ST Microelectronics has asked the government for a financial support package running into tens of millions of dollars as it contemplates pulling the plug on its Malta plant.

Malta's largest private employer, with some 2,200 workers, has called on the government to provide it with financial support amid rising labour costs, Finance Minister Tonio Fenech told The Sunday Times.

The minister would not be drawn into commenting on the amount involved, though it is understood that there is still a gulf between the figure requested and that being offered, even though the government offer runs into millions of dollars.

It is understood that the government is still formally waiting for a reaction to the latest financial and restructuring package offered to ST.

Sources said STMicroelectronics was looking for government and trade union support to re-negotiate the current collective agreement and also a phased reduction in the number of employees.

Mr Fenech made it clear there was a limit to what the government could be expected to offer in terms of direct financial aid.

"While we have been very generous in terms of investment aid - since it makes sense from a national, social and economic perspective to support a viable restructuring process - the government cannot be expected simply to subsidise a wage differential which equals practically the full wages being paid to the present employees... especially if we are simply told a few years down the line that the company is still moving away. It simply does not make economic or social sense.

"We are very concerned and keen to ensure the company has a future in Malta. (But) since on an economic level there are job growth prospects, we believe ST's employees can be redeployed in other industries over a short but phased number of years, though, of course, there is the personal and human aspect of potential job losses and movement," he said.

Mr Fenech explained that the government would like ST to further invest in Malta on lines where Asia today cannot compete. In fact, the government's support is linked to a comprehensive restructuring plan to make ST operations in Malta viable in the longer term.

"ST is looking for financial support, which the government is offering in the form of investment aid. We want them to restructure. We are still hopeful that ST will retain a number of lines in Malta... And if they have the intention to reduce staff, then we would like to see it done gradually."

In fact, sources said that if STMicroelectronics decided to abandon its Malta plans, it would take some four years for the Kirkop plant to wind down its operation.

The Malta plant's fate could depend on an upcoming annual general meeting, which is expected to confirm or replace the current management. Politics has also been brought into the equation, with the ST issue reportedly discussed during Prime Minister Lawrence Gonzi's meeting with his French counterpart François Fillon last Thursday.

Mr Fenech has in the meantime also brought the matter to the attention of the Italian Ambassador, since the Italian government also holds a number of shares in ST.

Despite the doubts surrounding the future of the plant, Mr Fenech said the ST plant in Malta was actually the world's most efficient. The issue boiled down to the difference in labour cost between Malta and Asian alternatives.

According to observers, the Kirkop plant is facing losses that could reach €58 million (Lm24.9m) a year. ST Microelectronics has already taken a number of remedial measures, including the closure of its plant in Morocco and the American operations.

In a letter dated April 18 sent to Andrew Mizzi, secretary of the technology, electronics and communications section of the General Workers' Union, the company expressed its grave concern regarding the losses incurred at the Malta plant, and asked for a reconsideration of rises and bonuses provided for in the collective agreement.

The plant, which began operations in 1981, is an assembly and test facility for the ST products that use the most advanced chip packages.

Does the government have a contingency plan?

"The government cannot singlehandedly stop the globalisation process, and therefore we need to continue working harder to offer new job opportunities to compensate for any job losses and manage such a transition in the most humane manner possible," Mr Fenech said.

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