EU presses Poland over shipyards

By Jan Repa
BBC Europe analyst

Polish shipyards need more skilled workers

European Union officials say Poland has until the end of this week to present credible plans for the future of its Baltic shipyards.

The shipyards could be forced to hand back large amounts of state aid, which the European Commission says contravene EU rules.

Among those facing possible closure is the former Lenin Shipyard in Gdansk - birthplace of the Solidarity movement.

Poland's Prime Minister Jaroslaw Kaczynski is on his first official trip to Brussels, where the subject is expected to feature prominently.

The Polish economy has seen huge changes since the fall of communism 17 years ago. It is much bigger, more modern and much more productive.

Struggling to survive

But for heavy industries built up under the Communists it has been a testing time. Poland's shipyards are a prime example.

Poland's shipbuilding industry once functioned as an adjunct to the Soviet military-industrial complex. Poland built merchant ships for the Soviet Union, leaving Soviet shipyards free to build warships.

The Lenin Shipyard was at the heart of Solidarity's struggle

The Lenin Shipyard in Gdansk alone employed 17,000 people. Now the combined shipyards of Poland's three major Baltic cities - Gdansk, Gdynia and Szczecin - employ just 12,000.

In terms of shipping tonnage built, Poland still ranks fifth in the world - after South Korea, Japan, China and Germany.

The Gdynia shipyard - heavily modernised in the 1970s - can build huge specialised vessels of up to 300,000 tonnes.

Nevertheless, Poland's shipyards are struggling to survive. Order books may look healthy. But many of the ships being built today were contracted five or so years ago - when world prices were low.

Compounding the Polish shipyards' difficulties has been the departure of many skilled workers to Western Europe, where wages are higher.

It is reckoned that some 270m euros (£182m; $345m) are needed to bring the Polish shipyards up to the required standard, much of which would have to come from private investors.

Tough rules

The EU Commission says it is not in the business of closing shipyards, especially ones with the symbolic importance of Gdansk, but that rules are rules.

State aid, it says, can only be justified if there are clear prospects that the subsidised business will be able to make its own way in the market.

The EU, it says, was tough on French and Spanish shipyards in the past, and does not see why it should be more lenient with the Poles.

In fact, EU officials say they have been waiting in vain since June 2005 for a plausible business plan for the Polish shipyards, but that none has been forthcoming. The Polish government has until the end of this week to present its case.

In theory, the shipyards could be ordered to start handing back the money they have received from the Polish government as soon as November. The yards say they simply do not have the resources.

Credibility test

The shipyards have become another test case for the Polish government's credibility.

Prime Minister Kaczynski's centre-right Law and Justice Party came to power following parliamentary elections in September 2005.

In May it formed a coalition government with two smaller Eurosceptic parties - the "agrarian-populist" Self Defence party, and the "Catholic-nationalist" League of Polish Families.

The government has quickly made itself unpopular in Brussels. Its domestic critics also accuse it of amateurishness. Despite Poland's booming economy, its handling of the shipyard issue has been cited as a case in point.