EU approves Poland's FSO state aid with condition

BRUSSELS -- The European Commission said today that it had approved Poland's plans to grant carmaker FSO 78 million euros ($103 million) in state aid providing it caps production in the next few years.

The aid is part of a restructuring plan after the carmaker was left out of a deal under which the operations of its bankrupt major shareholder Daewoo Motors were taken over by General Motors.

The aid consists of 62 million euros in state guarantees and a further 16 million euros in other supporting measures.

"The Commission found that the aid is limited to the minimum necessary and that the restructuring plan of FSO is sufficient to restore the firm's long term viability," the Commission said in a statement.

"However, the Commission also considers that, without appropriate safeguards, the aid could lead to undue distortion of competition," it said.

It therefore demanded that FSO limits its car product to 150,000 units per year unitl February 2011.

In 2005, FSO made 40,000 cars, a fifth of its all-time record production of 200,000 in 1999.

Ukrainian car producer AvtoZAZ bought FSO last year from the Polish government and in May said it would invest $130 million to produce cars including GM's Chevrolet. In a seperate case, the Commission opened an in-depth investigation into 8 million euros that Poland wants to give to machine tool manufacturer Bison-Bial.

"The Commission doubts whether the notified restructuring plan is sufficient to restore the firm's long term viability and has concerns that the aid would create undue distortions of competition in the machine tool sector," it said.

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