Business
Hope for Serbia's Depressed Copper Towns
By Silvija Vukasinovic and Sasa Trifunovic and Darko Stojadinovic, Balkan News 18/3/08
Mar 21, 2008 - 11:21:46 AM

Locals in Serbia's economically depressed south-east hope the Austrian purchase of a major copper complex will revive their fortunes.

Austria's A-Tec GmBH purchased RTB Bor, an ailing copper mining and smelting complex, after Serbia's Privatization Agency put out a tender.

The Austrian side won, after offering $466 million, easily outbidding Russia's SMR, which had offered $370 million. A-Tec sealed its bid by pledging to invest $230 million in production and overhaul.

The Austrian buyer made an initial deposit ahead of the February 29 deadline, securing time to collect funds and settle the deal before the April 4 deadline for the final payment.

The purchase opens up new vistas for the nearby mining towns of Bor and Majdanpek, with populations of 55,000 and 25,000 respectively.

Under the Yugoslav communist era, Bor and Majdanpek developed into sprawling industrial towns with modern buildings, shopping malls, schools and all the amenities of the then prosperous state.

But in the 1990s, the company went bust as a result of the combined effects of mismanagement under former president Slobodan Milosevic, international isolation, Balkan wars, dwindling copper reserves and low world prices for the ore.

While production continued, thanks to heavy state subsidies, the workforce was slashed from 24,000 in the 1980s, to 4,700 in 2006.

The massive layoffs did not help meet hefty debts worth $600 million, however, so after Milosevic's ouster in 2000, Serbia's new reformist government decided to sell the company.

The first bid got nowhere. After Romania's Cuprom won the bid in 2006, it then withdrew, having failed to provide bank guarantees for the payment.

In the end, a new tender was offered, which A-Tec has won. According to expert assessments, the mines in Bor and Majdanpek hold enough copper for 23 more years of exploitation, while the market value for ore is expected to remain steady at $7,000 per tonne.

During the ownership restructure, many analysts counseled against the state sell-off, arguing that it should have kept majority ownership of the mine.

Trade unions were especially vehement in their protests, as were local politicians.

Branislav Rankic, mayor of Bor and a member of the nationalist Serbian Radical Party, denounced the privatisation scheme as "criminal".

His Majdanpek counterpart, Dragan Popovic, was not against privatization but wanted the Bor and Majdanpek mines sold off separately.

The government refused to contemplate remaining a major stakeholder in the company, however. According to Gorcilo Potpara, a member of the Majdanpek local assembly, officials insisted RTB's massive debts made this option unattractive.

While successive governments have struggled to resolve the company's fate, the former workers have had to fend for themselves in their impoverished towns.

Some in Majdanpek started small private businesses, using tiny redundancy payments they had received.

Many others left the city altogether, seeking a better life. More than 5,000 people, one-fifth of Majdanpek's population, left in the last five years.

The number of jobless residents seeking welfare benefits rose rapidly while the birth rate has halved since 1998.

The rush to leave quickly also meant property prices fell. A spacious two-bedroom flat recently sold for a mere 150 euros per square metre as opposed to 1500 euros in the capital Belgrade.

But since the Austrian bid went through, Bor and Majdanpek have started to revive.

In the last few weeks, demand for flats in Majdanpek has once again begun to exceed supply. "Flats selling for 12,000 euros not long ago now cost 30,000 euros," Zoran Jankovic, the owner of the Fontana real estate agency, said.

The rise in the price of copper on the London stock market has also played a part in restoring confidence in the area.

The wages of those still in work in the company started rising once the price per tonne rose beyond $7,000, boosting the local population's potential purchasing power.

On the other hand, the rise in wages has been matched by an equivalent rise in prices, so few people feel much better off as yet.

Locals hope an efficiently managed privatisation will restore lasting financial stability to the community.

"I expect the new owners to be helpful in assisting employees who have been made redundant," Dragan Randjelovic, managing director of RTB's transition department, said.

Randjelovic is under no illusion that modernization may well result in a further downsizing of the company workforce.

Therefore, he expects the Austrians to "support the local authorities in boosting small and medium-sized businesses in order to create new jobs for people who have been laid off".

Randjelovic believes the new owners should allocate funds to re-educate and re-train former RTB workers in new skills. There is a clearly an appetite for retraining. "Around 1,000 of them have already completed various courses for other jobs," he noted.

RTB's assistant managing director, Zvonko Milijic, agrees that the transition process will result in more job losses.

"Around 30 per cent of the employees will be laid off, which requires a completely new benefits programme," he explained.

"The new owners have also been asked to modernise the company and they will need skilled workers once that process has been completed," Milijic said.

Mirko Kovac, the owner of A-Tec, has sounded helpful. He agreed it would be in the company's interests to utilise the services of local companies and workers, provided they are competitive.

"Our consortium has a reputation for keeping sound relations with all local communities where we do business," Kovac maintained. "Corporate responsibility is our business strategy."

International financial institutions have offered to help ease the situation in Bor. Last July, Serbia signed a deal with the World Bank for a $43 million loan to be spent on Bor's regional development.

The lion's share of the loan, or $33 million, will be used to stop toxic waste from polluting the environment, while the remaining $10 million will go on boosting the private sector in Bor and Majdanpek and on creating new jobs.

Andrej Popovic, a Belgrade-based World Bank official, said work on cleaning up the environment was crucial. "The environment has been made sterile by decades of copper exploitation," he said.

Randjelovic specified that a half of the $10 million will be allocated on re-training laid-off workers while the other half will be set aside to boost small and medium-sized companies.

Between 500 and 1,000 micro-loans will be offered to various private entrepreneurs who will then be entitled to take out fresh loans as soon as they repay the initial grant.

Randjelovic believes the various schemes will create about 5,000 new jobs in the Bor municipality over the five-year transition period.

To ensure there is no return to the environmentally damaging practices of the past, the mine's new owner has pledged to use new copper melting technologies in line with international standards.