September 5, 2018 / 12:30 PM / a year ago

Croatia's state budget may take hit as problems at biggest dock persist

ZAGREB, Sept 5 (Reuters) - Problems at Croatia’s biggest shipbuilding group Uljanik may cost the state as much as 70 million euros ($81.09 million), Finance Minister Zdravko Maric said on Wednesday.

More than 4,000 workers at Uljanik went on strike last month over delayed salary payments. The government helped secure funds to pay wages due in July and August, but the future of the company’s docks in the northern Adriatic cities of Pula and Rijeka remains uncertain.

In the meantime an order for the construction of four ships has been cancelled. The state guaranteed the repayment of loans for financing the construction of the ships and advance payments made by the purchaser in case of problems with construction or delivery.

“Four ships will not be completed and there is a high likelihood that the state guarantees worth up to 70 million euros would be activated. But we’re ready for the worst case scenario,” Maric told reporters.

Croatia has made major efforts to consolidate its budget in the last two years, posting a surplus in 2017 after running a high deficit for years.

Under European Union rules, the state cannot provide direct financial aid to Uljanik but last January the European Commission cleared Croatia’s state guarantee for a loan worth 96 million euros to help the shipyards stay afloat.

The EU’s Competition Commissioner Margrethe Vestager is set to visit Zagreb on Friday and one of the major topics for discussion will be the prospects for Croatia’s once prosperous shipbuilding industry.

Since Croatia declared independence from Yugoslavia in the early 1990s its docks have gradually lost business to Asian shipbuilders, such as South Korea, missing opportunities to modernise and produce more sophisticated vessels.

The European Commission is currently assessing a restructuring plan for Uljanik.

Croatian Prime Minister Andrej Plenkovic said the government would hold a session on Sept. 13 in the city of Pula, where Uljanik has its headquarters, to discuss how the country’s shipbuilding industry could survive.

Two other major Croatian docks were restructured before Croatia joined the EU in 2013, but they are also struggling to operate profitably. ($1 = 0.8633 euros) (Reporting by Igor Ilic; Editing by Kirsten Donovan)

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