Drydocks will still be a massive burden on the economy

- Minister prefers not to comment on subsidy

By Julian Manduca
The agreement between the government and the General Workers Union over the future of Malta Drydocks was welcomed in some quarters, but found opposition from others.
When the agreement was reached it was announced that the debt of the Dockyard of over Lm310 million was to be absolved, but no mention was made about the subsidy that the government regularly pays to the ship repair yard.
In the past the subsidy was of about Lm15 million yearly and reached a total of about Lm300 million. In spite of the restructuring and the agreement reached between government and the GWU, it could even be higher in the years to come.
When the Malta government negotiated Malta’s membership with the EU, it was intimated that subsidies to the docks would end in 2008. However, up until that period the Maltese government has been allowed to continue its subsidy.
The outcome of the negotiations with the EU means that the subsidy covered for the Drydocks until 2008 runs into an expense of Lm420million. This includes a write-off of the yards’ accumulated debt of Lm310m.
According to the Malta EU Information Centre (MIC), there will also be aid to the Drydocks beyond those amounts: "The remaining aid will be paid in the form of subsidies for the purposes of investment, training, compensation for social costs and working capital."
According to the agreement with the EU, the Malta government will be providing subsidies to the tune of Lm110 million by 2008, or Lm22 million yearly, more than it had subsidised in the past.
While it is commonly believed that the Drydocks will not receive a subsidy after 2008, that may not necessarily be the case. In Malta’s agreement with the EU it was concluded that: "In principle, that should be the case, if the yards compete effectively. However, under EU law, after 2008, the yards may still be granted additional subsidies provided that these do not exceed the limits and conditions laid down in EU law," according to MIC.
When a PBS journalist quizzed Minister Lawrence Gonzi and asked him what sort of a saving the country would be making with the new Drydocks agreement, Gonzi would not divulge any information. The minister, who is known to have been behind the agreement from the government’s side, said he could not say how much Malta will be saving for commercial considerations.
When pressed by this newspaper for an answer in view of what was committed with the EU Gonzi re-iterated: "There are some aspects that involve commercial considerations which should not be divulged to our competitors. If you look at Fairplay you will note that our major competitors are following very closely what we are doing here in Malta. I hope you will understand that ship owners interested in bringing work to Malta shipyards will love to know what our business plan states. I have no intention to play into anyone's hands."
Divulging figures could provide ship owners with sensitive information to be used in negotiations with the Drydocks.
What is certain, however, is that the government has decided that the amount of the subsidy will be set at the beginning of the fiscal year and no more than the amount decided will be given. The amounts given are expected to decrease year by year and the management will have to make good for any shortfall. In the past the subsidy was given to make up for losses at the yards.
Dr Gonzi defends government’s decision
The Malta Financial and Business Times contacted Social Policy Minister Dr Lawrence Gonzi to establish how much subsidy Malta will be putting aside for the Drydocks over the next few years. Dr Gonzi preferred to avoid the question and replied: "The agreement with the GWU is a collective agreement that incorporates a restructuring exercise which is necessary for the shipyard to achieve viability in accordance with a seven year business plan.
"The target is to achieve viability by the seventh year. I must emphasise that this is in accordance with what has been repeatedly stated by international experts commissioned by different Maltese governments in order to advise on the viability or otherwise of the industry. The most recent report is the one prepared by Appledore. The Collective agreement, the restructuring plan and the business plan are all drawn up in accordance with the parameters established by that (Appledore) report.
While not mentioning the subsidies, Gonzi emphasised that the business plan now established must not be exceeded.
"The work practices introduced by the collective agreement and the related reduction of the workforce are crucial aspects of the plan. The total figure established by the business plan will therefore not be exceeded. One must point out, however, that the figure that is quoted includes not only the write off of existing debts but also the so called ‘social cost’ and therefore covers the expenditure related to the remaining 900 workers including the retirement schemes (covering also the 800 people who took up the schemes during 2002).
Gonzi told this newspaper yesterday: "The financial restructuring does not translate into a total ‘write off of the yards accumulated debt’ because a part of this amount will be set off against the value of the immovable assets that are being taken over by government.
"The viability of the industry and re-deployment of excess public sector personnel into productive jobs (private or public) are certainly aspects which the taxpayer will appreciate. The taxpayer wants the public sector to contain its recurrent expenditure. This is precisely what is being achieved with the redeployment of 900 people plus the 800 that were employed with MDD and MSCL until 2002. Similarly addressing a national problem that today translates into a Lm25 Million loss per annum is also something that the taxpayer will appreciate."
Gonzi dismisses the idea of sacking all the Drydocks, workers as some might prefer, and defends the government decision. It is clear that the Drydocks does provide much needed foreign currency to Malta and that sacking so many people at one go, particularly dock workers, would be a great social headache. "Of course, there are those who will continue to argue that the solution is to close the operation and sack 2,600 people. Little do these people realise that apart from other social and economic aspects, this decision would cost a minimum of Lm 5 million per annum in unemployment benefits and social benefits," Gonzi concluded.