UPDATE 2-Polish shipyards closer to collapse after EU talks

Wed Jul 9, 2008 1:51pm BST

(Refiles fixing day in first paragraph)

By Marcin Grajewski and David Lawsky

BRUSSELS, July 9 (Reuters) - Poland's historic shipyards faced an increased risk of bankruptcy on Wednesday after emergency talks between the European Union and Warsaw failed to resolve doubts over massive state aid they had received.

The European Commission is analysing restructuring plans for shipyards in Gdansk, Gdynia and Szczecin, where anti-communist movement Solidarity was born in 1980, to see if they allowed the companies to avoid repaying billions of euros in past aid.

Under EU rules, governments can give financial help to ailing companies only if the cash is accompanied by plans that would make the firms viable in the long term. Those must usually involve production capacity cuts.

Having to repay the aid would bankrupt the yards, which employ nearly 15,000 people, dealing a serious blow to centre-right, pro-EU government of Prime Minister Donald Tusk.

The bankruptcy would probably lead to massive protests that could shake Poland's political scene, analysts say.

The Commission decision may come next Wednesday, the EU executive said.

And chances are growing that the aid will be declared illegal after EU Competition Commissioner Neelie Kroes told visiting Polish Treasury Minister Aleksander Grad that she still had serious doubts about its legality.

"Kroes expressed serious doubts that the plans submitted comply with these requirements: EC state aid rules," the Commission said in a statement.

A Commission official, who asked not to be named, said latest figures showed state aid to the yards could amount to nearly 2.2 billion euros ($3.46 billion) rather than 1.3 billion estimated earlier.

"Those shipyards have not made a single profitable ship over last four years," the official said.

The new estimates showed aid to Gdynia was 1.3 billion euro, 640 million to Szczecin and 218 million to Gdansk. Part of these are production guarantees demanded by current or future investors in the yards.

Ukrainian group Industrial Union of Donbass bought Gdansk last year and could also take over state-controlled Gdynia. The government is in talks with a Norwegian and domestic investor on selling off Szczecin.

Grad said he would try to amend the restructuring programmes to avoid a negative decision from the Commission. He planned to meet possible investors later on Thursday.

"The deficit of time is the main problem," he told Polish news agency PAP.

Commission spokesman Jonathan Todd said the issue of Polish shipyards was on the Commission's agenda next Wednesday. "In the meeting today Mrs. Kroes explained very clearly that time is up," he told a daily news briefing.

(Additional reporting by Darren Ennis)

((marcin.grajewski@thomsonreuters.com; +322 2876830; Reuters Messaging: marcin.grajewski.reuters.com@reuters.net))

($1=.6361 Euro) Keywords: EU POLAND/SHIPYARDS

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