All Eyes On China In Serbian Steel Mill Town

21 June 2016

Serbian President Tomislav Nikolic was effusive about the April sale of the once-mighty Smederevo steel mill to a Chinese company during a celebratory speech in the city on Sunday.

“I marked this day in my calendar; you should mark it, too. Today is a holiday and a day to remember, not only for more than 5,000 Zelezara workers and their families whose future is [now] better, and not only for Smederevo, whose industrial giant has again begun to live, but for the whole of Serbia,” he said while addressing dozens of Serbian and Chinese officials in front of an estimated crowd of 12,000 in the mill’s yard.

The early Sunday morning event was the final stop on Chinese President Xi Jinping’s three-day tour of Serbia.

Xi also praised the new deal, saying it will bring back “glory and vitality” and would boost Serbia’s economy and living standards.

But, despite the pomp and promises, many in the town who depend on the plant for their livelihoods have heard much of this before and are viewing the deal with caution.

Zelezara’s rocky history is a source of significant uncertainty for Smedevero.

Privatized in 2003, it was sold to US Steel for $23 million (about 17.5 million euro) but the American firm withdrew in 2012 following a steel market crash.

However, the Serbian government bought the plant back for one dollar in hopes of maintaining production and preserving jobs.

After years of frustrating dead ends and collapsed deals, the government finally found a buyer for the plant in He Steel earlier this year.

The steel mill, the biggest direct and indirect employee in the city of 150,000, was sold for 46 million euro to Chinese firm He Steel Group on April 18.

This was the first Chinese investment in a major Serbian company. The Chinese company has pledged to invest at least 300 million euro in the mill and plans to retain the workforce of some 5,050 employees.

He Steel, the second largest steel producer in the world, has an annual production capacity of 50 million tons and employs 120,000 people in 30 countries. Its 2015 revenues were 41.9 billion euro.

The company will have has its hands full with Zelezara. The mill has a projected annual capacity of 2.2 million tons of steel. Currently it produces only 350,000 tons – a fraction of that amount.

The debt-ridden mill also owes about 260 million euro to banks and 264 million euro to other creditors.

Among those creditors is Nenad Dragovic, owner of Dragovic Transport, based in the nearby small village of Vodanj. He has been offering his transportation services to Zelezara since 2001.

These have been quite turbulent years, with lots ups and downs, he told BIRN.

“Everything was going well while the US Steel was here. But since they left, it has been a disaster,” he said, bitterly explaining that Zelezara now owes him RSD 30 million [around 243,000 euro].

He has temporarily stopped working with Zelezara while he waits for the Serbian state – which took over Zelezara’s debts - to pay.

“I am very pissed off [with the government]. I don’t expect them to pay me back everything,” Dragovic argued.

Dragovic is taking a more resigned attitude towards the mill’s new owners.

“I don’t know what to think and whom to believe anymore. We will see how it works with them,” the businessman said.

Some ten kilometers from the Zelezara party, locals hope better times will come, but for most of them, the future with the new Chinese employer –slated to take over the mill at the end of June - still looks uncertain.

One Zelezara employee, who agreed to speak to BIRN under the condition of anonymity, said that workers don’t know much about their destiny apart from what they’ve heard in the media.

“All I know I have heard by the word of mouth,” the fifteen-year Zelezara employee said.

He hopes that he, and his coworkers, will stay employed without a reduction in their monthly average salary of 300 euro.

“I am not worried too much because I have no alternative. We are only worried because we don’t know the Chinese pace of work and thus we don’t know if we will be able to handle it,” he said.

“There have been rumours that some 1,000 new workers from China will come, but I don’t know that for sure. For us it is important that we stay and work,” the Zelezara employee added.

While the steel plant directly pays over 5,000 people, a wide range of small businesses in the region indirectly depend on the steel plant.

Dragan Nikolic, owner of a small transportation company, is one of those whose fortunes rest with the health of the steel plant.

He claims that, while much of his clientele is children and retirees, his business has always been influenced by how Zelezara is doing.

“The retirees don’t travel now as much because they have to support children who either don’t work or don’t earn enough money or are afraid of losing their jobs,” Nikolic told BIRN.

His business was booming when US Steel ran the mill. Zelezara’s employees had steady jobs, good incomes and spent freely. That all changed when the Serbian government bought the plant back, a move that caused people to fear their futures, Nikolic explained.

He now hopes the new owners will bring that prosperity back to Smederevo and its citizens – and thus for his business.

“It is important that the Chinese really decide to stay longer here and that Zelezara becomes a serious company. Only then will people here relax, live normally and spend more money,” Nikolic observes.

“And if that happens, it will be good for my business as well,” Nikolic concluded.


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