4.2.2010

EN

Official Journal of the European Union

L 33/1

COMMISSION DECISION

of 6 November 2008

on State aid C 17/05 (ex N 194/05 and PL 34/04) granted by Poland to Stocznia Gdynia

(notified under document C(2008) 6771)

(Only the Polish text is authentic)

(Text with EEA relevance)

(2010/47/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community, and in particular the first paragraph of Article 88(2) thereof,

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments (1) pursuant to the provisions cited above and having regard to their comments,

Whereas:

I. PROCEDURE

(1)

Pursuant to the provisions of point 3 of Annex IV to the Accession Treaty governing the interim mechanism procedure, on 29 April 2004 Poland notified restructuring measures in favour of Stocznia Gdynia S.A. (hereinafter Gdynia Shipyard). The case was registered as PL 34/2004.

(2)

By letter of 19 May 2004 the Commission asked Poland to submit certain missing documents. These were provided on 16 June 2004. The Commission requested further information by letters of 30 July 2004, 8 October 2004, 23 November 2004 and 4 March 2005, to which Poland replied, respectively, by letters of 3 September 2004, registered on 7 September 2004, 10 November 2004, registered on 15 November 2004, 17 February 2005, registered on 21 February 2005, 30 March 2005, registered on 1 April 2005 and 18 April 2005, registered on 20 April 2005. By letter of 22 April 2005 registered on the same day, Poland accepted that the Commission would treat PL 34/2004 dated 29 April 2004 as a notification under Article 88(2) of the EC Treaty with regard to any measures which were found to constitute new aid. The case was attributed a new number: N 194/2005.

(3)

On 1 June 2005 the Commission adopted a decision to open a formal investigation, which was published in the Official Journal (2), and invited Poland and interested parties to submit comments.

(4)

Having been granted an extension of the deadline for submitting comments (letter of 9 August 2005), Poland submitted its comments by letter of 2 September 2005, registered on 5 September 2005. In its reply Poland submitted to the Commission the restructuring plan for Gdynia Shipyard Update, dated 4 March 2004 (hereinafter ‘the 2004 restructuring plan’).

(5)

Poland submitted additional comments by letter of 3 November 2005, registered on 7 November 2005.

(6)

Gdynia Shipyard submitted comments by letter of 10 October 2005, registered on 14 October 2005. Comments were also submitted by Ray Car Carriers (by letter of 7 October 2005, registered on 10 October 2005), by the Office of the Permanent Representative of Denmark to the European Union (by letter of 7 October 2005, registered on 11 October 2005), by the Danish shipbuilding association Danish Maritime (by letter of 7 October 2005, registered on the same day), by the Solidarity trade union (by letter of 7 October 2005, registered on 10 October 2005) and by the Polish shipbuilding association (by letter of 10 October 2005, registered on 11 October 2005).

(7)

The Commission forwarded these comments to Poland by letters of 26 October 2005 and 12 December 2005 (3). Poland responded to the comments provided by Gdynia Shipyard by letter of 16 January 2006, registered on 18 January 2006. Poland did not provide any comments on the submissions of other third parties.

(8)

The Commission sought the assistance of an external consultant for the evaluation of the 2004 restructuring plan. The consultant transmitted his report to the Commission in December 2005.

(9)

By letter of 13 January 2006, the Commission asked Poland to provide an update on the latest developments in its restructuring strategy for Gdynia Shipyard. Poland replied by letter dated 20 February 2006, registered on 21 February 2006, and a meeting between representatives of the Commission, the Polish authorities and Gdynia Shipyard took place on 22 February 2006. Poland announced that the 2004 restructuring plan was outdated and that it had adopted a new strategy for the restructuring of Gdynia Shipyard Group involving the spin-off from the Group of Gdańsk Shipyard and the (partial) privatisation of Gdynia Shipyard. Poland also announced that an amended restructuring plan was to be submitted to the Commission by 30 June 2006 and that the privatisation of Gdynia Shipyard would commence shortly.

(10)

As follow-up to this meeting, the Commission sent a letter to Poland on 8 March 2006, to which Poland replied by letter of 13 March 2006, registered on the same day, announcing a privatisation timetable. Poland provided additional information on the privatisation process by letter dated 29 March 2006, registered on 30 March 2006. The Commission asked for further information by letter of 30 March 2006, to which Poland replied by letter of 19 April 2006, registered on 20 April 2006.

(11)

By letter of 6 April 2006, registered on 10 April 2006, Poland submitted a first draft of the document ‘A strategy for the shipbuilding sector (maritime construction shipyards) in Poland 2006-2010.’ The Commission provided comments by letter of 12 April 2006. The document was finally approved by the Polish Cabinet on 31 August 2006 and sent to the Commission by letter of 1 September 2006, registered on the same day.

(12)

By e-mail of 15 May 2006, Gdynia Shipyard submitted to the Commission the ‘information memorandum on Gdynia Shipyard’ dated May 2006, which was made available to potential investors as of 10 May 2006.

(13)

By letter of 26 May 2006, registered on 30 May 2006, Poland submitted further information on the ongoing privatisation process, including the list of companies to which Poland, via its privatisation consultant, had sent the offer to participate in the new capital increase approved by the General Assembly of Gdynia Shipyard on 19 April 2006. By letter of 13 July 2006, registered on 17 July 2006, Poland submitted further information on the ongoing privatisation process, informing the Commission that two companies had submitted preliminary offers to participate in the capital increase and providing a comparative analysis by the privatisation consultant of these offers.

(14)

Gdynia Shipyard submitted initial draft amendments to the restructuring plan to the Commission on 9 June 2006. Commission representatives visited the yard on 13 June 2006 and made initial comments on the amended restructuring plan. The Commission’s external consultant provided his comments in a report dated July 2006. Lastly, the Commission commented on the shortcomings of the draft amendments to the restructuring plan by letter of 17 July 2006.

(15)

Several meetings were held on the privatisation process and the preparation of the amended restructuring plan attended by representatives of the Commission and the Polish authorities: in Brussels on 31 January, 22 February and 10 May 2006 and on the premises of Gdynia Shipyard on 13 June 2006.

(16)

Poland replied to the Commission’s letter of 17 July 2006 by letter dated 31 August 2006, registered on 1 September 2006.

(17)

Poland gave notice of amendments to the ‘Restructuring Plan of Gdynia Shipyard S.A.’ dated 3 September 2006 (hereinafter the ‘2006 restructuring plan’) and of new State aid granted to Gdynia Shipyard following the Commission’s decision to open a formal investigation.

(18)

Poland provided further information on the restructuring process of Gdynia Shipyard Group by letter of 12 September 2006, registered on 13 September 2006, stating in particular that the capital of Gdańsk Shipyard and Gdynia Shipyard Group had been separated.

(19)

Further information on the privatisation process of Gdynia Shipyard was submitted by letter dated 26 September 2006, registered on 27 September 2006.

(20)

Poland gave notice of additional new aid for Gdynia Shipyard by letter dated 21 November 2006, registered on 27 November 2006.

(21)

A meeting took place on 7 December 2006 between Commissioner Kroes and Piotr Woźniak, the Polish Minister for the Economy. The Minister stated that Poland was committed to relaunching the privatisation process of Gdynia Shipyard by way of an open and transparent procedure to be completed by June 2007. Poland confirmed this statement by letter of 27 December 2006, registered on 4 January 2007, referring to the Cabinet decision of 19 December 2006 to endorse a document entitled ‘The state of the shipbuilding industry’. Poland asked the Commission for talks on countervailing measures.

(22)

Commission representatives visited the yard on 19 December 2006 with the external consultant with a view to collecting the facts and data necessary to evaluate the countervailing measures. The Commission’s external consultant submitted a report on the capacity of the yard on 16 January 2007.

(23)

The Commission replied to the letter of 27 December 2006 by letter of 29 January 2007 in which it called on Poland to submit a proposal for countervailing measures for Gdynia Shipyard by end-February 2007.

(24)

By letter dated 28 February 2007, registered on the same day, Poland submitted explanations concerning the privatisation of Gdynia Shipyard and a proposal for countervailing measures.

(25)

On that basis, a technical meeting was held on 15 March 2007 between the Commission, the Polish authorities and representatives of the yard, focusing mainly on countervailing measures but also on the ongoing privatisation process. The Commission and the Polish authorities agreed that the Commission would enter into technical discussions direct with Gdynia Shipyard with a view to collating all the data necessary for its assessment of the countervailing measures proposed by Poland. Gdynia Shipyard transmitted some initial information on the yard’s capacity by email dated 12 March 2007, registered on 27 April 2007.

(26)

The Commission requested further information on the countervailing measures by letters of 29 March 2007, 27 April 2007 and 25 May 2007, to which Gdynia Shipyard replied by letters of 20 April 2007, registered on 23 April 2007, 9 May 2007, registered on 10 May 2007 and 30 May 2007, registered on 31 May 2007 respectively. Gdynia Shipyard submitted further information at a meeting with representatives of the Commission on 6 June 2007 and subsequently by letter dated 18 June 2007, registered on 21 June 2007. The Commission asked additional questions by email of 20 June 2007 to which Gdynia Shipyard replied by letter of 25 June 2007, registered on the same day.

(27)

By letter of 31 July 2007 the Commission informed Poland that its preliminary analysis of the countervailing measures proposed by Poland for Gdynia Shipyard suggested that the measures were acceptable, subject to certain conditions being met. Poland replied by letter of 24 August 2007, registered on 27 August 2007, in which it commented on the conditions governing implementation of the countervailing measure for Gdynia Shipyard. The Commission closed the issue of countervailing measures by letter dated 3 October 2007.

(28)

In a telephone conversation on 24 May 2007, the Polish authorities informed the Commission that Poland intended to restart the privatisation process of Gdynia Shipyard by way of a public tender. The Commission requested comprehensive information on the latest developments in the privatisation process by letter dated 29 May 2007, reiterating its request by letter of 6 June 2007. Poland replied by letter of 22 June 2007, registered on 25 June 2007 and, following a further request for information dated 28 June 2007, completed its submission by letter of 11 July 2007, registered on the same day. By this letter Poland also submitted to the Commission the information memorandum on Gdynia Shipyard dated 4 July 2007 (hereinafter ‘the information memorandum’). By letter of 31 July 2007 the Commission indicated that the privatisation process could not be delayed any longer.

(29)

The Commission transmitted its comments on the information memorandum by letter of 30 July 2007. Poland responded by letter dated 21 August 2007, registered on 27 August 2007. By letter of 29 August 2007, registered on the same day, Poland submitted a draft document entitled ‘Supplementary clarifications on the Gdynia Shipyard information memorandum’ dated 29 August 2007, to be annexed to the information memorandum of 4 July 2007 (hereinafter ‘the Annex to the information memorandum’). The Commission presented its comments on the Annex to the information memorandum by letter of 4 September 2007, to which Poland replied by letter of 7 September 2007 in which it submitted an amended version of the Annex to the information memorandum. The Commission presented its final comments by letter dated 14 September 2007.

(30)

Poland submitted information on the latest developments in the privatisation process by letters of 7 September 2007, registered on the same day, 23 October 2007, registered on 24 October 2007, and 25 October 2007, registered on the same day.

(31)

In reply to a letter from the Commission dated 30 November 2007, Poland provided further information on the privatisation process by letters dated 13, 19 and 21 December 2007, registered on 14, 20 and 21 December 2007 respectively. In the last letter, Poland informed the Commission that it had received three binding offers for the purchase of Gdynia Shipyard. These offers were submitted to the Commission by letter of 8 February 2008, registered on 11 February 2008.

(32)

A meeting between representatives of the Commission and the Polish authorities took place in Brussels on 10 January 2008, the conclusions of which were reiterated by the Commission in letters dated 17 and 30 January 2008.

(33)

By letter of 30 January 2008, Poland informed the Commission that two bidders had been invited to hold negotiations with the Treasury. By letter of 14 February 2008, registered on 19 February 2008, Poland announced that the privatisation process of Gdynia Shipyard would be completed by summer 2008. The Commission replied by letter dated 28 February 2008.

(34)

By letter dated 29 February 2008, registered on 3 March 2008, Poland submitted the first draft of a new restructuring plan prepared by one of the bidders, Amber Sp. z o.o. The company was granted temporary negotiating exclusivity on 20 March 2008 and provided an update to the draft restructuring plan by email of 9 April 2008, registered on 24 April 2008. Further information was provided by this bidder in ‘Key restructuring directions’, a document submitted to a meeting on 10 April 2008 and registered on 18 April 2008. The information prepared by the second bidder was submitted later, by letter of 7 April 2008, registered on 18 April 2008, following a reminder dated 18 March 2008.

(35)

Poland submitted information on developments in the negotiations with Amber Sp. z o.o., as the exclusive bidder, by letters of 28 March 2008, registered on the same day, 7 April 2008, registered on 18 April 2008, 23 April 2008, registered on the same day, and 25 April 2008, registered on the same day. A meeting between representatives of the Commission, Gdynia Shipyard, the Amber Sp. z o.o. and the Polish authorities took place in Warsaw on 10 April 2008. Poland submitted its record of the meeting to the Commission by letter dated 7 May 2008, registered on 13 May 2008.

(36)

The Commission provided comments on the progression of the privatisation process by letters of 21 and 30 April 2008.

(37)

By letter dated 12 May 2008, registered on the same day, Poland informed the Commission that Amber Sp. z o.o. had withdrawn from the privatisation process. Lastly, by letter of 26 May 2008, registered on 27 May 2008, the Polish authorities informed the Commission that, on 15 May 2008, the Minister for the Treasury had decided to terminate the privatisation process within the framework of the public invitation to engage in negotiations with bidders whose offers had been admitted to the procedure launched in 2007.

(38)

The Polish authorities also informed the Commission that they were taking action to relaunch the privatisation process with a view to signing privatisation agreements in November 2008. As of 3 June 2008, Poland has submitted daily reports to the Commission on actions taken by various interested parties in the relaunched privatisation process. By letter of 6 June 2008, registered on the same day, Poland submitted the ‘information memorandum on Gdynia Shipyard’ of 2 June 2008 (hereinafter ‘the 2008 information memorandum’) to the Commission.

(39)

At the request of the Polish authorities, on 10 June 2008 a meeting was held between representatives of the Commission, the Polish authorities and ISD Polska, which was introduced to the Commission as a potential buyer of Gdynia Shipyard. Another meeting between the Commission and the Polish authorities took place on 13 June 2008.

(40)

By letter of 26 June 2008, registered on the same day, Poland submitted a draft restructuring plan for Gdynia Shipyard and Gdańsk Shipyard prepared by ISD Polska (the owner of Gdańsk Shipyard) and a draft restructuring plan for Gdynia Shipyard prepared by the Polish Shipbuilding Company (hereinafter the PSC).

(41)

By letter dated 4 July 2008, the Commission requested clarifications on certain issues relating to the draft restructuring plan prepared by ISD Polska. Poland replied by letters of 7 and 8 July 2008, registered on the same days. A meeting between representatives of the Polish authorities, ISD Polska and the Commission took place on 8 July 2008.

(42)

By letter dated 14 July 2008 Poland undertook to provide the Commission with a complete restructuring plan by 12 September of that year.

(43)

On 16 July 2008 the Commission endorsed, on a preliminary basis, the assessment and conclusions presented in a draft decision to conclude the formal investigation which stated that the aid granted to Gdynia Shipyard was incompatible with the common market and had to be recovered. However, in the light of the letter from the Polish authorities dated 14 July 2008, the Commission decided to postpone adopting the decision in order to assess whether the new restructuring plan to be submitted by the Polish authorities by 12 September 2008 would significantly improve the situation and would allow the aid to be deemed compatible with the common market.

(44)

Since then, Poland has been providing the Commission with weekly updates on the privatisation process (letters dated 28 July, 4 August, 12 August, 21 August, 25 August, 1 September, 8 September, 16 September and 23 September, registered on the same days).

(45)

By letter of 18 July, registered on 21 July, Poland asked for three rounds of consultations with the Commission on the draft restructuring plan with a view to preparing a final version incorporating the Commission’s comments. The Commission agreed to the schedule by letter of 31 July.

(46)

However, the first unofficial meeting between the Polish authorities and the Commission did not take place until 21 August 2008. Another meeting with the Polish authorities, in the presence of ISD Polska, took place on 2 September 2008. Poland informally submitted ISD Polska’s draft restructuring plan on 28 August 2008 and an amended version of this draft on 8 September 2008.

(47)

By letter of 12 September 2008, registered on the same day, Poland submitted ISD Polska’s final restructuring plan for Gdynia Shipyard and Gdańsk Shipyard.

(48)

By letter of 16 September 2008, registered on 17 September 2008, Poland submitted a draft of the privatisation agreement between ISD Polska and the Polish Treasury.

(49)

On 30 September 2008 a meeting was organised between the Polish authorities and the Commission. Representatives of ISD Polska participated in the meeting.

(50)

By letter dated 27 October 2008, the Commission informed the Polish authorities of the framework conditions for implementation of this decision. By letter of 3 November 2008, registered on 4 November 2008, Poland undertook to comply in full with these conditions. The Commission accepted this undertaking by letter dated 6 November 2008.

(51)

By letter of 14 June 2007 the Commission requested the Polish authorities to submit an overview of all State aid granted to the yard since Poland’s accession to the EU on 1 May 2004. Poland responded by letter of 11 July 2007 registered on the same day. The Commission requested further clarifications by letter dated 13 November 2007, to which Poland replied by letter of 9 January 2008, registered on the same day. Poland informed the Commission of additional aid granted to Gdynia Shipyard by letter of 6 December 2007, registered on the same day, by letter of 12 February 2008, registered on 13 February 2008 and by letter of 6 June 2008, registered on the same day.

II. DETAILED DESCRIPTION OF THE AID

1. RELEVANT UNDERTAKING

(52)

The aid recipient is Gdynia Shipyard. The firm is based in the Gdańsk-Gdynia-Sopot region in the north of Poland.

(53)

The Commission notes that, under the State aid rules, companies in the region are eligible for aid from the Structural Funds under the Convergence objective (4) and from the Cohesion Fund (5). In particular, companies located in the region are potentially eligible for support from the Regional Operational Programme under priority axes designed to support small and medium-sized enterprises, innovation and technology transfer measures (oriented towards job creation in the long-term) and to develop social and educational infrastructure for the purposes of vocational and lifelong training. Companies in the region are also eligible for the Innovative Economy and Human Resources operational programmes, the latter being specifically designed to help companies and the labour market adapt to changes in the economy, including restructuring processes.

(54)

Gdynia Shipyard is active in shipbuilding, production of hulls, construction of steel bridges, shipbuilding and non-shipbuilding services.

(55)

Gdynia Shipyard’s biggest shareholders (6) include the Treasury, which owns 32 % of shares, corresponding to 35 % of voting rights, Ray Car Carriers Ltd (16 % and 22 %), Korporacja Polskie Stocznie S.A. (10 % and 6 %), the Industrial Development Agency (Agencja Rozwoju Przemysli S.A.) (9 % and 13 %) and Stoczniowy Fundusz Inwestycyjny S.A. (7 % and 5 %). None of the remaining shareholders has a stake in excess of 4 %.

(56)

Gdynia Shipyard is the parent company of the Gdynia Shipyard Group, which comprises 12 subsidiaries. Until recently, Stocznia Gdańsk S.A. was one of the subsidiaries but, by agreement of October 2007, Gdynia Shipyard sold its remaining shares in the Gdańsk shipyard to the new majority owner of Stocznia Gdańsk S.A. Nevertheless, from 1998 until autumn 2006, Gdynia Shipyard held the majority of shares in Stocznia Gdańsk S.A. (previously called Stocznia Gdańsk — Grupa Stoczni Gdynia) and therefore restructuring of the two yards was conducted in parallel.

(57)

Gdynia Shipyard’s main shipbuilding products are container vessels from 1 100 to 5 000 TEU and Ro/Ro car carriers with load capacity ranging from 2 100 to 6 000 cars. Other products include multipurpose vessels, product and chemical carriers, bulk carriers and liquefied petroleum gas carriers.

(58)

In the segment of container ships up to 3 000 TEU, the main competitors are European shipyards Aker Ostsee and Volkswerft Stralsund in Germany and the Korean and Chinese shipyards. The yard manufactures the largest car carriers in the world (in terms of DWT) and its share of the world order book for these products is 11 % (7). No other yard in the EU produces car carriers of this size, and the only European competitor is Uljanik shipyard in Croatia. Gdynia’s other competitors are the Korean and Japanese shipyards.

(59)

Between 2002 and 2006 Gdynia Shipyard produced 48 vessels. In 2004 Gdynia ranked as the 13th biggest shipyard worldwide in terms of its order book (measured in CGT). In 2005 it ranked 21st but was still the biggest shipyard in Europe.

(60)

At present (as at April 2008) (8), its order book comprises 16 contracts (12 car carriers and 4 container vessels) with total volume of 581 000 CGT for delivery in 2008 and 2009.

(61)

Gdynia Shipyard’s main production facilities include two dry docks, SD I and SD II.

(62)

As at August 2007, Gdynia Shipyard had a workforce of 4 611, 68 % of whom were directly linked to the production process (9). This represents a reduction of 26 % on December 2004, when the yard employed 6 249 persons (10).

(63)

Gdynia Shipyard Group first experienced difficulties in 2002. The 2004 restructuring plan explains that the factors which contributed to the difficult financial situation were external, such as Asian competition, the upturn in the zloty against the dollar, rising steel prices and problems with accessing funding following the bankruptcy of Stocznia Szczecin Porta Holding S.A. and the collapse of a gantry crane at the Gdynia yard during a violent storm in 1999. As part of its efforts to fill its order book, especially after the acquisition of Gdańsk Shipyard in 1998 boosted its production potential, Gdynia Shipyard took a number of management decisions which proved to be problematic. The yard took on design, technological, financial and commercial risks (new products, prototypes and loss-making construction of vessels which were new to the yard, such as small bulk carriers, chemical carriers, Ro/Ro vessels, gas tankers, bulk-container carriers and general cargo vessels). The rate at which Gdynia Shipyard reduced its production costs was also unsatisfactory.

(64)

These difficulties have continued throughout the restructuring process. According to the 2006 restructuring plan, the reasons for these persistent difficulties were the zloty’s appreciation against the dollar and an unprecedented increase in steel prices, which were not reflected in the contracts concluded by the yard. Another reason was the lack of financial resources for extensive restructuring operations.

(65)

The Group’s financial difficulties led to arrears in public and commercial debts and wages, shortages of materials, slowdowns in production, rising costs (labour consumption, fines) and significant delays in fulfilling contracts.

(66)

The financial situation of Gdynia Shipyard has gradually worsened.

Table 1

Operation of Gdynia Shipyard

(PLN million)

2002

2003

2004

2005

2006

2007

Turnover

1 724

891

1 327

1 599

1 259

1 040

Result

– 477

– 190

–77

– 114

– 292

– 311

Equity

– 288

– 285

– 576

– 928

Source: 2006 restructuring plan and information memorandum.

(67)

The yard expects to incur further substantial losses in 2008 and 2009 on its current order book (11).

2. DECISION TO INITIATE PROCEEDINGS UNDER ARTICLE 88(2) OF THE EC TREATY

(68)

In its decision to open a formal investigation, the Commission indicated that some of the measures of which it had been notified under Annex IV, point 3 of the Accession Treaty constituted new aid because they had been granted after Poland’s accession to the EU on 1 May 2004 or had not yet been granted at the time of the decision. The Commission listed these measures in Annex I, part B of the decision.

(69)

The Commission also decided that a number of measures indicated in Annex I, part A of the decision had been granted to Gdynia Shipyard prior to 1 May 2004 and were not applicable after accession within the meaning of Annex IV, point 3 of the Accession Treaty and, therefore, would not be examined under the procedure laid down in Article 88(2) of the EC Treaty. These measures are therefore not caught by this decision. Nonetheless, they had to be included in the assessment of compatibility with the common market of the measures granted after accession.

(70)

In essence, the Commission argued that a legally binding decision had not been taken on the measures listed in Annex I, part B of the decision prior to accession, although it recognised that some preliminary steps had been taken towards such a legally binding decision.

(71)

With regard to the restructuring of public debt under the Chapter 5a procedure based on the State aid (Enterprises of Special Significance for the Labour Market) Act of 30 October 2002, as amended (12), the Commission concluded that the restructuring decision issued by the Chairman of the Industrial Development Agency, the government agency responsible for administering the Chapter 5a procedure, was legally binding. In this case, however, no such restructuring decision had been issued prior to accession (13). This is because the decision issued by the Chairman of the Industrial Development Agency on 19 April 2004 approving the 2004 restructuring plan did not fulfil the procedural and substantive requirements to qualify as a restructuring decision.

(72)

The Commission accepted Poland’s explanation that the accrued interest on these public-law debts would automatically be written off together with the principal in view of its ancillary nature, without it being necessary to issue a separate decision.

(73)

The Commission did not find any evidence of legally binding decisions for a series of measures, including production guarantees and a capital injection, bond issue and debt-for-equity swap, listed as measures 28-34 of Annex I, part B of the decision. The Commission responded in particular to Poland’s main argument, namely that these measures had been included in the 2004 restructuring plan for Gdynia Shipyard, which had been approved by the shipyard’s Supervisory Board, with Treasury representatives obliging the competent authorities to implement the measures by voting in favour of the plan.

(74)

The Commission found in particular that, in so far as the shareholders had not taken the requisite steps to that end, the Supervisory Board had not been empowered to adopt decisions with financial repercussions for the shareholders. The Commission also found that, even assuming that the Supervisory Board was entitled to take such decisions on behalf and on the account of the shareholders, it remained unclear whether such a decision would create a positive obligation on the part of the Treasury to award State aid, since it is not normally possible to assimilate actions taken by the state as a market player with actions taken by the state in pursuance of various public goals.

(75)

With regard to measure 32 of Annex I, part B of the decision (capital injection of PLN 40 million), the Commission had doubts as to whether the decision obliging the Treasury to effect a capital increase prior to Poland’s accession was valid in law, given that the requirement to have any capital increase registered with the competent court within 6 months had not been complied with.

(76)

Having found that a number of measures for Gdynia Shipyard constituted new aid, the Commission expressed doubts that any of the conditions for the aid to be approved as restructuring aid had been met.

3. COMMENTS FROM INTERESTED PARTIES

(a) Comments by Gdynia Shipyard

(77)

The recipient presented two types of argument: concerning the Commission’s competence in respect of the measures listed in Annex I, part B of the decision and concerning the Commission’s doubts on the compatibility of this aid, in so far as it was deemed to constitute new aid, with the common market.

(78)

With regard to the restructuring of public debt under Chapter 5a, the recipient argued that the fact of awarding the aid constituted a restructuring decision on the part of the Chairman of the Industrial Development Agency. The recipient maintained, however, as did Poland in the initial phase of the Commission’s investigation, that the relevant decision was adopted by the Chairman of the Industrial Development Agency prior to accession, on 19 April 2004.

(79)

The recipient argued that it was the agreement of all the individual public creditors with the restructuring under Chapter 5a which constituted the award of the aid, prior to accession (14).

(80)

Contrary to what Poland stated in the first phase of the Commission’s investigation, the recipient argued that no default interest had accrued after 30 June 2003 on the public-law debts restructured under Chapter 5a.

(81)

The recipient argued that the State’s precise exposure in respect of measure 32 (capital injection) had been known prior to accession and that therefore the aid should be regarded as having been granted before accession.

(82)

The recipient also commented on other aspects of the decision. In particular, it stated that the production guarantees provided to the yard by the Export Credit Insurance Corporation did not constitute State aid. The recipient argued that the Export Credit Insurance Corporation guarantee scheme is a self-financing system in which, over the long term, premiums collected exceed risks covered and amounts actually paid out. The recipient described the conditions in which the Export Credit Insurance Corporation issues these guarantees (premiums and type of collateral required).

(83)

With regard to the requirement that aid be limited to the minimum necessary, the recipient argued that the amount of the aid had been limited to the strict minimum, and that it would be justified to award more aid, if available. The recipient also suggested that even if the Commission defined the restructuring costs narrowly (i.e. as not including the running costs of the yard), the financing component of these costs free of State aid would still be of the order of 30 %, thus satisfying the 1999 Restructuring Guidelines (15).

(84)

The recipient also argued that the State aid to Gdynia Shipyard does not distort competition in Europe, claiming that the real competitive threat to European shipyards comes from the Far East. The recipient acknowledged that container vessels were also built in other European shipyards, particularly in Germany, but claimed that the container vessels built in Germany differed in terms of design and technical specifications. The recipient asserted that no other EU shipyard built car carriers and that therefore Gdynia Shipyard was not competing in this segment with any other EU shipyard.

(85)

Lastly, the recipient stated that its restructuring would definitely be completed by end-2007.

(b) Comments by other interested parties

(86)

Denmark and Danish Maritime supported the Commission’s efforts to ensure that State aid was granted in line with the applicable rules. They pointed out that, as a result of the competitive situation in the world shipbuilding market, a number of Danish shipyards had closed or faced bankruptcy without any State aid being provided. They also confirmed that the product range of the Danish yards was similar to that of the Polish yards, with the result that the Danish yards could be affected by any unfair competition. Denmark also urged the Commission to require Gdynia Shipyard to reduce its capacity so that State aid was not used to increase overcapacity worldwide.

(87)

Ray Car Carriers, as the largest customer of Gdynia Shipyard and a minority shareholder in the company, stressed the importance of Gdynia Shipyard to its own operations in view of its ongoing contracts with the yard. Ray Car Carriers was convinced that, with its highly skilled workforce and management, the yard would become one of the best in Europe, if it were restructured and received State aid for that purpose.

(88)

The trade union Solidarność highlighted the declining situation at the yard, arguing that speedy restructuring was needed. The trade union described some of the restructuring measures already undertaken at the yard and expressed the belief that, with the technology and workforce available to it, it would join the ranks of the profitable European shipyards. State aid was therefore necessary to implement the restructuring plan.

(89)

The Polish shipbuilding association Forum Okrętowe explained the reasons for the yard’s difficulties and expressed its support for the restructuring process and for the use of State aid to that end.

(c) Comments by Poland

(90)

Like the recipient, Poland commented on aspects of both competence and compatibility.

(91)

With regard to the restructuring of public debt under Chapter 5a, Poland did not put forward any additional arguments. However, in its response to the recipient’s comments, Poland expressed disagreement with the latter’s interpretation of Polish law.

(92)

With regard to measures 28-34 of Annex I, part B of the decision, Poland did not rebut the conclusions of the Commission indicated in the decision to open a formal investigation. However, Poland put forward a new argument to the effect that statements by representatives of various state authorities within the Shipbuilding Industry Team concerning plans to extend these measures should be considered as official undertakings. These statements were made prior to accession.

(93)

With regard to measure 32 (capital injection), Poland argued that, in so far as the Treasury had acted at the shareholders’ meetings as the owner of Gdynia Shipyard, this action could not be dissociated from its actions as a public aid awarding authority.

(94)

At the same time Poland recognises that, while actions relating to capital injections belong to the ownership sphere (dominium) and are subject to civil law, when increasing the share capital of companies the Minister (for the Treasury) is obliged to observe additional public-law rules which do not apply to ordinary market players (imperium).

(95)

Poland then explained that the 6-month rule (the deadline for registering share subscriptions with the court) was merely a formal requirement which did not have any effect on the point in time at which the shareholder’s obligation to subscribe to the shares came into effect. Poland maintained that this obligation came into effect in 2004, prior to accession, and that its fulfilment only required passing a new resolution on an increase of the shipyard’s share capital, which took place on 4 March 2005. The subscription by the Treasury took place subsequently, on 23 June 2005.

(96)

As regards the compatibility of the new aid with the common market, Poland stated that the 2004 restructuring plan constituted a sound economic basis for the yard’s restructuring process. Poland acknowledged that the restructuring process was carried out with limited financial resources. The Polish authorities then provided a brief description of the restructuring measures enshrined in the 2004 restructuring plan in order to demonstrate that restructuring was not purely financial in scope. They defended the countervailing measures proposed in the 2004 restructuring plan and implemented within the Gdynia Shipyard Group. With regard to the requirement that aid be limited to the minimum necessary, Poland stated that the aid was not used for purposes other than restructuring and claimed that the aid intensity amounted to 31 %, i.e. aid as a percentage of the total restructuring costs, including operating costs. Poland argued that the re-negotiation of contract prices, together with the cumulated profits and positive cash flow generated by the yard in future, should be regarded as constituting the ‘own contribution’.

(97)

The Polish authorities described in detail how the Export Credit Insurance Corporation’s guarantee system operated and argued that these guarantees did not constitute State aid.

4. CHRONOLOGICAL DESCRIPTION OF DECISIVE EVENTS FOLLOWING THE COMMISSION’S DECISION TO OPEN THE FORMAL INVESTIGATION

(98)

The Commission investigation and the events which occurred in the course of it are summarised below.

(99)

In reply to the Commission’s decision to open the formal investigation, the Polish authorities submitted explanations of two types in autumn 2005: first, questioning the competence of the Commission to act on the measures identified as new aid in its decision, and, second, arguing that even if these measures constituted new aid, they were compatible with the common market as restructuring aid. The reaction of Gdynia Shipyard to the Commission’s decision was of a similar nature. Both are described above.

(100)

In support of its argument on the compatibility of the aid, Poland submitted to the Commission Gdynia Shipyard’s 2004 restructuring plan, which was identical to the restructuring plan for which the Commission opened the formal investigation because of doubts as to its credibility and robustness. Nevertheless, the Commission carefully studied the 2004 restructuring plan and sought assistance from an external consultant. The Commission concluded that the 2004 restructuring plan did not fulfil any of the conditions for the approval of restructuring aid prescribed by the relevant guidelines. At the meeting of 22 February 2006, the Commission explained its main doubts to the Polish authorities. The Commission highlighted the main weaknesses of the 2004 restructuring plan: low investments, low planned productivity, high production costs, in particular overheads and insufficient strengthening of the yard’s own capital base. The aid provided to the yard had to be regarded as operating aid in support of debt restructuring and the yard’s continued operation.

(101)

In December 2005, the Commission learned from public sources (16) that Korporacja Polskie Stocznia (hereinafter referred to as KPS), a capital group under public ownership, had been created with the aim of integrating the three major Polish shipyards in Gdynia, Gdańsk and Szczecin under one umbrella (hereinafter referred to as the ‘consolidation plan’). The main role of KPS was to finance the shipyards production. Poland did not inform the Commission about the consolidation plan at any stage of the procedure, either prior to or after the decision to open the formal investigation procedure.

(102)

At the same time, the Commission learned from the press about ongoing talks on the sale of the shipyards in Gdynia and Gdańsk to strategic investors and on the separation of the two companies, which until that date had operated as part of the same group. The Commission asked the Polish Government by letter of 13 January 2006 to spell out what its strategy for Gdynia Shipyard actually was.

(103)

Poland explained by letter of 20 February 2006 that a consolidation plan had indeed been envisaged previously but that it had been discarded and a new restructuring strategy for the Polish shipbuilding sector would be adopted shortly.

(104)

At the meeting of 22 February 2006 and by letter of 13 March 2006 the Polish authorities informed the Commission that the 2004 restructuring plan was outdated and had to be amended. The Polish authorities undertook to submit the amended restructuring plan by June 2006. The Polish authorities also presented the main features of the new restructuring strategy for the Polish shipbuilding sector. First, Gdańsk Shipyard was to be separated from the Gdynia Shipyard Group as soon as possible. Second, the Government was to allow an injection of private capital into the Gdańsk and Gdynia shipyards with the long-term objective of fully privatising the yards.

(105)

The General Assembly of Gdynia Shipyard of 19 April 2006 decided on a capital increase of up to PLN 300 million. The management board was mandated to search for investors interested in participating. Accordingly, the information memorandum of May 2006 was made available as of 10 May 2006 to potential investors, and some 80 such investors were directly approached by Gdynia Shipyard’s privatisation consultant. Gdynia Shipyard received two preliminary offers to participate in the capital increase, from the Ukrainian steelmaker Donbas and the yard’s major customer Ray Car Carriers. These two companies eventually submitted binding offers on 28 August 2006 which were, however, conditional on debt coverage and cancellation by the seller — the State. According to the timetable announced by Poland (letter of 26 September 2006), the negotiations with the two bidders were to be completed by end-October 2006 and the subscription of new shares was to be finalised by 15 December 2006.

(106)

The Commission received the first draft of the 2006 restructuring plan on 9 June 2006. Having visited the yard and received the opinion of an external consultant, the Commission expressed serious concerns about this draft during the on-site visit on 13 June 2006 and in writing on 17 July, pointing out that the restructuring plan did not appear to be sufficiently far-reaching to restore the yard to long-term viability, that no provision had been made to finance restructuring, that there was no real prospect of financing restructuring from resources free of State aid and, lastly, that no countervailing measures had been proposed. Referring to continuous reliance on ship financing guarantees provided by the Export Credit Insurance Corporation, a Government agency, the Commission warned the yard and the Polish authorities that these guarantees constituted State aid.

(107)

Despite these warnings, the 2006 restructuring plan eventually submitted by Poland in September 2006, with a 2-month delay, did not differ substantially from the first draft. The Commission’s main criticisms of the 2006 restructuring plan are described below.

(108)

At a meeting on 7 December 2006 and by letter of 29 January 2007, the Commission indicated to the Polish authorities that a preliminary examination had concluded that the 2006 restructuring plan did not comply with any of the conditions for the approval of restructuring aid under the current guidelines.

(109)

The Polish authorities announced at that meeting that they intended to re-launch the privatisation of Gdynia Shipyard by way of an open and transparent procedure with a view to attracting a private investor who would take full control over the yard. Poland indicated that the privatisation process was to be finalised by June 2007. Pending preparation of the privatisation documents, Poland asked the Commission to issue a statement on the necessary countervailing measures for Gdynia Shipyard so that potential investors could be provided with the correct information.

(110)

In the following months, Gdynia Shipyard continued talks with the two investors, Donbas and Ray Car Carriers, who presented their bids in August 2006. At the same time, the Government prepared various privatisation documents with a view to relaunching the privatisation process in the event of the ongoing negotiations failing. In May 2007 the Polish Government announced that the negotiations had failed and that the privatisation process would be relaunched. By letter dated 22 June 2007 Poland submitted a new timetable for the privatisation process, indicating December 2007 as the tentative deadline for its completion, i.e. half a year after the initial deadline which Poland had signed up to in January 2007. By letter of 31 July 2007 the Commission indicated that the privatisation process could not be delayed any longer. The Commission also warned Poland that, at that point, the conditions that the yard’s long-term viability had to be restored and restructuring had to be financed at least in part from resources free of State aid did not appear to have been met.

(111)

At the same time, following an agreement reached between Commissioner Kroes and Minister Woźniak in December 2006, the Commission was engaged in intensive discussions with the Polish authorities and Gdynia Shipyard with a view to determining the necessary countervailing measures. By letter of 28 February 2007 Poland undertook to close the SD I dock in Gdynia Shipyard after outstanding orders had been processed and the necessary investments in the SD II dry dock had been completed, i.e. as of January 2010.

(112)

In order to check whether this proposal constituted a genuine countervailing measure, the Commission asked Gdynia Shipyard to provide it with information on a number of matters. Eventually the Commission informed Poland by letter of 31 July 2007 that it was prepared, on a preliminary basis, to consider the closure of dry dock SD I as a sufficient countervailing measure on condition that the closure entailed scrapping the facility in such a way as to irreversibly disable ship assembly and launching activities and that closure was implemented as of 1 September 2009, or earlier if vessel 8185/04, the last one on the yard’s order book as at 8 March 2007, were launched prior to that date. In addition, in 2009, dock SD I could only be used to assemble the two vessels currently scheduled for assembly on that dock in 2009 and which could not be transferred to dock SD II (LPG carriers 8185/03 and 8185/04). The basis for the Commission’s conclusion is described below.

(113)

The new privatisation procedure based on the Privatisation Act of 30 August 1996 commenced in July 2007. On 5 July 2007 the General Assembly of Gdynia Shipyard adopted a resolution on a capital increase of PLN 515 million, with the shares to be subscribed by the Treasury if the privatisation was completed successfully. An information memorandum was prepared, dated 4 July 2007. It was made available to potential investors as of 10 July 2007, i.e. on the date of publication in the international and Polish press of the invitation to tender. As described in the procedure above, the Commission transmitted comments on the information memorandum of which Poland took due account.

(114)

Noting further delays in the privatisation process, the Commission urged Poland by letter of 3 October 2007 to complete privatisation without delay. By letter of 23 October 2007 Poland informed the Commission that privatisation would not be completed as planned, i.e. by end-2007. Instead Poland undertook to commence negotiations with selected investors as of January 2008. The Commission reiterated its concerns with regard to the delays by letter dated 30 November 2008 and indicated that it expected the new owner of Gdynia Shipyard to submit the first draft of a new restructuring plan by end-February 2008. This request was subsequently repeated by the Commission on numerous occasions. The Commission frequently insisted on strict adherence to the privatisation schedule, stating that there did not appear to be any justification for Poland to restart the privatisation process.

(115)

Poland informed the Commission that 11 companies had asked for Gdynia Shipyard’s information memorandum and that four companies had submitted initial offers by the deadline of 1 October 2007. The four companies were accepted for a due diligence examination. Eventually, three binding offers were submitted by the deadline of 20 December 2007. At end-January 2008, Poland decided to enter into negotiations with two of these investors. In mid-February 2008, Poland announced that the privatisation process of Gdynia Shipyard would be completed by summer 2008, i.e. 1 year later than initially promised by Poland in January 2007.

(116)

As of 20 March 2008, one of these investors, Amber Sp. z o.o. (hereinafter Amber), a subsidiary of Złomrex, a Polish steel trading company, was granted exclusive negotiating rights, which were subsequently extended several times, finally ending on 12 May 2008.

(117)

Poland forwarded a draft restructuring plan for Gdynia Shipyard prepared by Amber to the Commission on 29 February 2008 (17). Amber submitted updated financial projections by email dated 9 April 2008. The Commission provided verbal comments on this draft at a meeting with representatives of the Polish authorities, Amber and Gdynia Shipyard held in Warsaw on 10 April 2008, and written comments by letter of 21 April 2008.

(118)

At a meeting with the Polish authorities on 12 May 2008, Amber announced that it had withdrawn from the privatisation process of Gdynia Shipyard. Poland informed the Commission of this development on the same day. In the justification for its decision sent to the Treasury, Amber cited as the main reason for its withdrawal the fact that, after an in-depth due diligence examination of the shipyard’s situation, it had concluded that the yard would not become profitable even after restructuring measures, including significant investments, had been implemented.

(119)

On 15 May 2008 the Polish authorities decided to close the privatisation process in the form of a public invitation to negotiations with bidders whose offers had been admitted to the procedure started in 2007.

(120)

On 26 May 2008, Poland informed the Commission that the privatisation process had been relaunched. In subsequent daily reports, the Polish authorities informed the Commission of the actions they had taken to find a buyer for Gdynia Shipyard. Poland forwarded several letters to the Commission in which potential investors expressed an interest in being kept informed of the ongoing privatisation process and in receiving the information memorandum when available.

(121)

At the meeting of 10 June 2008 it emerged that the Polish authorities were conducting intensive talks with ISD Polska, the current owner of Gdańsk Shipyard, on the possible purchase of Gdynia Shipyard and a merger of the two yards. Poland proposed new countervailing measures and indicated that the new investor had requested additional State aid as a condition for taking part in the privatisation. Poland also informed the Commission that ISD Polska was preparing a joint restructuring plan for both yards to be submitted to the Commission by 26 June 2008, in line with the information injunction adopted by the Commission with regard to State aid case C 18/05 (18).

(122)

At the request of the Polish authorities, the Commission informed Poland and ISD Polska at the meeting of 10 June 2008 and again at the meeting of 13 June 2008 that certain framework conditions would have to be met if ISD Polska was to purchase Gdynia Shipyard with the intention of operating it jointly with the one in Gdańsk. These framework conditions were that ISD Polska would have to present a joint restructuring plan for both yards by 26 June 2008, contribute significantly to the restructuring costs and adopt meaningful countervailing measures in accordance with the relevant guidelines. The Commission stated that ISD Polska’s proposed contribution to restructuring costs was insufficient, bearing in mind the amount of State aid that the yard had received in the past and the additional aid that ISD Polska had applied for in connection with privatisation.

(123)

By letter of 6 June 2008, Poland informed the Commission that the Government had adopted a decision on 3 June 2008 to contribute capital of PLN 515 million to Gdynia Shipyard, partly to cover anticipated losses on existing shipbuilding contracts.

(124)

On 26 June 2008 the Commission received a draft restructuring plan dated June 2008 and prepared by ISD Polska entitled ‘Restructuring Plan of the New Gdańsk-Gdynia Shipyard’, presenting a joint restructuring strategy for the shipyards in Gdańsk and Gdynia (hereinafter the ‘joint restructuring plan (of ISD)’). The Commission also received a draft restructuring plan dated June 2008 and prepared by the Polish Shipbuilding Company entitled ‘Restructuring Plan of Gdynia Shipyard for 2008-2012’ (hereinafter ‘the Restructuring Plan of PSC’). A brief description of the two plans is set out below.

(125)

By letter of 14 July 2008 Poland informed the Commission that the privatisation of Gdynia Shipyard was continuing and requested additional time for potential investors to finalise the restructuring plan. Poland undertook to submit a definitive restructuring plan for Gdynia Shipyard by 12 September 2008 at the latest.

(126)

The Commission agreed to wait until a decision had been taken to submit a definitive restructuring plan.

(127)

On 12 September 2008, Poland submitted the final restructuring plan prepared by ISD Polska entitled ‘Restructuring Plan of the New Gdańsk-Gdynia Shipyard’ (hereinafter ‘the joint restructuring plan of 12 September’), which is essentially an updated version of the joint restructuring plan of 26 June 2008

5. 2006 RESTRUCTURING PLAN

(128)

According to the 2006 restructuring plan, the amendments to the 2004 restructuring plan were necessary because of a change in the macroeconomic climate, i.e. the appreciation in the zloty against the US dollar from PLN 4,1 to PLN 3,0 per USD and the rise in the steel price from USD 300/t to USD 700/t, which had adversely affected the shipyard’s economic situation, coupled with insufficient State aid, as a result of which the 2004 restructuring plan could not be implemented in full.

(129)

The 2006 restructuring plan drawn up by the yard with the support of Ernst & Young covers the period from 2006 to 2012. However, most of the measures are to be implemented by end-2009. The 2004 restructuring plan covered the period from 2003 to 2008.

(130)

The objectives of the 2006 restructuring plan are to effectively limit operating costs, improve efficiency in the shipyard and ensure that shipbuilding is profitable. To that end, the shipyard first intended to renegotiate existing contracts, thereby eliminating anticipated losses on ships scheduled for completion in 2006 and 2007. In addition, a cost reduction programme would aim to lower production costs.

(a) Sales strategy

(131)

The planned sales strategy was to concentrate on standard vessels, which comprised container vessels and car carriers. The shipyard also planned to maintain capacity for niche markets if profitable offers arose.

(b) Industrial and operational restructuring

(132)

The main measures are:

—

An increase in efficiency through investments of EUR 61 million over the period 2007-2009. The investments are designed to eliminate bottlenecks in the production process (particularly in the pre-fabrication of steel) and increase efficiency. IT investments worth EUR 6,6 million are also planned;

—

Employment restructuring, i.e. elimination of increasingly commonplace fixed-term employment contracts and measures designed to achieve target employment levels. Introduction of an incentive scheme. The shipyard also plans to increase the wages of workers directly involved in production by 10 % in 2006 and by 4 % p.a. from 2008 to 2010. High absenteeism and a lack of qualified workers are currently the main problems facing the yard;

—

The plan underlined the importance of protecting the yard against the currency risk. To that end; 70 % of the yard’s revenue is to be hedged against the currency risk from 2007 to 2012 by way of foreign exchange transactions;

—

There will be further spin-offs of subsidiaries (such as Zakładowa Służba Ratownicza, Wydział Technicznej Obsługi Urządzeń Dźwignicowych etc.) and asset sales;

—

Improvements to the design process (standardisation of design solutions). This also includes an option to spin-off the Design Office which was to be decided in 2007;

—

Other measures such as contract renegotiation, application of indexation clauses in contracts to hedge against currency risks, employee incentive scheme, process optimisation and financial asset sales.

(c) Financial restructuring measures

(133)

The shipyard should carry out financial restructuring. At end-2005 equity amounted to – PLN 285,4 million. It was planned to improve the yard’s equity situation in 2006-2007 by way of a capital injection of PLN 1 015 million in total: a capital increase of PLN 500 million in 2006 was to be financed by private investors and a capital increase of PLN 515 million in 2007 by a private or public investor.

(d) Target figures at the end of restructuring — restoration of long-term viability

(134)

At the end of the restructuring period in 2009 the shipyard’s production is expected to be 298 610 CGT, against 279 258 CGT in 2006. The number of ships built will be reduced from 13 in 2006 (8 container ships and 5 car carriers) to 11 (5 container ships and 6 car carriers). Production is expected to increase further to 324 110 CGT in 2012 (12 vessels).

(135)

Average employment is to be reduced from 5 208 in May 2006 to a target level of 4 530 at end-2007.

(136)

Productivity (work consumption ratio) is expected to improve from 44,8 man-hours/CGT in 2007 to 37,0 man-hours/CGT in 2012. According to the Commission’s consultant, the productivity of the most efficient comparable yards in Europe is below 20 man-hours/CGT.

(137)

Turnover is expected to increase from PLN 1,599 million in 2005 to PLN 1,869 in 2012. Operating profit is expected to improve from PLN 7,35 million in 2005 and PLN 233,5 million in 2006 to PLN 67,68 million in 2012, the first profitable year being 2009.

(e) Sensitivity analysis

(138)

The plan includes a sensitivity analysis on the following issues:

—

Appreciation in the PLN against the USD by PLN 0,05 and 0,1 annually as opposed to a constant exchange rate of PLN/USD 3,00 as in the baseline scenario;

—

Maintaining ship production at the level of 10 ships in 2009-2010, whereas in the baseline scenario 11 ships are to be produced in 2009-2010 and 12 in 2011-2012;

—

Faster growth in various settlement rates (remuneration for work and rates for variable and invariable cooperation) in 2008-2012 than in the baseline scenario;

—

Fall in prices for ships of 5 % and 10 % in 2009-2012;

—

Increase in prices for materials combined with an increase in prices for ships from 2007 onwards.

(f) Countervailing measures

(139)

The 2006 restructuring plan proposed limiting output to 340 000 CGT per annum as a compensatory measure, assuming that the technical capacity of the yard was 540 000 CGT. As explained in detail below, in February 2007 Poland proposed the irreversible closure of dry dock SD I. The yard provided data demonstrating that current technical capacity is well below 540 000 CGT. Eventually the Commission gave its preliminary agreement to the proposed capacity reduction, which replaced the compensatory measures indicated in the 2006 restructuring plan.

6. JOINT RESTRUCTURING PLAN PREPARED BY ISD

(140)

ISD Polska, as the majority owner of Gdańsk Shipyard, entered the privatisation process after the withdrawal of Amber from the privatisation round launched in 2007. As indicated above, ISD Polska reviewed the restructuring plan it submitted to the Commission on 26 June 2008, submitting an updated version on 12 September 2008. The following description, where applicable, explains the amendments made in the September joint restructuring plan.

(141)

The rationale for the joint business strategy prepared by ISD Polska is that synergies between the two yards should be utilised and the best production assets in both facilities should be joined (19). The main storage facilities for materials will be situated in Gdynia Shipyard, where the pre-fabrication of plates and profiles will also take place. Plates and profiles will then be transported by water to Gdańsk Shipyard, where sections and blocks will be produced. Assembly will be carried out on the docks at Gdynia Shipyard and final outfitting will take place at quays in both yards.

(142)

The joint restructuring plan refers to the failure of the 2006 restructuring plan to restore the yard’s viability and identifies the causes for the current financial difficulties of both shipyards. These include in particular the failure to privatise the yard and the related failure to raise the yard’s capital to levels permitting restructuring, and the fact that the yard did not receive sufficient amounts of State aid. The joint restructuring plan also identifies macroeconomic factors such as the appreciation of the Polish zloty against the US dollar, rising steel prices and internal factors such as the outflow of qualified workers from the yard, low productivity and the conclusion of contracts without the necessary hedging against changes in the exchange rate and cost of materials, resulting in losses to the shipyard.

(143)

The purpose of the joint restructuring plan is to return the two restructured companies, Gdynia and Gdańsk Shipyards, to viability: Although the present decision concerns Gdynia Shipyard alone, the following description and assessment of the joint restructuring plan must naturally also take into account the existence of Gdańsk Shipyard, its past restructuring efforts and the State aid it has received and will receive in future.

(a) Sales strategy

(144)

According to the joint restructuring plan, the merged shipyards should engage in two activities: shipbuilding and non-shipbuilding.

(145)

As regards the shipbuilding business, in the short term ISD Polska will target market segments such as container ships (small to medium-sized, 500–3 000 TEU), general cargo vessels (‘classic’ vessels for the transportation of dry cargo, multipurpose vessels and heavy lift) and car carriers (large pure car carriers, size C6600) and will also develop activities in the off-shore vessels segment (e.g. anchor-handling towing supply vessels, platform supply vessels, crew boats), which should become dominant in the medium-term.

(146)

The market analysis is based on a comparison with the production of other European shipyards and the experience of the merged shipyards. The plan recognised that the requisite know-how for the production of off-shore vessels would have to be developed and that production would be carried out with sub-contractors in the first few years. The joint restructuring plan of September describes Gdańsk Shipyard’s previous experience in constructing hulls of off-shore vessels and explains that the yard has vessels of this type on its order book. The plan also showed that Gdańsk Shipyard had recently signed a letter of intent for 5-year cooperation with a renowned builder of off-shore vessels which would subcontract hulls with an increasing level of complexity to Gdańsk Shipyard. The plan envisaged a gradual move from this subcontractor work to building fully equipped off-shore vessels and recognised the need to gradually acquire the capacity to build fully equipped ships and create a network of suppliers.

(147)

The planned production portfolio assumes that production of container ships is initially maintained but gradually marginalised until 2011 and then discontinued. The plan then envisages a portfolio comprising off-shore vessels and large C6600 car carriers. Under the joint restructuring plan, after June the merged yards were to conclude contracts for 13 vessels in 2008 (3 container vessels, 5 off-shore vessels and 5 car carriers), 16 vessels in 2009 (2 container vessels, 8 off-shore vessels and 6 car carriers), 15 vessels in 2010 and 2011 (1 container vessel, 7 off-shore vessels and 7 car carriers), 17 vessels in 2012 (10 off-shore vessels and 7 car carriers) and 18 vessels in 2013 and 2014 (14 off-shore vessels and 4 car carriers). The production plan was amended in the Joint Plan of September: between 2009 and 2011 12-13 vessels should be built per annum (5-7 car carriers and 6 off-shore vessels; there are no container vessels on the order book after 2008).

(148)

As for the non-shipbuilding business, ISD Polska intends to start production of windmills and steel structures in the merged shipyards. The plan envisages that windmill production will start in 2011 (75 items), rising to 350 as of 2014 (planned length 80 metres).

(149)

The July plan envisaged the production of various steel structures (e.g. jibs, storage structures, steel structures for the building industry, and parts of vessels), rising from 2 174 tons in 2008 to 13 500 tons as of 2011 (20).

(150)

The September restructuring plan provides details of the know-how of ISD Polska (or other Donbas Group companies) in the area of steel structures. It is planned to move some production from Huta Częstochowa to the merged yards. The plan summarises the results of a market study by an independent consultant (Roland Berger) undertaken in preparation for the development of the steel structures segment at Gdańsk Shipyard after ISD Polska acquired its holding at the beginning of 2007. According to the plan, this study forecasts growth in the steel structures segment in Europe and Poland in particular (e.g. development of infrastructure with the help of the Structural Funds). This study has not been submitted to the Commission.

(151)

The September plan contains different forecasts for the volume of production of steel structures, as shown in the following Table 1a.

Table 1a

Planned production of steel structures in tons (joint restructuring plan of September 2008)

Products

2008

2009

2010

2011

2012

2013

2014

Jibs

274

2 000

2 000

2 000

2 000

2 000

2 000

Lifts

0

1 100

1 500

1 500

1 500

1 500

1 500

Storage structures

1 500

6 000

16 000

22 400

36 000

36 000

36 000

Steel structures for building

0

1 100

3 000

4 000

4 000

4 000

4 000

Parts of vessels

0

1 000

1 450

5 000

13 000

13 000

13 000

Total

1 774

11 200

23 950

34 900

56 500

56 500

56 500

(b) Industrial and operational restructuring

(152)

The joint restructuring plan indicates that the production assets of both yards have deteriorated significantly and are on the same level as those of European shipyards at the beginning of the 1990s. The planned investments amount to EUR 111 million for shipbuilding and PLN 193 million for non-shipbuilding (PLN 175 million for windmills and PLN 18 million for steel structures).

(153)

Investments in shipbuilding will be implemented in two overlapping stages between 2009 and 2011. The most important investments (21) are in plate cutting, flat panel production, a new pipe shop and a new volume section hall. These investments, together with organisational changes, should result in a productivity improvement from the current 45 man hours/CGT to the target of 20 man hours/CGT (22).

(154)

The main organisational needs concern: sales (contracts), purchases of materials and services, design capabilities, production, human resources and information technologies.

(155)

The Joint Restructuring Programme provides for the creation of a Planning Centre which would be responsible for planning production efficiently on all organisational levels of the merged yards. The purpose of setting up this Centre is to iron out any shortcomings in planning, scheduling, budgeting and checking the production process.

(156)

As regards contracting, ISD Polska intends to introduce indexation clauses to protect the yard from increases in the prices of materials and wages by transferring the risk to the shipowner. The yard should also introduce a new model contract. Extracts from some existing shipbuilding contracts were attached to the September joint restructuring plan to demonstrate that the yard was able to negotiate indexation clauses to hedge against steel price fluctuations.

(157)

To protect itself from the risk of currency fluctuations, the yard intends to introduce the necessary infrastructure after identifying the costs and revenues generating the currency-related risk and defining permissible levels of exposure to that risk. The risk management system provided for in the joint restructuring plan is based on four main elements: taking this risk into account when determining the yard’s strategy (definition of risk tolerance and risk control), adjusting the organisational structure, using information technologies and adopting various methods to minimise risk (natural hedging, indexation clauses in contracts and purchases of financial products such as currency options and forwards). The September joint restructuring plan describes the proposed currency hedging policy in greater detail. It identifies three hedging instruments the yard should use; it quantifies the order book’s exposure to currency risks up to 2012 and it estimates the costs of these hedging instruments on that basis. In accordance with the plan, ISD Polska contacted a number of banks which, for the purpose of preparing hedging offers, asked it to submit an adequate hedging strategy. According to the plan, this strategy should be drawn up in the first 6 months of restructuring.

(158)

In the production area, the objective is to address the problem of inefficient logistics at Gdańsk Shipyard and bottlenecks at Gdynia Shipyard. The plan proposes a division of labour between the two facilities and a new material flow diagram.

(159)

As regards purchases and management of materials, the main objective is to cut costs. The restructuring measures include, for example, purchasing materials on the basis of at least three bids, cooperation on purchases with Huta Częstochowa, stock management, etc.

(160)

The yard plans to employ and train qualified workers and to extend the use of and modernise existing information technologies.

(161)

In the employment field, the objective is to cope with high rotation and absenteeism. ISD Polska plans to cooperate with a local recruitment agency. Internally, the plan envisages expanding carrier development systems, introducing incentive-related pay (overtime management, employee evaluation, checks on absenteeism and pay based on work performed, timeliness and quality of implementation) and developing corporate identity. The plan invokes the need to reduce employment from the current workforce of 8 137 employees (2 651 at Gdańsk Shipyard, 4 238 at Gdynia Shipyard and 1 248 in Gdynia subsidiaries) to between 5 000 and 5 395 employees. According to the September joint restructuring plan, redundancies will take place gradually from 2009 to 2012. The updated plan includes a calculation of the costs and effects of employment restructuring.

(162)

Finally, as regards design activities, the plan provides for the work of the Design Office to be rationalised and more closely linked to the production process.

(163)

The plan contains a brief, general description of the desired effects of these organisational restructuring measures, which it quantifies with the assertion that the resultant improvement in productivity will be about 12 man hours/CGT (23).

(c) Financial restructuring

(164)

As regards financial restructuring, the plan envisages that the State aid of which the Commission was notified in the course of its formal investigation (see part 9 below) will be implemented It also envisages a capital injection by the State of PLN 385 million to cover public-law liabilities and anticipates that some public-law liabilities (in particular monies owed to ZUS relating to social security) will be made payable in instalments and repaid by 2018 (public-law liabilities with a nominal value of PLN 418,8 million), (24) that the State will inject capital of PLN 250 million to cover expected losses for 2008 and, via the Industrial Development Agency, a further PLN 200 million to finance working capital and, lastly, that it will take over a potential liability of PLN 308 million related to ongoing litigation concerning Gdańsk Shipyard’s tax arrears.

(165)

The plan provides for some PLN 712 million of restructuring costs to be financed from the company’s future cash flows.

(d) Costs of restructuring and own contribution

(166)

The joint restructuring plan quantifies the restructuring costs incurred by Gdynia Shipyard to date at PLN 936 702 419, including investment costs of PLN 98 million and debt restructuring of PLN 365 million (25). According to the joint restructuring plan, restructuring at Gdańsk has cost PLN 311 533 500, including e.g. investment costs of PLN 23 million and debt restructuring of PLN 48 million (26). The September joint restructuring plan does not amend costs incurred in the past, but it does amend the restructuring cost forecast for the merged yards. The following costs can be identified: investment costs of PLN 552 million, repayment of public-law arrears of PLN 892 million, (27) repayment of commercial arrears of PLN 889 million, coverage of expected losses for 2008 of PLN 250 million, (28) repayment of potential liabilities of PLN 308 million in connection with ongoing litigation concerning the outstanding tax arrears of Gdańsk Shipyard, costs of demolishing redundant production assets (slipways) of PLN 42,8 million and costs of employment restructuring of PLN 69 million. In total, the expected costs are PLN 3 billion.

(167)

At the meeting on 30 September the Polish authorities proposed disregarding de facto operating aid granted to the yards in the past when assessing the own contribution to cover restructuring costs. The Polish authorities proposed that in its assessment the Commission should consider the restructuring costs incurred as of the time when the investor took control over the yard. ISD Polska became the majority shareholder in Gdańsk Shipyard on 28 November 2008 and the Polish authorities claim that the restructuring costs incurred at the yard since then amount to PLN 62,5 million. Given that ISD Polska does not yet have a shareholding in Gdynia Shipyard, any restructuring costs incurred for that yard in the past should be disregarded. As a result, the restructuring costs as proposed by Poland at the meeting on 30 September would amount to PLN 3,065 billion.

(168)

ISD Polska maintains that the own contribution of the yard and its shareholders to restructuring costs is as described in the following Table 1b, reflecting the proposals put forward in the September joint restructuring plan.

Table 1b

Own contribution to restructuring costs according to the joint restructuring plan

(PLN)

Alleged previous own contribution

1.

Sale of assets by Gdynia Shipyard

3 783 515

2.

Debt-for-equity swap undertaken by employees and private creditors

70 740 000

3.

Sale of financial assets by Gdynia Shipyard between 1 May 2004 and 24 June 2008

72 797 423

4.

Lease of production assets — Gdynia

8 335 000

5.

Investment expenditure 2004-2007 — Gdynia

98 044 000

6.

Purchase of shares by ISD

35 875 059

7.

Investment expenditure 2004-2007 — Gdańsk

22 238 900

8.

Lease of production assets — Gdańsk

14 700 000

9.

Restructuring loan from Bank Nord/LB

20 000 000

10.

Loan from ISD

2 000 000

Alleged future own contribution

11.

Capital increase by ISD

305 000 000

12.

Capital increase by ISD

100 000 000

13.

Sale of assets

240 000 000

14.

Working capital loan

280 000 000

15.

Investment loan for non-shipbuilding production

185 000 000

16.

Working capital loan for non-shipbuilding production

45 000 000

17.

Purchase of shares from the Industrial Development Agency (29)

69 560 400

(169)

According to the explanations on the joint restructuring plan provided by Poland on 7 July 2008 and the September joint restructuring plan, the external financing sources listed under items 14-16 are not known at present.

(170)

ISD Polska envisages obtaining a working capital loan of PLN 280 million in 2012 and deems this assumption realistic in view of the allegedly favourable debt/EBIDTA ratio anticipated in 2012.

(171)

With regard to loans for non-shipbuilding production (production of windmills, items 15-16), ISD Polska intends to create a special-purpose subsidiary of the merged shipyards to conduct windmill production, and it expects this business to attract external capital. The September joint restructuring plan provided additional information on the investment loan for the windmill project (item 15). It includes a summary of the windmill project that was to be submitted to various banks for consideration. Two letters of interest referring to this project, from Kredyt Bank (KBC) and Fortis Bank dated 4 August and 4 September 2008 respectively, were attached to the restructuring plan. Fortis Bank claims that it is widely known to be interested in renewable energy projects. It states that ISD’s windmill project seems to be very interesting and that it would welcome further talks on specific issues. Kredyt Bank confirms that it is interested in financing renewable energy projects. The bank lists the analyses which will have to be carried out before it considers a loan application: an evaluation of the business plan and the financial model based on real assumptions which reflect market laws, an evaluation of the project’s profitability and its sensitivity to factors such as prices of materials and the exchange rate, an evaluation of existing supply contracts and the outcome of the ongoing administrative proceedings concerning the legal status of the land on which the project is to be carried out.

(172)

By letter of 8 July 2008 Poland provided a list of financial and production assets that ISD Polska intended to sell off in order to raise revenue of PLN 189 million. The September joint restructuring plan corrects the figure to PLN 240 million, the main difference lying in the evaluation of the main component of these divestitures — the sale of the land occupied at present by three slipways at Gdańsk Shipyard. Whereas the June restructuring plan indicated the estimated net revenue from the sale (sales price minus cost of preparing the land for sale), the September plan indicates the nominal value of revenue from the sale and includes land preparation costs in its estimate of restructuring costs. An independent valuation of the land was attached to the September plan. This valuation does not indicate the current market price of the land, but estimates its value to an investor purchasing it for development purposes (apartments, office buildings).

(173)

Poland explained that the slipways at Gdańsk Shipyard and the land adjoining them is currently owned by a company called Synergia 99. Gdynia Shipyard is one of Synergia’s shareholders and, under a shareholder agreement, is entitled to acquire the slipways and the land adjoining them if Synergia is wound up. According to the information provided by Poland, the division of Synergia’s assets between its shareholders depends on progress with ongoing administrative proceedings to establish the boundaries of the port of Gdańsk.

(174)

The September joint restructuring plan explains that the ongoing administrative proceedings do not concern the plot adjoining the slipways and includes confirmation by Synergia 99 dated 28 August 2008 that it will lodge an application with the competent authorities to exclude the land on which the slipways are located from the port area.

(175)

The September plan also clarified the arrangements for winding up Synergia 99 as agreed by its shareholders. This will take place in two stages: first, Synergia 99 will be divided in two companies, which will each take over earmarked assets from Synergia 99, and second, Gdynia Shipyard will become the sole owner of the company which had acquired the land on which the slipways are located. According to the plan, the first phase of the winding-up process should take place at a meeting of Synergia shareholders on 15 October 2008. The planned division is, however, conditional on changes being made to the port’s boundaries. The shareholder agreement on the arrangements for winding up Synergia 99 is limited in time.

(176)

According to Gdynia Shipyard’s balance sheet, the yard’s holding in Synergia 99 amounts to PLN 40 million. According to the September joint restructuring plan (30), in August 2007 the Board of Synergia 99 confirmed, with a view to concluding a shareholder agreement on the division of Synergia’s assets in the event of its being wound up, that the nominal value of Synergia 99’s assets was PLN […] (31) million, which, according to the Board, reflected their market value. An independent expertise forwarded by the Board to the shareholders at the time confirmed that the market value of the land on which the slipways are located was PLN […] million.

(e) Financial projections

(177)

The September joint restructuring plan contains amended financial projections. These are based on certain assumptions as to inflation (WIBOR 3m), the USD/PLN exchange rate and the cost of materials, which in turn are based on estimates by external experts. The PLN/USD exchange rate adopted in June was 2,254 for 2008 and 2,32 for 2009, while the September plan, on the basis of an external report (32), adopted a PLN/USD exchange rate of 2,32 for the whole restructuring period. The steel price adopted in June for 2008 was USD 1 381/t, declining to USD 1 211/t for 2011 and rising again to USD 1 359/t for 2014. The September plan is based on higher steel prices (USD 1 539/t in 2009, USD 1 350/t in 2011 and USD 1 516/t in 2014). The June joint restructuring plan anticipated the following growth trends in wages: 7,6 % in 2009, 7 % in 2010, 6 % in 2011 and around 5 % after 2012. The September plan forecasts a lower rate of increase: 5,8 % in 2009, 5 % in 2010, 4 % in 2011 and 2012 and 3 % p.a. after 2012 (33). The June restructuring plan forecast inflation of around 2,2 %. The September plan forecasts higher inflation, starting at 3,4 % in 2009 (34) and gradually decreasing (to 2,5-2,6 % after 2012) (35).

(178)

The main change in financial projections in the September plan compared with the June plan concerns revenue from sales of vessels and from non-shipbuilding activities. In particular the September plan forecasts substantially higher prices for car carriers, one of the two main products, a changed assumption which heavily influences the profit and loss account forecasts.

(179)

The forecast for the consolidated profit and loss account for shipbuilding and non-shipbuilding activities in the September plan shows positive profit margins as of 2009: (4,1 % in 2009, 3,1 % in 2010, 7,4 % in 2011 and 6,4 % at the end of the restructuring period in 2012). Profit margins will decrease to 4,3 % in 2014 (downturn on the market) and then gradually increase to 7,7 % in 2017.

(180)

The June joint restructuring plan included a short version of a sensitivity analysis which examined the effects of certain changes in the main underlying assumptions on the 10-year EBIDTA and 10-year accumulated profits. In particular, it analyses the effects of a further appreciation of 5 groszy in the PLN and a further 5 % increase in steel prices and wages. The September joint restructuring plan includes a new and more detailed sensitivity analysis, showing, in particular, the impact of a 5 % appreciation in the PLN against the USD. The September joint restructuring plan assumes that Poland will adopt the euro in 2013 and that thereafter the yard’s operations will not be affected by fluctuations in the PLN/USD exchange rate. The new sensitivity analysis shows the impact of a 5 % depreciation in the USD against the euro in 2013-2017 (i.e. after Poland presumably adopts the euro).

(181)

According to the financial projections in the June plan, non-discounted payback (disregarding the changing value of money over time) will not be achieved until the 11th year of operations, i.e. in 2019. This calculation took into account only the investor’s financial exposure (PLN 440 million), which means that accumulated cash flows for the period under review are compared only with capital injections by the investor and disregard the fact that the state is expected to make a substantial capital injection first. The plan assumes that restructuring costs of PLN 712 million approx. will be financed from the company’s future cash flows.

(182)

The September joint restructuring plan contains a discounted calculation of the payback period, which amounts to 10 years. The plan also assumes that a large part of the restructuring costs (PLN 712 million) (36) will be covered by future cash flows.

7. RESTRUCTURING PLAN OF PSC

(183)

PSC was set up in Poland in 2007 for the purpose of acquiring Gdynia Shipyard. It belongs to two companies, Marine Co and Maritim Shipyard, controlled by Polish businessman Mr Janusz Baran. The two companies have operated since the 1990s in Gdynia, Gdańsk and Szczecin, producing ships and boats and working as a subcontractor for larger shipyards, mainly in Germany, Norway, the Netherlands and France, building blocks and sections and providing services. The group as a whole employs 1 500 people.

(a) Sales strategy

(184)

As regards market strategy, the plan assumes that the company will concentrate on container vessels, car carriers and gas tankers and that up to 10 platform supply vessels will be produced per annum. It is also assumed that in future the yard will produce 12 vessels per annum, this being the yard’s capacity after the closure of the small dock. The section on future production assumes that an increasing number of vessels will be produced (rising from 6 in 2008 to 12 in 2009, 17 in 2010 and 21 in 2012). The financial model as submitted, on the basis of which the financial projections were apparently prepared, also assumes that output will increase to 21 vessels in 2012.

(185)

In addition, the plan envisages diversifying activities and setting up a container terminal within the current area of the yard. According to the plan, following the capacity reduction the yard would have a redundant coastal strip on which a container terminal with capacity of 150 000 TEU p.a. could be built.

(b) Industrial and operational restructuring

(186)

The main restructuring measures proposed are industrial restructuring by implementing an investment programme designed to increase productivity, cut costs and shorten the production cycle. The estimated cost of the shipbuilding investment programme is EUR 80 625 000. Provision has also been made for investments of PLN 50 million (about EUR 15 million) for the development of a container terminal. This would mean total investment costs of EUR 95,6 million. However, another part of the restructuring plan estimates total investments at EUR 131 million (PLN 443 million). The difference between the two figures is not explained in the plan. According to the plan, implementation of these measures should cut costs per vessel by 25 % over the 5-year period.

(187)

The plan also envisages the implementation of an integrated IT system managing all the areas of the yard’s activity, i.e. design, supplies, stocks, steel processing, planning, production supervision and accounting.

(188)

The plan envisages either maintaining the current workforce or reducing it by 650. It is not clear which factors would influence the choice of either of the two options. The plan envisages implementing an incentive-based pay system.

(189)

As regards one of the yard’s main problems, i.e. exposure to exchange-rate fluctuations and rising steel prices, the plan proposes incorporating indexation clauses into contracts and natural hedging (incurring costs in the currency of revenue).

(190)

The plan also assumes that ship financing will be ensured by way of advance payments guaranteed by the Export Credit Insurance Corporation at an advantageous premium compared with its normal practice for healthy companies, and bridging loans guaranteed by the Treasury.

(c) Financial restructuring

(191)

As regards financial restructuring, the plan assumes that existing contracts will be renegotiated to reduce anticipated losses. According to the plan, restructuring should increase prices by 30 % (to the level prevailing on the market) and generate additional revenue of USD 100 million.

(192)

Implementation of the plan is contingent on the State awarding additional aid in the form of a capital injection of PLN 515 million, cancelling and rescheduling public-law debt to a total amount of PLN 497 million and covering any other accumulated and potential liabilities of the yard (such as future losses on existing contracts or litigation). Lastly, the investor calls on the State to ensure that the Export Credit Insurance Corporation guarantees production during the restructuring period at an advantageous premium compared with its normal practice for healthy companies and that the Treasury provides guarantees for working capital to an amount of PLN 297 million.

(d) Own contribution

(193)

As regards own contribution, the plan provides for a capital injection by the investor of PLN 500 million to finance the investments and cover expected losses on existing contracts. The plan also suggests that the own contribution to the restructuring process also include revenue of PLN 50 million from the planned sale of assets and revenue from the sale of assets which took place after accession (PLN 124,5 million). It could be argued that this increases the own contribution to PLN 675 million. However, in the restructuring plan the investor declares an own contribution of only PLN 475 million.

(e) Financial projections

(194)

The financial projections are based on a stable currency exchange rate of PLN 3,46 per euro and PLN 2,2 per USD. The forecasts are based on an assumption that the number of vessels built will increase to 21 in 2012 and that the investor actually plans to expand shipbuilding at the yard: sales are expected to amount to PLN 1,2 billion in 2008 and it is assumed that they will increase constantly, reaching PLN 2,6 billion by 2012 (up 116 % on 2008).

8. COUNTERVAILING MEASURES

(195)

In cooperation with its external consultant and the yard, the Commission adopted the following methodology for evaluating the capacity reduction proposed as a countervailing measure by Poland.

(196)

For the countervailing measures to be effective, the capacity reduction must be sufficient to ensure that the yard’s future capacity after restructuring is lower than at present.

(197)

The Commission first assessed the yard’s current technical capacity and stated that the assembly of vessels at the docks was one of the bottlenecks in the yard’s production process which could not be easily resolved by outsourcing. Under the methodology used by the Commission, which is undisputed by the Polish authorities or the yard, capacity is calculated with reference to the duration of assembly time at the dock and a typical portfolio of vessels (since assembly of vessels with varying CGT values may take the same amount of time).

(198)

Current capacity takes into account the time actually needed for the assembly of a (certain type of) vessel at the docks. This time should reflect all the current shortcomings in the production process, i.e. low productivity, bottlenecks, obsolete assets, inefficient production flows, and problems with the workforce. The financial constraints affecting the yard as a result of its difficult financial situation are the only factor by which assembly time may be adjusted. Irregular or lack of access to working capital can seriously disrupt the production process. Since this is an external factor inherent to all companies in financial difficulty and not linked to inefficiency on the part of the company itself, the Commission took the view that the yard’s actual performance could be adjusted by assuming easy access to working capital.

(199)

Estimated future capacity takes into account the time probably needed for the assembly of a (certain type of) vessel at the dock, on the assumption that the yard’s productivity is comparable to a benchmark set by other competitive European shipyards. In other words, the effects of the necessary modernisation of the facilities and the introduction of optimal working conditions (organisation, supplies, workforce) should be taken into account.

(200)

Modernisation is unavoidable if the yard wishes to restore long-term viability. The related productivity increase will mean the yard reduces input and speeds up production. As various aspects of production improve, capacity, understood as the ability to build a certain number of vessels, will increase. It should therefore be noted that the closure of some facilities, such as the proposed closure of the SD I dry dock at Gdynia Shipyard, can be entirely offset by the increase in the capacity of the remaining dock. For the countervailing measures to serve their purpose, the capacity reduction must be such that the yard’s capacity at the end of restructuring, i.e. after investments and the increase in productivity, is lower than at present. Only in this way can the twin goals of long-term viability, which requires an increase in productivity, and limiting any distortion of competition to the minimum be reconciled.

(201)

To ensure that the calculation method for current and future capacity is consistent, the same product mix, i.e. the same types of vessels, should be used. Alternatively, an ‘average vessel’ (i.e. with average CGT on the basis of the yard’s order book) could be used.

(202)

At the outset, Gdynia Shipyard indicated that its technical capacity amounted to 540 000 CGT. After the above methodology had been clarified and agreed upon by the Commission and Gdynia Shipyard, the yard indicated that the technical assumptions for calculating its current capacity, in so far as it was free from financial constraints, were a docking cycle of 3 months with the parallel assembly of up to three vessels in various stages of completion (partial use of the semi-tandem method on the SD II large dock), resulting in the construction of up to 14 vessels per annum. The hypothetical portfolio was typical for the yard, which was confirmed by the existing order book and by the sales strategy presented in the 2006 restructuring plan. With an average CGT of 27 000 per vessel, current capacity without financial constraints was estimated at 378 000 CGT.

(203)

In order to examine the impact of existing financial constraints on the production process (i.e. by how many weeks/months the production cycle is extended as a result of delays in supplies purely because of a lack of working capital) and to assess whether the seriousness of such constraints is over- or underestimated, the Commission compared this figure with the best result in recent years (12 vessels with a total CGT of 272 000 in 2002). First, the Commission noted that the discrepancy between the best result in 2002 and current technical capacity was partly due to differences in the order books. The yard currently produced vessels with a higher CGT value. Had the yard produced vessels with an average CGT of 27 000 in 2002, its total output would have been 324 000 CGT. The remaining difference can be attributed to the impact of financial constraints on the production process and corresponds to about two vessels with an average CGT, i.e. 14 %, which the Commission regarded as a reasonable assumption.

(204)

As to its future capacity, assuming that both docks were utilised, the yard explained that the large SD II dock could be used for parallel building and for the semi-tandem building method, so that up to four hulls in various stages of completion could be built in parallel. In this way, the yard would be able to build 18 vessels, assuming a docking cycle of 3 months (37). Assuming an average CGT per vessel of 27 000, the yard’s future capacity with both docks would be 486 000 CGT. The yard’s future capacity after the closure of the small SD I dock would be 12 vessels or 324 000 CGT, assuming an average CGT per vessel of 27 000 CGT.

(205)

On the basis of these figures, the Commission found that capacity reduction after the closure of the small SD I dock would correspond to about 14 %. Taking into account that the yard would be left with only one launching facility, the SD II dry dock, and that it had demonstrated by means of a detailed, credible break-even analysis that any reduction in the capacity of the SD II dry dock, in addition to the closure of the SD I dock, would endanger the yard’s long-term viability, the Commission concluded on a preliminary basis that the closure of the SD I dock proposed by Poland would be a sufficient countervailing measure.

(206)

ISD Polska’s joint restructuring plan proposed an alternative set of countervailing measures in view of the business strategy adopted. The plan envisages the following countervailing measures in the context of the State aid investigation of Gdańsk Shipyard and Gdynia Shipyard: the closure of three slipways at Gdańsk Shipyard by 31 December 2008 in so far as it is possible to transfer existing production at Gdańsk Shipyard to the small dock at Gdynia in the light of the technical, organisational and legal obstacles. At the meeting on 8 July 2008 ISD Polska stated that it assumed that the work to fit out the small dry dock at Gdynia would not allow the slipways to be closed before the second half of 2009. The September joint restructuring plan proposes deferring the closure of two slipways until June 2009 and a third slipway until October 2009 (38). In addition, the yard’s capacity will be limited to 400 000 CGT per annum for 10 years as of Poland’s accession to the European Union, i.e. until 2014.

(207)

At the meeting on 30 September ISD Polska informed the Commission that, as an additional countervailing measure, it could further cut its production to 360 000 CGT per annum for a 10-year period as of the point at which the slipways closed. ISD Polska also indicated that it could close the slipways earlier than envisaged in the restructuring plan of 12 September, i.e. it could close slipways B3 and B5 by end-April 2009 and slipway B1 by end-August 2009.

(208)

PSC’s restructuring plan envisages the sale of the smaller dock at the beginning of 2009. The anticipated revenue of PLN 170 million should increase the yard’s working capital.

9. STATE AID GRANTED TO GDYNIA SHIPYARD (SITUATION IN JUNE 2008)

(209)

According to the Polish authorities, Gdynia Shipyard has received the State aid listed in Tables 1-4 since 1 May 2004.

(210)

Table 1 sets out the aid granted between 1 May 2004, the date of Poland’s accession to the EU, and 30 June 2007. Poland notified these measures by letter of 13 July 2007. The list includes some of the measures described in Annex I, part B of the decision to open a formal investigation.

(211)

Poland provided additional explanations with regard to the restructuring of liabilities under Chapter 5a. The Polish authorities explained that the yard transferred to the Operator (39) assets to the value of at least 45 % of the value of the transferred liabilities (40). According to Poland, the aid element is therefore equivalent to 55 % of the nominal value of the liabilities transferred to the Operator. This nominal value is set out in Table 1 below.

(212)

The loans benefiting from the Treasury guarantees listed in Table 1 were granted at an interest rate equal to LIBOR 1M + 100 basis points, whereas the risk of default when the guarantees were issued was estimated by the Polish authorities at 60-70 %. The Treasury guarantees were granted against collateral in the form of a blank promissory note issued by the yard and a notarial deed in which the yard agreed to the enforcement of its assets up to 120 % of the value of the guarantee. The Treasury charged a premium equivalent to 0,4 % of the guaranteed amount.

(213)

Table 1 also includes loans granted by Korporacja Polskie Stocznie (KPS) used to finance the yard’s working capital requirements. Poland claims in its submissions of 11 July 2007 and 9 January 2008 that these loans did not constitute State aid because the interest charged corresponded to the risk assessment of the particular project for which the loans were sought.

(214)

For the loans granted in 2005-2007, KPS charged interest ranging from 9,6 % to 13,46 %, with an average fixed interest rate of 10,64 %. It also charged a one-off fee ranging from 0,1 % to 0,4 %. According to the Polish authorities, KPS required collateral in the form of acceptance of enforcement, an agreement on cession of receivables, an unconditional payment order, a blank promissory note or asset pledges (41).

(215)

KPS was created in 2004 as a wholly-owned subsidiary of the Industrial Development Agency to operate as a risk capital fund for the Agency. Its initial role was to serve as a vehicle for the consolidation of the three largest shipyards in Poland, a project abandoned in 2006. According to the information provided by Poland in 2006 (42), KPS was to be financed by a capital injection from the Industrial Development Agency, by a contribution in kind (shares in third companies) provided by the Agency and by a revolving bank loan guaranteed by the Agency, which was specifically earmarked as financial aid for the shipyards. According to the Polish Government’s website, KPS was also to support shipbuilding operations in Poland by issuing bonds fully guaranteed by the Industrial Development Agency. Indeed, the document entitled ‘A strategy for the shipbuilding sector (maritime construction shipyards) in Poland 2006-2010’ (43) confirms that KPS should generate funds by issuing debt instruments to an amount of around USD 100 million, secured on the assets earmarked for restructuring the shipbuilding industry in the form of funds transferred by the Treasury to the Industrial Development Agency.

(216)

Table 2 indicates the measures which the Commission was informed of after 13 July 2007 by letters of 6 December 2007 and 12 February 2008: two loans from the Industrial Development Agency to finance working capital (wages and commercial liabilities). Table 2 also indicates a loan granted by KPS further to its decision No 02/11/2007, which the Commission was informed of by letter dated 9 January 2008 (44); however, the Commission does not have any detailed information on the amount and life of this loan. KPS charged interest of 10,5 % and a one-off fee of 0,1 %.

(217)

Considering the yard’s precarious financial situation, the Commission cannot exclude that further State aid of a similar nature has been granted to Gdynia Shipyard.

(218)

Table 3 lists Gdynia Shipyard’s outstanding public-law liabilities as per 30 September 2007. This information was provided by Poland on 9 January 2008. Poland confirmed in that letter that Gdynia Shipyard had not been settling its public-law liabilities regularly. The yard had been repaying its debts to the social security office (ZUS) in as far as possible in view of its financial situation when these liabilities fell due.

(219)

According to Annex 1 to the letter from Poland of 9 January 2008, the outstanding liabilities to the relevant public bodies as at 1 May 2004 amounted to PLN 254 million approx. Between 1 May 2005 and 30 September 2007, new liabilities of some PLN 362 million accrued. During that time Gdynia Shipyard actually repaid about PLN 194 million (45). As at 30 September 2007 the outstanding liabilities amounted to about PLN 423 million.

(220)

Gdynia Shipyard was planning to repay at least part of the outstanding liabilities from the proceeds of the capital injection by the Treasury of PLN 515 million, which was itself conditional on a capital injection from a private investor selected by way of the privatisation process described above.

(221)

Lastly, after Poland’s accession to the EU, Gdynia Shipyard received some aid that Poland deems to ‘have been granted for purposes other than restructuring’ (Table 4 below). This was State aid for R&D and training totalling PLN 412 000.

(222)

Gdynia Shipyard has also received aid in addition to the aid listed in Tables 1-4 below.

(223)

First, in its letter of 11 July 2007 (46), Poland notified a set of measures designated as ‘measures to be granted […] between 1 July 2007 and the end of the restructuring process’.

(224)

The Commission notes above all that these measures include a possible write-off of the interest accrued between 1 July 2003 and 15 March 2005 on public-law liabilities restructured under Chapter 5a of a total amount of PLN 6 905 304. According to Poland, whether this interest should be written off is the object of a dispute between Gdynia Shipyard and the competent Polish authorities in the national courts. Since this interest is ancillary to the main liabilities restructured under Chapter 5a and listed in Table 1 below, the Commission considers that cancellation of the interest also constitutes State aid up to the full amount (47) and is caught by this decision.

(225)

The Commission also notes that this table contains several measures consisting of a deferral of payment or write-off of public-law liabilities. It is not clear to what extent these measures overlap with the public-law liabilities listed in Annex 1 to the letter from Poland of 9 January 2008 (and summarised in Table 3 below).

(226)

Most importantly, Gdynia Shipyard benefited from production guarantees from the Export Credit Insurance Corporation (hereinafter referred to as ‘advance payment guarantees’ or as ‘Export Credit Insurance Corporation guarantees’). Virtually all shipbuilding from 1 May 2004 was financed thanks to these guarantees. In total, between 1 May 2004 and 12 June 2008 Gdynia Shipyard received 108 guarantees for a total value of PLN 3 095 529 638 for vessels built at Gdynia (not at Gdańsk Shipyard, which was previously a subsidiary of Gdynia Shipyard) (48). In its submission of 11 July 2007 Poland informed the Commission that the Export Credit Insurance Corporation would continue to issue guarantees to Gdynia Shipyard until end-2008.

(227)

A common feature of the industry is that shipyards typically are not able to raise sufficient working capital for the construction of vessels internally and rely on external financing, whether through borrowing (so-called production loans) or advance payments from shipowners to pre-finance production. Shipowners typically pay 80 % of the price upfront in instalments, coinciding with certain decisive stages of the vessel’s completion, the remaining 20 % being paid on delivery. Shipowners’ involvement in financing shipbuilding is therefore crucial. Export Credit Insurance Corporation guarantees were provided to Gdynia Shipyard to secure advance payments from shipowners against the risk of the shipyard defaulting on its obligation to deliver the vessel.

(228)

Various submissions by Poland on the operation of the Export Credit Insurance Corporation guarantee system (49) indicate that these guarantees were granted to Gdynia Shipyard in the following way. First, a contract was signed with the shipowner, which was typically conditional on the yard proving within a certain period of time that financing of production would be guaranteed by the Export Credit Insurance Corporation. The Export Credit Insurance Corporation issued a resolution undertaking to ensure financing of the ship as a whole by guaranteeing the advance payments. In subsequent individual agreements, the Export Credit Insurance Corporation activated the guarantee for each individual advance payment (typically four). Typically the Export Credit Insurance Corporation’s overall exposure to the risk of the shipyard defaulting on its obligation to deliver the vessel was 80 % of the purchase price, i.e. the total amount of the advance payments made by the shipowner prior to delivery. This overall exposure was known when the Export Credit Insurance Corporation issued the resolution securing the financing of the ship by the shipowner. The guarantee expired on delivery of the vessel.

(229)

The Export Credit Insurance Corporation’s operations are varied (50) and are essentially divided between commercial activities and activities effected on behalf of, and guaranteed by, the Treasury. A separate bank account in the name of ‘Interes Narodowy’ is kept for the purpose of the latter activities. The guarantees granted to Gdynia Shipyard are part of the business re-guaranteed by the Treasury.

(230)

According to the information provided by Poland, the Export Credit Insurance Corporation granted advance payment guarantees to Gdynia Shipyard against a fee depending on the amount of the guarantee. The fee amounts to 2 % per annum for guarantees not exceeding PLN 35 million and 1 % per annum for guarantees exceeding PLN 35 million. The Export Credit Insurance Corporation requires as collateral the transfer of ownership of the ship, the ship under construction and the construction materials. The same conditions should apply to Export Credit Insurance Corporation guarantees granted before the end of the restructuring period, i.e. before 2012.

(231)

Lastly, the Commission notes that on 3 June 2008 Poland adopted a decision to award Gdynia Shipyard an additional capital injection of PLN 515 million.

(232)

Table 1

State aid granted to Gdynia Shipyard between 1 May 2004 and 30 June 2007, according to the information provided by the Polish authorities

Item No

Awarding authority

Aid instrument

Legal basis

Number of decision or agreement

Date on which aid was granted

Entry into force

Period for which aid was granted

Nominal value of aid

(PLN)

1

2

3

4

5

6

7

8

9

1.

Treasury

Guarantee — vessel No 8276/1

Warranties and guarantees issued by the Treasury and some Legal Persons Act of 8 May 1997 (Journal of Laws 2003/174, item 1689, as amended)

Cabinet Decree No 198/2004 of 24.8.2004

24.8.2004

3.9.2004

Until 30.3.2006

75 000 000,00

2.

Treasury

Guarantee — vessel No 8276/2

Cabinet Decree No 198/2004 of 24.8.2004

24.8.2004

3.9.2004

Until 11.12.2006

75 000 000,00

3.

Treasury

Guarantee — vessels Nos 8245/1-4

Cabinet Decree No 213/2004 of 7.9.2004

7.9.2004

17.9.2004

Until 27.2.2007

82 531 200,00

4.

Treasury

Guarantee — vessels Nos 8148/11 and 8184/14-17

Cabinet Decree No 222/2004 of 21.9.2004

21.9.2004

1.10.2004

Until 15.1.2008

147 662 619,46

5.

Marshal of Pomerania Province

Write-off

Act of 30.10.2002

Decision No UPP/11/3/2005 of the Chairman of the Industrial Development Agency of 15.3.2005

4.1.2005

15.3.2005

Single write-off

600 568,04 (51)

6.

State Fund for Rehabilitation of Disabled Persons

Write-off

Decision No UPP/11/3/2005 of the Chairman of the Industrial Development Agency of 15.3.2005

4.1.2005

15.3.2005

Single write-off

5 331 071,54 (51)

7.

Pomerania Province

Write-off

Decision No UPP/11/3/2005 of the Chairman of the Industrial Development Agency of 15.3.2005

4.1.2005

15.3.2005

Single write-off

2 414 962,11 (51)

8.

ZUS

Write-off

Decision No UPP/11/3/2005 of the Chairman of the Industrial Development Agency of 15.3.2005

4.1.2005

15.3.2005

Single write-off

23 048 186,93 (51)

9.

Industrial Development Agency

Capital injection

Article 56, Privatisation Act (Journal of Laws 2002/171, item 1397, as amended)

Agreement (Notarial deed Rep. A No 3255/2005)

23.6.2005

27.6.2005

Single capital injection

40 000 000,00

10.

Association of municipalities

Arrangement of repayment in instalments

Act of 30.10.2002

No 200364/1/ZR —Restructuring agreement of 22.11.2004

22.11.2004

Monthly instalments paid from 31.12.2004 to 28.2.2006

Single transaction

419 543,25

11.

Treasury

Construction guarantee for vessels: 8184/21-25

Warranties and guarantees issued by the Treasury and some Legal Persons Act of 8 May 1997 (Journal of Laws 2003/174, item 1689, as amended)

Cabinet Decree No 93/2005

12.4.2005

12.9.2007

Until 31.12.2007

97 098 200,00

12.

KPS

loan

Activity of KPS according to the articles of association

Loan agreement No 1/2/2005

10.2.2005

10.2.2005

8.3.2005

7 500 000,00

13.

KPS

loan

Activity of KPS according to the articles of association

Loan agreement No 2/4/2005

12.4.2005

20.4.2005

5.5.2005

7 500 000,00

14.

KPS

loan

Activity of KPS according to the articles of association

Loan agreement No 4/9/2005

21.9.2005

31.10.2005

4.1.2006

14 500 000,00

15.

KPS

loan

Activity of KPS according to the articles of association

Loan agreement No 2/7/2006

24.7.2006

3.8.2006

29.11.2006

10 000 000,00

16.

KPS

loan

Activity of KPS according to the articles of association

Loan agreement No 1/4/2006

21.4.2006

26.4.2006

30.7.2007

4 000 000,00

17.

KPS

loan

Activity of KPS according to the articles of association

Loan agreement No 1/12/2006

5.12.2006

5.12.2006

7.2.2006

5 500 000,00

11.12.2006

2 300 000,00

18.

KPS

loan

Activity of KPS according to the articles of association

Loan agreement No 1/3/2007

20.3.2007

20.3.2007

20.9.2007

6 200 000,00

29.3.2007

2 000 000,00

23.4.2007

5 800 000,00

19.

ZUS

Arrangement of repayment in instalments

Application by the debtor

Formally not yet granted but being implemented in practice

In instalments until end-2008

In instalments until end-2008

34 272 360,17

Total

648 678 711,50

Table 2

Additional State aid granted to Gdynia Shipyard between 1 June 2007 and 15 July 2008, according to the information provided by the Polish authorities

No

Awarding authority

Aid instrument

Legal basis

Number of decision or agreement

Date on which aid was granted

Entry into force

Period for which aid was granted

Nominal value of aid

(PLN)

20.

Industrial Development Agency

Loan

Article 56, Privatisation Act (Journal of Laws 2002/171, item 1397, as amended)

Loan agreement No OPP/11/07

4.12.2007

in two instalments:

5.12.2007

4.1.2008

No later than 31.5.2008

40 000 000

21.

Industrial Development Agency

Loan

5.2.2008

54 000 000

22.

KPS

Loan

Activity of KPS according to the articles of association

Loan agreement No 2.11.2007

?

Table 3

Public-law liabilities outstanding as at 30 September 2007 according to the information provided by the Polish authorities

No

Awarding authority

Liabilities concerned

Amount outstanding as at 30 September 2007

(PLN)

23.

ZUS

Deferral of premiums, payment in instalments

May 2004 — September 2007

356 708 912

24.

State Fund for Rehabilitation of Disabled Persons

Deferral of premiums, payment in instalments

May 2004 — September 2007

12 192 821

25.

City of Gdańsk

Deferral of real estate tax, payment in instalments

May 2004 — September 2007

50 872 523

26.

City of Gdańsk

Deferral of land use fee, payment in instalments

2005-2007

2 859 684

27.

Marshal of Pomerania Province

Deferral of environmental fee, payment in instalments

May 2004 - September 2007

361 781

Total

422 995 722

Table 4

State aid to Gdynia Shipyard for purposes other than restructuring, according to the information provided by the Polish authorities

No

Awarding authority

Aid instrument

Purpose

Legal basis

Number of decision or agreement

Date on which aid was granted

Entry into force

Period for which aid was granted

Nominal value of aid

(PLN)

1

2

3

4

5

6

7

8

9

10

28.

Industrial Development Agency

Grant

R&D

Project part of INTERREG IIIC — 2005 Budget Act of 22.12.2004, Journal of Laws No 278 of 29.12.2004, item 2755

Payment note No 05/ERR/2006

30.5.2006

30.5.2006

One-off subsidy

1 322,19

29.

Ministry of Education and Research

Grant

Decree of the Chairman of the State Committee for Scientific Research of 30.11.2001 (Journal of Laws No 146, item 1642, as amended)

EU project G3RD-CT-2002-00822-FASTPOD

26.6.2006

26.6.2006

One-off subsidy

49 571,98

30.

Ministry of Education and Research

Grant

Decision No 03797/C.ZR6-6/2005

12.12.2005

20.11.2006

Project to be implemented by 31.1.2009

279 825,51

31.

Minister for Science and Higher Education

Grant

Financing of Science Act of 8.10.2004 (Journal of Laws No 238, item 2390, as amended)

Decision No 03858/C.ZR8-6/2006

1.9.2006

20.11.2006

Project to be implemented by 31.3.2009

36 509,45

32.

Minister for Science and Higher Education

Grant

R&D

State Committee for Scientific Research Act of 12.1.1991 (Journal of Laws No 33 of 2001, item 389)

Decision No 960/E-594/SPB/5.PR UE/DZ 29/2003-2005

31.1.2003

30.6.2005

30.6.2005

37 906,00

33.

Polish Agency for Enterprise Development

Grant

Decree of the Minister for the Economy and Labour of 16.9.2004 on the award by Poland (Industrial Development Agency) of financial aid as part of the Human Resources 2004-2006 Sectoral Operational Programme (Journal of Laws 2007, item 2115)

Agreement No 30/2006/efs/gdy training financed by ESF of 20.1.2006

2.2.2006

25.5.2006

One-off subsidy

4 253,02

34.

Polish Agency for Enterprise Development

Grant

Decree of the Minister for the Economy and Labour of 16.9.2004 on the award by Poland (Industrial Development Agency) of financial aid as part of the Human Resources 2004-2006 Sectoral Operational Programme (Journal of Laws 2007, item 2115)

Agreement Nr WSAiB/039

1.2.2007

13.3.2007

One-off subsidy

2 209,94

Total

411 598,09

III. EVALUATION

1. COMPETENCES OF THE COMMISSION

(233)

Annex IV, point 3 of the Accession Treaty describes the interim mechanism procedure. It constitutes a legal framework for the assessment of aid schemes and individual aid measures which are put into effect in a new Member State before the date of its accession to the EU and are still applicable after accession.

(234)

Measures that were put into effect before accession and are not applicable after accession cannot be examined by the Commission either under the interim mechanism procedure or under the procedure laid down in Article 88(2) of the EC Treaty.

(235)

However, measures that were not put into effect before accession will be assessed by the Commission as notified aid or as unlawful aid pursuant to the procedure laid down in Article 88(2) of the EC Treaty.

(236)

The criterion used to determine the point in time when a given measure was put into effect is the legally binding act by which the competent national authority undertakes to award aid (52). Whether an administrative act is legally binding is a matter of national law. The Commission, however, must be able to review, especially in border-line cases, these administrative acts and, judging on their form and content, to assess whether they could have given rise to legitimate expectations of the beneficiaries enforceable before a Polish court of law. This capacity to review national administrative acts is indispensable for the exercise of the Commission’s exclusive competence to approve derogations from the general prohibition of State aid with regard to measures put into effect in Poland after 1 May 2004.

(237)

A measure put into effect prior to accession is applicable after accession if it can still give rise to the award of additional aid or to an increase in the amount of aid already granted, i.e. if the precise economic exposure of the State is not known on the date on which the measure was put into effect and remains unknown on the date of accession.

(238)

In its decision to open the formal investigation, the Commission concluded, on the basis of the information provided by Poland, that a series of measures of which it had been notified on 29 April 2004 actually constituted new aid, either unlawful or notified, because it was granted after 1 May 2004, the date of Poland’s accession to the EU. The comments provided by Poland and third parties after the investigation was opened did not lead the Commission to alter its conclusion. In particular, the Commission maintains that it is competent to assess whether the measures indicated in Annex I, part B to the decision to open the formal investigation are compatible with the common market. The Commission nevertheless notes that some of these measures have been abandoned (measures 33 and 34 of Annex I, part B to the decision to open the formal investigation).

(239)

Below the Commission indicates why it cannot accept the arguments put forward by Poland and the interested parties.

(a) Restructuring of public-law debt under Chapter 5a

(240)

The Commission agrees with the recipient that the event which gave rise to the partial write-off of public-law liabilities under Chapter 5a was the adoption of the restructuring decision by the Chairman of the Industrial Development Agency. The Commission, however, cannot accept the submission that this decision was adopted on 19 April 2004, i.e. prior to accession. The Commission explained the reasons for its stance in the decision to open the formal investigation, and neither Poland nor the recipient has submitted any further arguments. The Commission reiterates that the decision of 19 April merely approved the 2004 restructuring plan, and did not restructure public-law liabilities pursuant to Chapter 5a. The Chairman of the Industrial Development Agency could not issue the restructuring decision before accession because he did not have, as required by Chapter 5a, the agreement of all the public-law creditors involved in restructuring and of the Operator, the company managing the restructuring operation (53). The Commission notes that the Chairman of the Industrial Development Agency recognised this fact when he mentioned in his decision of 19 April 2004 that a further decision would be necessary to complete restructuring under Chapter 5a and when he eventually issued the restructuring decisions on 4 January 2005, i.e. after accession.

(241)

The Commission cannot accept the recipient’s argument that the agreement of all the public-law creditors involved to restructure their receivables from Gdynia Shipyard under Chapter 5a constituted the legally binding act required by the Fleuren Compost judgment. The recipient basically argued that Chapter 5a was not lex specialis in relation to other laws permitting restructuring of public-law liabilities and that the function of the Chairman of the Industrial Development Agency was to administer and facilitate the restructuring process, not to replace the authorities involved and competent for specific liabilities. The Commission notes that this interpretation of Polish law is at odds with all the submissions from Poland to date and with the text and logic of Chapter 5a itself. Admittedly, as the recipient argued, the Act of 30 October 2002‘does not prohibit the restructuring authorities from issuing any write-off decisions in so far as they are allowed to do so by general provisions’. Nevertheless, if they did so, those liabilities would no longer fall under Chapter 5a with all the advantages associated therewith and that the recipient itself has enumerated as follows: eligibility for a loan from the Industrial Development Agency, suspension of any ongoing enforcement proceedings, exemption from bankruptcy and non-accrual of interest on amounts due.

(242)

The Commission cannot accept the recipient’s argument that no interest accrued after 30 June 2006 on the liabilities restructured under Chapter 5a. This interpretation of Polish law was rejected by Poland. In addition, Poland notified as new aid the planned (partial) write-off of interest accrued after 30 June 2006, so it is obvious that this interest had actually accrued.

(b) Measures 28-34 of Annex I, part B to the decision to open the formal investigation

(243)

The Commission cannot accept Poland’s argument that this aid was granted de facto by virtue of the fact that all the relevant awarding authorities made verbal statements at a meeting of the Government working group on the restructuring of shipyards in Poland (the shipbuilding industry team). Such statements, if any, were purely verbal and further implementing measures were clearly necessary to create legitimate expectations under Polish law.

(c) Capital injection from the Industrial Development Agency

(244)

The recipient’s argument that the aid was granted before accession because the precise economic exposure was known before that date stems from a misunderstanding of Annex IV, point 3 to the Accession Treaty. To qualify as previous aid, a measure must fulfil two requirements: it must have been granted before accession (which is equivalent to a legally binding decision by the competent awarding authority) and it must ‘not be applicable after accession’. These are two separate and cumulative conditions. The recipient’s argument that the State’s economic exposure was known before accession refers to the second of these requirements and not to the point in time at which the aid was granted.

(245)

The Commission cannot accept Poland’s argument that the requirement to register the subscription of new shares within 6 months was purely formal. The Commission notes that, in reality, two distinct new decisions were necessary after the 6-month period expired: a new resolution of the General Assembly on the capital increase and the subscription itself. It seems to be the case that, under Polish commercial law, the entitlement of a company to a capital injection becomes effective on the date when the resolution to increase the capital is adopted (i.e. the first resolution of 17 February 2004). Registration is of significance for the company’s external contacts, not for relations with its shareholders. However, the lack of registration also has legal effects on the relationship between the company and its shareholders: if it is not effected within 6 months, the resolution to increase the company’s capital expires and the capital injection cannot take place. In these circumstances, a new resolution by the shareholders is required in order to increase the company’s capital. Such a resolution was indeed adopted by the General Assembly on 4 March 2005. However, the fact that the resolution was not adopted unanimously (three major shareholders objected) demonstrates that this resolution cannot be regarded as a mere formal requirement. The Commission also notes that the capital was eventually subscribed by the Industrial Development Agency, not the Treasury. The resolution of 17 February 2004 cannot therefore be regarded as a final binding decision to award aid in the form of a capital injection listed as measure 32 of Annex I, part B to the decision to open the formal investigation.

(246)

Lastly, the Commission notes that neither Poland nor the recipient has contested its conclusion that measures 19-27 of Annex I, part B to the decision to open the formal investigation constituted new aid and thus fall under the remit of the Commission under Article 88 of the EC Treaty.

2. STATE AID WITHIN THE MEANING OF ARTICLE 87(1) OF THE EC TREATY

2.1. EXISTENCE OF STATE AID

(247)

Article 87(1) of the EC Treaty states that any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods and affects trade between Member States is incompatible with the common market.

(248)

The Commission finds that all the aid described in recitals 209-232 was granted by the State or through State resources and, being directed to one particular undertaking, was selective.

(249)

Gdynia Shipyard is one of the largest European shipyards and actively competes on the container ship market with shipyards in particular in Germany and Denmark, as Poland and the recipient have acknowledged, and as was noted by Denmark and the Danish shipbuilding association in their comments on the Commission’s decision to open the formal investigation. Container vessels accounted for 26 % of European shipyards’ order books at the end of 2006 (54).

(250)

It appears to be the case that Gdynia Shipyard is the only yard within the EU which produced a certain type of ro-ro vessel: big car carriers. This specialisation, however, does not mean that Gdynia Shipyard is not in competition, at least potentially, with other yards in the EU. The Commission notes that there exists a significant level of supply-side substitutability, at least in the cargo ships segment (55), even though, considering the demand structure for various categories of cargo ship, these vessels do not belong to a single market.

(251)

This means that other shipyards in the EU may not encounter significant barriers to launching production of car carriers, at least not of a technological nature (production facilities, know-how etc.). However, the continuous subsidising of Gdynia Shipyard, which allowed it to conclude contracts without full recognition and remuneration of all the risks involved, could have constituted a significant barrier for other shipyards to entry on the car carriers market.

(252)

The Commission notes that Gdynia Shipyard also operates in other cargo ship segments by offering products such as multi-purpose vessels, liquefied petroleum gas carriers, product and chemical tankers and bulk carriers. For example product and chemical tankers constituted about 8 % of the order book of European shipyards at the end of 2006 (56). Yards in Germany and Romania are particularly active in these segments.

(253)

On the basis of the above, the Commission concludes that the State aid granted to Gdynia Shipyard affected trade between Member States.

(254)

Lastly, the Commission needs to determine whether the measures granted to Gdynia Shipyard conferred an undue advantage on it and thereby distorted or threatened to distort competition. The Commission notes that the Polish authorities did not dispute the classification of the measures covered by the present decision as State aid, with the exception of the loans granted by KPS and the guarantees provided by the Export Credit Insurance Corporation which, in the view of the Polish authorities, comply with the market economy investor principle.

(255)

Below the Commission first explains why it took the view that the continuous non-enforcement of public-law debt did not pass the market economy creditor test. The Commission then assesses the measures disputed by Poland. Finally, the Commission considers the circumstances in which the aid covered by this decision was granted and its impact on competition.

(a) Continuous non-enforcement of public-law debt

(256)

The principle that continuous non-enforcement of public-law debt can in itself constitute State aid is established in case-law (57). The information provided by the Polish authorities (58) clearly indicates that Gdynia Shipyard has significant public-law arrears dating back as far as 2004. The yard has been repaying public-law liabilities only irregularly and its outstanding debt has been continuously deferred, in all probability without any formal decision on the part of the relevant public creditors, or was subject to payment schedules. Poland explained that the recipient intended to repay public liabilities outstanding as at 30 September 2007 (PLN 443 million in total) using the capital injection by the Treasury following the yard’s privatisation. This being an uncertain event with an uncertain timing, the yard’s intention suggests that in practice the public-law liabilities were deferred for an unlimited or unspecified period of time and were repaid only occasionally as permitted by the yard’s cash flow. The Commission considers that no market economy creditor would accept such an unlimited deferral of its liabilities, which would be contingent on the uncertain event of privatisation and recapitalisation by the State (this constituting State aid of doubtful legality and compatibility with the single market). In addition, there is no indication whatsoever that the relevant public creditors have undertaken any action to enforce their public-law receivables from Gdynia Shipyard, in particular by way of forced recovery or bankruptcy law. The Commission therefore concludes that continuous non-enforcement of public-law liabilities represents an advantage that the recipient would have not obtained from a market economy creditor and therefore constitutes State aid similar to an (interest-free) loan.

(b) Measures which Poland regards as passing the private investor test

(257)

The Commission cannot accept Poland’s argument that aid in the form of working capital loans was free of State aid. The Commission observes that the interest rate charged by KPS was about 400 basis points above the reference rate. The Commission also notes that Gdynia Shipyard has been in a very precarious financial situation for several years, with its liabilities considerably exceeding its assets. Gdynia Shipyard has not been able to obtain funding for its production from any other external source. Its working capital was financed by advance payments fully covered by guarantees from the Export Credit Insurance Corporation, by loans fully covered by Treasury guarantees and by KPS loans. The interest rate charged by KPS therefore does not appear to correctly reflect the risk incurred. Although KPS did require collateral, its value remains questionable; it should be remembered that the Export Credit Insurance Corporation and Treasury required similar collateral and, considering Gdynia Shipyard’s assets/liabilities ratio, it seems likely that KPS was not able to obtain first-rank collateral on the yard’s assets. In any event, Poland has not provided detailed information enabling the Commission to determine the real value of the required collateral.

(258)

Furthermore, there is no difference between loans granted by KPS and loans granted by the Industrial Development Agency, which owns KPS. It is difficult to maintain simultaneously, as Poland does, that the loans granted by the Industrial Development Agency constitute State aid whereas the loans granted by its subsidiary, KPS, meet the requirements of the market economy investor principle.

(259)

Lastly, the Commission notes that KPS was established as a government-controlled fund with public policy objectives, the funding of which was fully provided, or guaranteed, by the State via the Industrial Development Agency. According to the document ‘A strategy for the shipbuilding sector (maritime construction shipyards) in Poland 2006-2010’, KPS was ‘founded to organise the financing of shipyard production until such time as private investors took control’. The strategy, which is designed to achieve not only economic but also social and macroeconomic aims (59), mandates KPS with various powers, along with the Industrial Development Agency, the Treasury and other competent public bodies. The financial links of KPS to the Industrial Development Agency and the Treasury are clear and KPS acts rather like a vehicle for the transfer of assets earmarked by the State budget for shipyards in Poland, including Gdynia.

(260)

In the light of the above, the Commission concludes that KPS did not act as a market economy investor when it granted working capital loans to Gdynia Shipyard. These loans, listed in recital 158, Tables 1 and 2, therefore constitute State aid.

(261)

In its comments following the adoption of the decision to open the formal investigation, Poland argued that the guarantees granted by the Export Credit Insurance Corporation to Gdynia Shipyard did not constitute State aid. The Commission cannot accept this assertion.