Gearing up for EU, Croatia's shipyards face reform

By Zoran Radosavljevic

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."