BRUSSELS, Belgium (AP) — Poland was wrong not to demand that a steel tube maker repay a $5.7 million government grant because the company misused the money and went bankrupt, the European Commission ruled Wednesday.
EU regulators also opened probes into subsidies given to two other tube makers, saying it seemed that the state was unfairly propping up companies in financial difficulty.
Poland was allowed to pump large sums of public money into eight troubled steel businesses from 1997 to 2003 — but only if they turned themselves around by the end of 2006.
The EU's strict subsidy rules usually forbid governments from rescuing failing firms, but Poland won special treatment because it agreed to cut back production that risked pushing down steel prices in the rest of Europe.
Regulators said that Poland should have demanded that Technologie Buczek SA pay back state money given in 2003 because the company had not followed an agreed restructuring plan and had to file for bankruptcy last year.
On top of that, the Polish government kept on deferring the debt repayment and ''thereby allowed a significant rise of the debt up to $7.13 million.''
''In view of ... the poor prospects of the company's performance, a private creditor in this situation would have insisted on the enforcement of the debt,'' the EU executive said.
Technologie Buczek's subsidiaries Huta Buczek and Buczek Automotive are liable to repay this subsidy because their parent company had given them assets and cash injections only possible because it wasn't forced to repay its debt to the government.
The EU can take Poland to court if it fails to obey the order to claw back the money from these companies.
Two other tube producers, Walcownia Rur Jednosc — or WRJ — and WRJ-Serwis, also may face trouble as regulators announced they would investigate whether government payments to bail them out were made under normal market conditions.
The state-owned Towarzystwo Finansowe Silesia, known as TFS, had continued to put money into WRJ and take over guarantees for existing loans even though WRJ did not follow through on the reason it was created in 1995, namely to build a new tube mill. It abandoned this project in 2000 due to lack of funding.
TFS also took over WRJ-Serwis in 2003, giving it cash injections even though it was in trouble.
EU regulators said TFS only should have put money into these companies if it did so on the same terms as a private investor. They said they doubted that any other investor would have thrown money at companies in such a poor state — meaning the money would be an illegal bailout.
The Commission will probe further before deciding whether the money violates EU law. It can then order Poland to demand repayment.
EU Competition Commissioner Neelie Kroes said she knew that reforming the steel sector had been painful but she could not allow payments to companies that had not followed rules designed to make them more efficient in the long run.