerning the reimbursement of unlawful state aid. The buyers of the assets could therefore restart economic operations without the burden of the past and in the absence of any limitation concerning their future activity.


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