Friday, August 05, 2005

Steel Restructuring and State Aid - or when $1 billion doesn't matter any more

The European Commission warned the Polish and Czech steel sector authorities this week that their biggest steelmakers might be forced to repay past government subsidies if the steel companies did not become viable by December 2006. The amounts of money involved in this restructuring were huge: according to recent EU Accession Agreements (the 'Accession Protocols'), total State Aid involved in the restructuring of the Polish steel sector amounted to PLN 3.4 billion (~US $1.03 billion at present exchange rates). In the Czech Republic, this Aid was CZK 14.1 billion (roughly US $582 million at current exchange rates). To read more about this week's warnings from Europe's Commissioners, see here.

Accession Agreements signed just before the Poles and the Czechs joined the European Union on 1st May 2004 stipulated both the requirement for their leading steelmakers to achieve viability by end-2006, and other conditions centred on modernisation and capacity closure. In Slovakia, which breached similar EU agreements concerning steel sector restructuring (ignoring steel production caps that were in place for 2002 and 2003), the new owner US Steel was forced to pay over US $70 million in fines in 2004. As a result of that 2004 ruling, there seems to be little doubt as to whether the European Commission will enforce future fines.

The magnitude of Polish and Czech State Aid support of course completely overshadows the 2004 fines imposed in Slovakia. In aggregate this Aid amounts to approx US $1.6 billion which is some 20 times larger than the repayments imposed on US Steel. With ownership of the Polish and Czech steel industries now largely in the hands of Mittal Steel, if there are any question marks over the future viability of these businesses, then I know what I'd be worried about as a shareholder ...

But maybe when you get that big, or when you sit in Government, the odd $1 billion here or there just doesn't matter any more?


Anonymous Anonymous said...,00020008.htm

 1:31 AM  

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