Future of steelmaker rests on a knife-edge

Date: 12/12/1996

THE Walloon regional government in Belgium is expecting its cash lifeline to ailing steelmaker Clabecq to be cut next week, when the Commission seems almost certain to confirm that its plans to inject 375,000 ecu into the company amount to an illegal state aid.

The regional authorities are resigned to the aid package being vetoed, but warn that they are prepared to launch a fresh bid to rescue the steelmaker, even though most commentators have already declared it as good as dead and say it will go unmourned.

“If the company must repay the aid, then it is clear it will be bankrupt. We are not disposed to allow things to go in that direction. We are ready to respond to the Commission's decision,” said a top aide to Walloon President Robert Collignon. However, he refused to give further details.

The regional government's forebodings stem from the lack of contact with the Commission since competition officials gave their opinion in September that its investment amounted to a subsidy.

“Since then, we have not received any questions from the Commission about the restructuring plan. That has surprised us,” said Collignon's aide.

Also, in spite of rumours of 'wedding bells' in the Walloon steel sector, Clabecq has failed to find a partner which could make its restructuring plan and the regional government's investment more credible for the Commission. Possible partnerships with Cockerill Sambre, whose majority shareholder is the Walloon government, and private family-owned steel producer Boël have failed to take shape.

Getting a private partner to endorse the restructuring plan would have considerably boosted Clabecq's chances of winning subsidy clearance from the Commission.

Competition Commissioner Karel van Miert has minced few words in declaring that it makes little sense for the taxpayer to throw fresh cash at Clabecq when there is overcapacity in the steel sector and little chance of the company being viable.

Belgian analysts concur. “If the Commission did agree to the Clabecq cash injection then a lot of private steel companies would complain and they would be right,” said Luc van der Elst, an analyst with Generale Bank.

Clabecq specialises in producing heavy steel plates which could easily be manufactured by rival companies, said Van der Elst, adding: “They are in the market for value-added products, such as galvanised steel, which is the case of Cockerill Sambre.”

The Walloon government reckons that Clabecq can occupy a niche market by tailoring its activities to small, specialised production runs which would be unattractive to its larger rivals.

The existing restructuring plan advanced by the regional government foresees 700 job losses from an existing workforce of 2,143.

The Walloon government has already advanced around half of the overall aid in order to keep Clabecq going while it awaits the Commission's decision. But Van Miert has been heavily lobbied by British and German steelmakers to outlaw the funding.

“Whatever the political pressure on him to do otherwise, Van Miert must uphold the law and ban the aid,” said Ian Goldsmith, of the British Iron and Steel Producers Association (BISPA). “There is so much overcapacity for plate steel at the moment that if Clabecq disappeared, it would not be missed.”

Plate steel has been flooding into the EU from eastern Europe, especially Romania and Bulgaria, said the BISPA spokesman.

He added that only a small part of Clabecq could be salvaged if Van Miert refused the aid. “There is the possibility of a buy-up by Cockerill, but the only thing it is interested in is the rolling mill. That would only save a few hundred jobs,” he said.