Scores of dockyard workers have applied for early retirement schemes after an EU Commissioner said last week that the government's intention to write off about €100 million in debts before selling Malta Shipyards violated EU rules.

The Sunday Times has learnt that over 650 shipyard workers have now applied for the schemes - 250 in just two days - after European Competition Commissioner Neelie Kroes' comments during her visit to Malta.

The international call for expressions of interest in Malta Shipyards closes tomorrow.

When contacted, Finance Minister Tonio Fenech said that the Commissioner was merely reflecting the delicate process associated with the shipyards' privatisation.

"We were never threatening anybody... we were merely echoing what the Commission was saying. There isn't much room for manoeuvre and we're really at the 11th hour," Mr Fenech said. In line with the EU treaty, the government cannot continue to subsidise the shipyards after December.

The minister said he had no doubt that the agreement reached with the General Workers' Union last week erased some of its doubts over the schemes. The government and the GWU agreed to top-up the retirement scheme fund on offer by a further €9 million.

The highest number of applications so far - 220 - was for Scheme C for those aged between 40 and 49.

Moreover, the two sides agreed that should the shipyards' buyer have a problem with the number of workers left on the company's books after the schemes expire, the government and the union will form a joint commission to seek alternative employment for the excess workforce.

The government said it believed to the 1,600-strong workforce should be reduced to at least 700 before the privatisation process is initiated.

The size of the workforce also has a bearing on the position of the European Commission. Ms Kroes warned the government last Wednesday against accepting a cheaper bid in which bidder offered to take on more workers.

"In that case, the Commission is likely to view that sort of transaction as having an element of state aid," a government source said.

But the workforce is certainly not the only stumbling block. During last week's meeting, the Commissioner's team made it clear that the EU's problem with allowing Malta to waive the shipyards' remaining debts was that it could set a precedent at a very delicate time.

On one hand, there are thorny ongoing negotiations between the EU and Poland over the fate of three shipyards, which centre precisely on state aid, while on the other there is the issue of Italian national airline Alitalia.

"There is a similarity between Alitalia and the Maltese shipyards because the Commission does not want to give the impression that state aid can be given in the context of privatisation," the government source said.

The Commission's primary concern does not relate so much to the possible imbalance which the yards' debt could create in the shipbuilding industry, but the billions tied to a similar deal in the case of Alitalia.

Just yesterday, a privately-driven plan to rescue the crippled Italian national carrier was again on the verge of collapse after a week of talks between unions and investors hoping to take over the airline ended in deadlock.

In the circumstances, competing airlines, particularly those from the EU's bigger states, such as Lufthansa, Air France and British Airways may have a lobbying interest in preventing the EU from allowing Malta to waive the remaining debt for fear that the Italian government may use the case to obtain a similar arrangement.

Everything will depend on the final package which the government is expected to present in November after it has considered the bids made for the shipyards.

Meanwhile, the Nationalist Party yesterday accused Labour of politicising the shipyards' privatisation issue. The PN said Labour attempted to take credit when privatisation plans were going well but was quick to change its tone when problems cropped up.

On Friday, the MLP said some of the problems were evident at an early stage and could have been avoided had talks started earlier and had the necessary measures been taken in terms of the accession agreement.