Gearing up for EU, Croatia's shipyards face reform
RIJEKA, Croatia (Reuters) - Time stood still on the docks of 3.Maj shipyard as the champagne bottle swirled and smashed against the hull of a tanker being launched for Latvian owners.
As the giant vessel slid into the sea to music from a small brass band perched on a makeshift stage, the event was tinged with sadness. Croatia's five indebted shipyards face restructuring or closure before the country joins the European Union in the next few years.
Unlike Asia, whose yards now control almost 85 percent of the global market, the European Union does not allow significant subsidies to relatively uncompetitive industries like shipbuilding.
The industry -- which flourished under communism -- has remained a bastion of resistance to structural reforms facing the southeast European state, whose economy is largely state-driven despite growth of nearly 6 percent last year.
Croatian shipbuilding has around 1.5 percent of the global market but is entirely dependent on state aid. It went downhill in the 1990s due to wars in former Yugoslavia, the loss of its traditional Russian market, and mismanagement.
Under pressure from the EU, each of its shipyards submitted restructuring plans to the government in April: they are a key requirement for Zagreb to keep on track its bid to wrap up accession talks in autumn 2009.
Miroslav Padovan, a bespectacled engine maintenance technician whose son also works at the dock, is due to retire soon after working at 3.Maj for 43 years.
"These are not easy times," he said. "I've dedicated most of my life to this shipyard. This place means tradition and my wish is that many more generations earn their pensions here... because I think 3.Maj can compete on the global market."
Reinhard Lueken, secretary-general of the Community of European Shipyards' Associations, said it was clear that Croatian shipyards cannot conduct business any more with state aid.
"The good thing is Croatia has recognized that and wants to do something about it," he said. "But it's difficult to expect each shipyard individually to produce viable plans. Such a concept is wrong, in my view."
The restructuring plans, drafted separately by each shipyard last month, call for one last shot of state aid worth at least 1.2 billion euros and up to seven years to implement the overhaul. They must be approved by the state competition agency and the European Commission by July.
With unemployment in Croatia at more than 14 percent -- about double the rate in the eurozone -- Prime Minister Ivo Sanader has said there would be no job losses, adding the docks have 49 new ships, worth $3.2 billion, on their order books.
But local media and analysts doubt the small Adriatic country can preserve all its shipyards.
"No EU country has escaped shipyard overhauls or closures. Croatia had better stop dreaming and start thinking about how to have one profitable shipyard, instead of five loss-makers," the leading daily newspaper Vecernji List said last month.
The shipyards built 20 ships worth some $700 million last year and made almost $500 million in losses, because their contracts until this year did not provide hedging against the weakening dollar and rising steel prices.
"We also have very old technology, which makes the already long shipbuilding process even longer," said Padovan.
NO POLISH OPTION
A top economic expert close to the government, asking not to be named because of the topic's political sensitivity, said every government since Croatia's independence in 1991 had failed to properly tackle shipbuilding -- the main source of employment on the coast with 11,000 workers.
"We've had scores of foreign consultants, agencies, plans, announcements, but no one ever said the truth: We must say good-bye to an era, with its old technology and incompetent management, and turn a new page," the expert said.
Ozren Matijasevic, who heads the national association of trade unions, said the docks would have to sell non-core business and specialize in more complex ships, after laying off some workers.
"Shipyards are industrial engines of the region and they must be kept," he said.
3.Maj's general manager Tomislav Prpic said he was not afraid: "We have 104 years of tradition. Different countries and regimes came and went and the shipyard endured. It has a future but there will have to be some changes and investments," he told Reuters.
Eduard Jalzabetic, a union leader at 3.Maj, said the proposed overhaul earmarked funds to cover losses and invest in badly needed new technology, although operating without state subsidies in the EU would be very difficult.
"And it is no longer possible to fool the EU the way Poland did with its shipyards," he said.
Poland is under heavy pressure from Brussels to make good on a pledge to overhaul the remaining three shipyards or return the 1.3 billion euros in aid they received in the three years after the country joined the EU in 2004.
"It was a disaster and they (the EU) are extra cautious now," said Jalzabetic.
(Additional reporting by Igor Ilic; Editing by Sara Ledwith)
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