Commission probes aid payments to CGM

Date: 26/10/1995

THE European Commission will launch an investigation next week into the payment of 327 million ecu of aid by the French government to state-owned shipping firm Compagnie Générale Maritime (CGM) over the past three years.

The timing of the investigation is unfortunate for French Prime Minister Alain Juppé's government as it pushes through an ambitious privatisation programme, aimed at raising 6 billion ecu for state coffers.

CGM heads the list of state firms earmarked for privatisation, along with metals company Péchiney and car-maker Renault. A new president, Philippe Pontet, was appointed only this week to lead CGM into the private sector.

The inquiry will be carried out under Article 93(2) of the Treaty of Rome, which checks whether a subsidy scheme is “being misused” and can eventually force the member state to recoup the money.

The Commission wants to know whether a series of aids paid to CGM between 1992 and 1995 were part of a comprehensive restructuring plan or whether any of them were used as operating subsidies.

The inquiry will begin with a request for more information.

CGM is a wholly state-owned company specialising in the liner trades, owning and chartering of roll-on roll-off vessels and container ships. It has more than 2,000 employees, 624 of which are seafarers.

To cope with a rapid deterioration in its results from 1990 onwards, the boards of CGM and its CGM Finance adopted an 'action plan' in October 1992 aimed at putting the company back on an even keel by the end of 1994.

In May 1992, the company had withdrawn from the highly-competitive North Atlantic liner routes. The action plan aimed to solve the problem of the company's loss-making operations, reduce the burden of debt through recapitalisation and asset sales, cut operating costs and run the firm like a private company.

The whole fleet was flagged out at an annual cost reduction of 7.6 million ecu and 1,100 staff left the company. Since 1992, the firm has been through four bouts of asset-shedding, raising a total of 180 million ecu through the sale of ships and non-core subsidiaries.

In return, CGM and CGMF received 107 million ecu from the French authorities until October 1993.

A first 31-million-ecu payment was made in October 1992 when the action plan was legally adopted by the company, with 23 million ecu of that going directly to CGM.

A further 31-million-ecu payment was made in December 1992 after the board adopted the restructuring plan. In July 1993, 46 million ecu was paid when new company structures were created. In October 1993, an extra 12 million ecu was paid although the government said this was the settlement of a debt.

The Commission believes further aid payments are possible in 1995-96 because of continued losses at the company.

CGM recently revealed that it expected a net loss of 40 million ecu in 1995, partly as a result of cyclones in the West Indies and a loss provision for its Far East line.

Moreover, as a condition for accepting the job as the new president of the company, Philippe Pontet won a final recapitalisation of the company thought to total at least 150 million ecu.

By launching the Article 93(2) inquiry, the Commission is questioning whether the aids were genuinely paid to help with restructuring, or whether they were used as an operating subsidy at least in part to help fatten up the company for privatisation.

Commission officials will want to know how the previous parcels of aid were distributed within the company and how soon the government expects CGM to return to profitability.