Serbia Sees Steel Plant Sale as Reform Game Changer Before Vote

  • Government expects Hebei to invest $980 million in Zelezara
  • Premier sees privatization deal boosting economic growth

The planned sale of Serbia’s sole steel plant to a Chinese investor will boost the economy and help the government improve state finances as it seeks re-election in an April snap ballot, Premier Aleksandar Vucic said.

Hebei Iron & Steel may invest $980 million in Zelezara Smederevo over two years, raising its output and adding products such as welded tubes, Vucic said on Wednesday, one day after the cabinet in Belgrade declared the Chinese company the buyer of the unprofitable steelworks. Serbia’s economic growth this year will be “significantly” higher than the current forecast of 1.75 percent as a result of the sale, Vucic said.

“If we complete that, then everything is immeasurably easier for Serbia,” Vucic said in a news briefing broadcast live by Studio B television channel. “It changes everything.”

The privatization deal is a major step in the government’s plan to overhaul the economy and improve the state budget that spends hundreds of millions of dollars each year on subsidizing state businesses. Vucic, seeking to win a fresh four-year term in April 24 elections, is trying to meet the terms of an agreement with the International Monetary Fund that include cutting the fiscal deficit and selling or closing unprofitable companies.

Sole Bidder

The government said on Tuesday that Hebei, the sole bidder, met the asking price for Zelezara. Two attempts to sell the steelworks failed since U.S. Steel left it in 2012, and the company is now running at 40 percent of capacity to produce less than 900,000 tons of steel last year.

Higher output may boost gross domestic product growth to as high as 4 percent in 2017, Vucic said. This would help the country catch up with the European Union, which it wants to join in 2020.

Zelezara has been suffering from falling global steel prices and the government has kept it afloat with state subsidies, earmarking $34 million for the company in the 2016 budget. With more than 5,000 workers, the steelmaker has been managed by the Netherlands-registered HPK Engineering BV since March 2015.

Serbia is “working with Brussels” to comply with EU restrictions regarding state support to steel producers, Vucic said.

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