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
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 Maltas 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 Maltas 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 governments
side, said he could not say how much Malta will be saving for commercial
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 governments 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)
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