Brussels - The Polish government must sell off two loss-making shipyards which were the cradle of the anti-Communist Solidarity movement to claim back hundreds of millions of euros in illegal state aid, the European Union's executive ruled Thursday.

"State aid granted to the shipyards in Gdynia and Szczecin gives rise to disproportionate distortions of competition ... in breach of EC Treaty state aid rules, and must be repaid," EU Competition Commissioner Neelie Kroes told journalists in Brussels.

"The Polish authorities have committed to sell the yards' assets by the end of May 2009. ... The proceeds from the asset sales will be used to repay the yards' creditors and to repay the unlawful aid to the state, (and) the existing shipyard companies, with any remaining assets and liabilities, will then be liquidated," she said.

The plan agreed between the commission and the Polish government is aimed at allowing future investors in the two yards to carry out economic activities without the fear of having to pay back state aid.

Kroes said the sales procedure must be open and unconditional, to give "access to all types of potential buyers, irrespective of the purpose of their investment."

Poland's Treasury Minister Aleksander Grad welcomed the decision, calling it "good for Polish shipyards and for Poland."

"It's not a complete success, but it's a success of 80, maybe 90 per cent. We intend in the next seven months to turn it into a complete success," he said.

But the prospect of the open sale sparked alarm in Poland, with media speculating that the yards could be bought up by investment funds which have no interest in maintaining industrial production or keeping jobs.

The Gdynia branch of Solidarity demanded a meeting "fast with Grad to find out the details of the plans.

The union is especially interested in the consequences that the plan will have on workers, the head of Solidarity in Gdynia, Dariusz Adamski, told the Polish Press Agency 
(PAP).

"The most valuable asset of the shipyards are the workers. Without them, the facility's value is zero," he said.

The head of the Gdynia shipyard, Antoni Poziomski, told PAP that he is convinced the yard's chances of finding investors for parts of the yard that are not weighed down with debt and workers are "decidedly higher" than selling the yard as a whole.

The shipyards in Gdynia and Szczecin, together with a similar facility in Gdansk, were the birthplace of the Solidarity trade-union movement which in 1980 won fame around the world for the challenge it presented to Poland's then-Communist regime.

But since the fall of communism, the yards have run into severe financial difficulties. Since 2002, they have been kept afloat by state aid and production guarantees well in excess of 3 billion euros (3.9 billion dollars), Kroes said.

The commission launched an investigation into the state aid schemes in June 2005. Under the EU's strict competition rules, aid which is not used to rescue and restructure companies is illegal.

"The sad reality is that the very large subsidies received were consistently used for day-to-day operations, to keep the yards going in the short term rather than invested to make the yards viable in the long term," Kroes said.

And successive Polish governments failed to present restructuring plans which would have made deep enough cuts to allow the yards to function without further aid, she stressed.

"I have never met so many Polish ministers. They all tried to be creative ... but all their thoughts in four years didn't give us a clear explanation that there should be a viable future for those yards under those circumstances," she said.

The case has raised intense feelings in Poland, with Solidarity trade unionists comparing the commission's stance to Soviet attempts to shut them down in 1980.

"Will Brussels kill what Moscow couldn't?" one Solidarity banner asked at a demonstration in June.

Kroes admitted the political sensitivity of the case, calling it "without a doubt one of the hardest proposals to the commission that I have had to make as competition commissioner."

The Gdansk shipyard, which was recently privatized, is the subject of a parallel state-aid case which is still ongoing. (dpa)