Croatia may close shipyards

One or more of Croatia’s five ailing shipyards might have to close as part of European Union membership preparations, Economy Minister Damir Polancec admitted for the first time. He said that one or some of the shipyards will have to convert into a different business, produce something completely different, not ships, but promised there will be no layoffs.

Restructuring shipyards is one of the most sensitive social issues in Croatia?s negotiations about joining the EU as the industry involves tens of thousands of employees and dependent businesses and there are fears of major lay-offs. The shipyards submitted their restructuring plans to the government earlier this month and are subject to approval from both Croatia’s state competition watchdog and Brussels.

The shipbuilders have asked for some 1.2 billion euros ($1.9 billion) in state aid and up to seven years to meet EU standards. The government is analysing the individual plans but some of them do not prove long-term sustainability and that is a problem. Despite high state subsidies, none of the shipyards, which account for more the 15% of Croatia’s total exports, ended 2007 in profit.

The shipyards have been weighed down by inadequate management, the rising price of steel and a weaker U.S. dollar. Overhaul of shipbuilding is one of the key requirements from Brussels and Croatia needs to cut the subsidies which are much higher than those in the EU and amount to $88 million a year in cash, excluding state guarantees on loans.

The government wants to find private investors to modernise the shipyards while keeping shipbuilding as one of its key industries.

Once the European Commission approves the overhaul plans, Zagreb will start negotiating over competition policy, one of the most difficult policy areas in its EU membership talks. Croatia hopes to wrap up the talks by October next year and join the bloc in 2010 or 2011.