Serbia to Restart Its Sole Steel Plant After Sale Fails

Serbia plans to restart one furnace at Zelezara Smederevo d.o.o., its sole steel producer, after NPO Uralvagonzavod OAO of Russia dropped plans to buy the state-owned company.

The Balkan country isn’t “giving up the idea of finding a strategic partner for Zelezara,” Finance Minister Mladjan Dinkic said in a phone interview today.

Dinkic met today with Prime Minister Ivica Dacic and President Tomislav Nikolic to discuss the future of the company after Uralvagonzavod, the only investor to have expressed interest in the Smederevo-based plant, placed no bid by yesterday’s deadline.

Serbia has been looking for a strategic partner for the unprofitable steel producer since last January, when U.S. Steel Corp. sold it back to the government for $1. The government will use Zelezara proceeds from previous product sales to buy raw materials from companies willing to offer favorable payment conditions, Dinkic said before meeting with unions today.

The state would also offer workers 80 percent of their full salary to come back to work, he said.

Unions will make final decisions within a couple of weeks on a plan that may require an additional 200-250 workers, the union leader Mileta Gujanicic said after meeting with Dinkic.

“Considering the global situation and the situation in the region, this proposal” appears “to be acceptable,” he told reporters in Smederevo, the home to the steel plant 40-kilometers (25 miles) east of Belgrade.

Raw-Material Purchases

The government has been in talks on raw-material purchases with Ukraine’s Donetskstal-Metallurgical Plant and Rinat Akhmetov, the owner of Ukrainian System Capital Management, with assets in metallurgy, mining and energy while Swiss-based Duferco SA “has also made an offer,” Dinkic said.

Dinkic, who needs to ensure fiscal consolidation and restrict government subsidies to unprofitable state-owned companies, said there will be no need to spend taxpayers’ money. Zelezara has been tapping proceeds from its previous sales to pay workers 60 percent of their average wages.

“The idea is to optimize costs at the steel plant” and set up a “revolving fund” to finance both wages and raw materials purchases.

Restarting the plant will increase the monthly cost for the factory to 165 million euros ($214.4 million), or 20 million euros more than it cost to maintain the idling plant, he said.

Export Giant

With 5,000 workers, Zelezara has been the biggest employer in Smederevo for years, and during its eight years as a U.S. Steel unit, it generated 15 percent of the country’s annual exports. The plant, which makes hot- and cold-rolled steel products, has an annual production capacity of 2.2 million tons.

Dacic’s seven-month-old government is seeking to curb price increases and restart growth after the economy contracted an estimated 1.7 percent in 2012, betting on higher exports of Fiat SpA cars produced in Serbia and more sales of crude oil products abroad for growth.