Atlantic Dawn Ltd, the owner of the Republic's largest fishing boat, may have to renegotiate its £50 million (€63.5 million) bank debt if the Government fails to persuade the European Commission to let the vessel join the European Union fleet. Atlantic Dawn, one of the largest fishing vessels built in Europe, is temporarily on the Irish fishing vessel register but the European Commission is objecting to its permanent inclusion. The EU is linking the admission of Atlantic Dawn to the EU fleet - via the Irish register - to an ongoing dispute over reductions in the capacity of the Irish fleet.

The terms of Atlantic Dawn Ltd's debt facility with Anglo Irish Bank, IIB Bank, Ulster Bank Markets and Bank of Ireland stipulate that the company must keep the vessel registered as "an Irish fishing vessel" at an Irish port. If the vessel was registered outside the Republic it would affect the ability of the banks to enforce the mortgage that they had granted over the ship in return for funding its construction.

The temporary registration period expires in the autumn and the Department of the Marine is hopeful that the issue will be resolved by the end of September. Sources close to Atlantic Dawn Ltd say that the banks are unlikely to withdraw their support if the matter is not resolved by that stage, but acknowledge they may seek to renegotiate the loan terms.

The extent to which the banks have put their faith in Mr Kevin McHugh, the owner and skipper of Atlantic Dawn, is indicated by the terms of the mortgage, which require Atlantic Dawn Ltd to insure his life for £4 million.

The Minister for the Marine, Mr Fahey, is expected to lobby his European counterparts on the issue next month. The Minister has invested considerable political capital in the project and its failure would be a big blow to attempts to encourage private-sector investment in the fishing sector.

Atlantic Dawn is one of a number of so-called "super trawlers" built by Mr McHugh, but it is the first one to be funded by Irish banks. Mr Fahey "launched" the hull of the ship in Norway in February last year just weeks after taking office.

Atlantic Dawn was built to operate outside EU territorial waters but at the same time avail of EU treaties with countries such as Mauritania. These treaties allow EU-flagged boats to fish in third-country waters under advantageous terms. The current registration status of Atlantic Dawn does not allow it to avail of these treaties and the company has been forced to negotiate its own contracts. The fish are mostly sold to West Africa and Mr McHugh is competing with other large European trawlers built at the same time as Atlantic Dawn but that have been allowed to join the EU fleet.

"They are at a considerable advantage," said one industry source.

Fishing industry sources claim that the European Commission is blocking Atlantic Dawn's admission to the EU register in order to force the Government to address a number of other issues.

The commission and the Republic are in dispute about whether the State has met previous commitments to reduce the size of its pelagic fishing fleet. The fleet, mostly based in Killibegs, Co Donegal, fishes mackerel and other mid-water or pelagic species.

One of Mr McHugh's other vessels, the 106-meter long Veronica, is part of the pelagic fleet. Atlantic Dawn is considerably larger than the Veronica and has a crew of 50, most of whom are involved in the on-board processing of the fish. The vessel is capable of spending up to six weeks at sea and can freeze and store up to 7,000 tonnes of fish.