Identifier
Created
Classification
Origin
09BELGRADE1430
2009-12-02 14:52:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Belgrade
Cable title:  

SERBIA'S FORGOTTEN EAST: DIGGING A DEEPER HOLE

Tags:  ECON EIND ENRG EMIN SR 
pdf how-to read a cable
VZCZCXRO5359
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSL RUEHSR RUEHVK
RUEHYG
DE RUEHBW #1430/01 3361453
ZNR UUUUU ZZH
R 021452Z DEC 09
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 0433
INFO EUROPEAN POLITICAL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
UNCLAS SECTION 01 OF 04 BELGRADE 001430 

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EIND ENRG EMIN SR
SUBJECT: SERBIA'S FORGOTTEN EAST: DIGGING A DEEPER HOLE

REF: 06 BELGRADE 908; 08 BELGRADE 155; 08 BELGRADE 365

SUMMARY

-------



UNCLAS SECTION 01 OF 04 BELGRADE 001430

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EIND ENRG EMIN SR
SUBJECT: SERBIA'S FORGOTTEN EAST: DIGGING A DEEPER HOLE

REF: 06 BELGRADE 908; 08 BELGRADE 155; 08 BELGRADE 365

SUMMARY

--------------




1. (SBU) Bor, located in eastern Serbia's Timok region, is one of
the poorest and most polluted cities in Serbia. Its economy is tied
to the fortunes of RTB Bor, a bankrupt state-owned copper mining
and smelting company. The company (which has expressed interest to
purchase newer American equipment and expertise) could be
profitable, but only with a private investor willing to reduce a
bloated workforce and aggressively modernize equipment and
facilities. Despite the government's proposed restructuring plans,
political apathy, economic mismanagement and union resistance make
a solution to Bor's grave economic and environmental problems
unobtainable in the near term, leaving few opportunities for the
region's residents. End Summary.







RTB BOR IN NUMBERS

--------------




2. (SBU) RTB Bor (Rudarsko-topcionarski basen Bor) is a bankrupt
state-owned copper mining and smelting company based in Bor, a city
of 55,000 located in eastern Serbia (ref A). It has two operating
mines, an open pit just outside the city and an underground mine
nearby. It also has a smelter and a sulfuric acid refining unit in
Bor. The company now has 4700 employees, down from 8,000 in 2004.
RTB Bor has been operating at a loss for several years and now has
debts totaling over $1.2 billion . According to the company,
annual production of copper is currently around 24,000 tons and RTB
Bor has over 1.2 billion tons of confirmed ore reserves,
representing around 2% of total world copper reserves. At its
zenith, the company produced 155,000 tons of ore annually.
Currently, the share of metal in ore from these mines averages
0.38% from surface extraction and 0.9 to 1% from underground
extraction. Independent geologists told us that this ore was of
poorer quality and had a lower metal content than that found in
other copper production areas. They also told us that, for
comparison, the neighboring Bulgarian copper mine Asarel produces
30,000 tons of copper per year and Poland's mine Legnica 300,000
tons per year.



GOVERNMENT PRIVATIZATION PLANS


--------------




3. (SBU)) After a failed privatization effort in 2008 (refs B and
C),the Serbian government is once again implementing turnaround
plans for the company. Branislav Zec, Executive Director of
Serbia's Privatization Agency, told us on November 5 that the
agency wanted to move the company's debts into a company which it
planned to ask a court to declare bankrupt. He said that the
agency would then form a new company from the remaining assets and
swap existing creditors' debt claims for equity in the new venture.
(The Serbian government is RTB Bor's largest creditor, holding just
over 90% of the company's total debt.) Zec said that this new
venture would then be privatized sometime in the future. While Zec
thought the company could become profitable with better management
and technology, he was not optimistic about the company's chances.
He said with new technology, the company could more efficiently
separate copper from ore and would be profitable even with a copper
price between $2,500 to 3,000 per ton. He stressed, however, that
the company was saddled with outdated technology and large
liabilities and would not be profitable even with a copper price of
$9,000 per ton. He said that Serbia received a commodity loan from
the Canadian government to build a new copper smelter in Bor and
that the GoS issued the company a loan guarantee of $25 million to
buy new mining equipment.

BELGRADE 00001430 002 OF 004


RTB BOR OFFICIALS OPTIMISTIC ABOUT FUTURE

--------------




4. (SBU) Blagoje Spaskovski, the managing director of RTB Bor, was
upbeat about the company's future during a November 17 meeting. He
told us that in addition to the new smelter financed by the
Canadians, the company also planned to build a new sulfuric acid
plant and buy new mining equipment. He said that the company
should be privatized within the next three to five years.
Spaskvoski said that most of the company's aging equipment was from
the United States and that he would "welcome the opportunity to buy
more equipment from American companies," without providing
specifics of what was needed and what funds were available. He
confidently predicted that the company would be profitable by next
year and that it would triple its annual copper production to
75,000 tons within three years.





NEW ORE DISCOVERED IN BOR

--------------




5. (SBU) Spaskovski told us that RTB Bor had found a small amount
of very rich ore with a high copper content (7.3% and 3%) (Note:
This discovery is the probable source of his confident predictions
of future success for RTB Bor. End Note). Dejan Kozelj, Chief
Geologist at South Danube Metals (a local company 100% owned by
Freeport McMoran of Phoenix, Arizona),said that the new discovery
in Bor was very small (around 10,000 tons of ore) and was "like a
liter of water in the Danube" but that it showed Bor's potential
for a much larger amount of high-quality reserves. Kozelj said in
confidence that Freeport had shown interest in Bor but was waiting
for further analyses before pursuing any investment there.





UNIONS AGAINST PRIVATIZATION

--------------




6. (SBU) Failed privatizations and economic uncertainty have
caused many RTB Bor employees to fear for their jobs and oppose any
new efforts at privatizing the company. Representatives of the
local miner's unions voiced their opinions about RTB Bor's future
to us on November 17. Dragan Aleksic, President of Bor's branch of
the Confederation of the Autonomous Trade Unions of Serbia Dragan
Jankucic from Nezavisnost said that RTB Bor represented the "life
of the region and Bor." Aleksic said the unions were not against
privatization if new owners respected existing working conditions,
contracts and would maintain current staffing levels. Aleksic also
attacked the national privatization agency and their work on Bor to
date, saying that agency "had no experience with privatizations."



BOR PRIVATIZATION PLANS LACKING GOOD MUNICIPAL PARTNER

-------------- --------------




7. (SBU) The city of Bor is controlled by the Serbian Radical
Party (SRS),and its mayor, Branislav Rankic, have no discernible
strategy for local economic development. As a direct result of the
city's bungled economic management, development in Bor is led by
local NGOs and a handful of successfully privatized companies.
Representatives from local companies and Bor's Community

BELGRADE 00001430 003 OF 004


Development Association told us on November 17 that they were
focused on developing tourism and small and medium enterprises in
the area, but that they received no support from local government.
Other NGOs in the region confirmed that budding efforts at regional
economic development included all other regional cities except Bor.
Mirjana Djordjevic, managing director of Eurofoil, a successful
recycling and packaging company privatized partially by American
and local investors in 2006, also expressed dissatisfaction with
the lack of support from local government on November 18. She said
local officials were unresponsive when she asked for their help in
establishing a local plastic recycling center to supply the company
with raw materials, stating that the "private sector is not
appreciated here."





POLLUTION AND ENVIRONMENTAL CONCERNS

--------------




8. (SBU) While essential to the local economy, Bor's mines have
caused significant air pollution and damage to local groundwater
and soil. The World Bank has funded a $ 41 million project led by
the Serbian Ministry for Environment and Special Planning and
implemented by local authorities to mitigate environmental damage
from the mines and help social-economic recovery. Vidojko
Simonovic, WB Project Director in Bor, told us on November 17 that
this project was slated to begin next year and focused on cleaning
up contaminated water and soil around the mine. However, RTB Bor
and its unions would like to secure support both from the Serbian
government and the World Bank to reallocate these funds. RTB
Managing Director Spaskovski and Union representatives both told us
that while they were not opposed to the original objectives of the
WB clean-up project, they favored using WB funds to fill in the old
open mine pit near downtown Bor, which was in danger of collapsing.
(On our visit to the pit, houses, the mine's smelter, and a road
were all located within 200 meters of the edge of the 400 meter
deep hole). Jankucic told us that air near the pit contained
particulate pollutants such as arsenic and mercury at
concentrations over 150 times the allowed levels. He also said
that contaminated waste water from the mines and this pit
containing heavy metals were discharged directly into surrounding
rivers and streams.





LARGEST CITY IN REGION PINNING ECONOMIC HOPES ON SOUTHSTREAM

-------------- --------------




9. (SBU) Just 20 kilometers southeast of Bor, the region's largest
city, Zajecar, (population 60,000),is pinning its hopes on new
energy investments. Srecko Nikolic, the Deputy Mayor and his
economic team told us on November 18 that while Zajecar was
focusing some of its efforts on developing its tourist and
agribusiness infrastructure, it had based much of its planning on
the assumption that the South-Stream gas pipeline to be developed
by Russia's Gazprom would pass near the city. He said that this
would spur further economic development and that the city was
planning a major investment in its infrastructure in anticipation
of this. Nikolic told us that the Russian Ambassador to Serbia had
recently visited Zajecar and assured him that the pipeline would
enter Serbia near the city.



COMMENT

--------------




10. (SBU) Bor and the surrounding region face major economic and
environmental challenges, including moving away from near total
dependence on the copper mine and cleaning up the severe pollution
that continues to degrade the quality of life for Bor's citizens.
While RTB Bor could become profitable if privatized and operated
efficiently, the process to date has been mismanaged and has

BELGRADE 00001430 004 OF 004


received little support from the local community. Local political
apathy, along with signs of stiff union resistance to any
privatization plans for RTB Bor paint a bleak picture of Bor's
economic future. An old saying states that when you find yourself
deep in a hole, stop digging. Bor hasn't even begun to put down
its shovel. End Comment.
PEDERSON