VZCZCXRO8952
RR RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHBW #0365/01 1011606
ZNR UUUUU ZZH
R 101606Z APR 08
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 0161
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBW/AMEMBASSY BELGRADE 0246

UNCLAS SECTION 01 OF 02 BELGRADE 000365 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV PGOV SR
SUBJECT: GOS CANCELS RTB BOR SALE TO THE AUSTRIANS 
 
REF: A. a) 07 Belgrade 1700 
 
     ¶B. b) Belgrade 155 
 
BELGRADE 00000365  001.2 OF 002 
 
 
SUMMARY 
 
------- 
 
 
 
¶1.  Serbia's caretaker government, on April 10, voted to cancel 
the sale of copper mining company and smelting RTB Bor to 
Austrian company A-Tec even after the Austrian government 
pledged financial backing.  The decision came one day after a 
government steering committee of G17 and DS ministers 
recommended the sales contract be cancelled, citing a loss of 
confidence that A-Tec would fulfill its present and future 
financial obligations.  The government also announced it would 
begin negotiations with a Russian bidder, who has not yet 
fulfilled the tender requirements.  The decision appears 
politically motivated, as the government could have given A-Tec 
an extension to find adequate funding. End Summary. 
 
 
 
GOS CANCELS RTB BOR SALE TO THE AUSTRIANS, APPROACHES RUSSIANS 
 
--------------------------------------------- --------- 
 
 
 
¶2.  On April 10, Serbia's caretaker government voted to cancel 
the sale of copper mining and smelting complex Rudarsko 
Topionicarski Basen (RTB) Bor to Austrian consortium A-Tec 
Minerals and Montanwerke Brixlegg AG (A-Tec).  In a press 
release, Minister of Economy Mladjan Dinkic addressed the 
Austrian government's pledge of financial backing to A-Tec in 
saying "empty promises will not help RTB Bor, investment and 
jobs will."  Dinkic added that contracts must be respected. 
Since winning the tender, A-Tec has twice requested to extend 
its payment deadline due to recent political instability and 
Deutsche Bank's withdrawal of financial backing (Reftel A). 
 
 
 
¶3.  GOS announced it will begin negotiations with second ranked 
bidder Russian firm Strikeforce Mining and Resources (SMR), part 
of Basic Element and owned by Oleg Deripaska (Reftel B).  SMR, 
however, has not fulfilled several technical tender 
requirements.  Immediately following the government's decision, 
SMR announced it wanted open-ended dates for purchase payments 
and the construction of a new smelter, as well as more relaxed 
environmental standards for the plant.  A-Tec said it would 
consider suing the government if it began negotiations with SMR. 
 
 
 
RECOMMENDATION TO CANCEL BASED ON LOSS OF CONFIDENCE 
 
--------------------------------------------- ------- 
 
 
 
¶4.  On April 9, the government steering committee overseeing the 
privatization of RTB Bor decided to recommend to the government 
to cancel the sale's contract with A-Tec.  The committee, 
chaired by Minister of Economy Mladjan Dinkic (G17) and made up 
of G17 and DS ministers and the Privatization Agency director, 
arrived at the decision by consensus.  RTB Bor management and 
trade unions were also in attendance and voiced their opinions. 
Rudolf Navijalic, representative of the pro-democratic trade 
union Nezavisnost, and the only dissenter of the recommendation, 
told EconAsst that Dinkic defended his recommendation saying he 
had lost confidence that A-Tec would fulfill its contractual 
obligations.  Dinkic said GOS would keep the $10 million bank 
guarantee to restructure RTB Bor, but would return A-Tech's 
first tranche payment of $150 million. 
 
 
 
POLITICAL REASONS FOR RECOMMENDATION 
 
------------------------------------ 
 
 
 
¶5.  According to embassy sources, the recommendation to cancel 
had more to do with politics and less with Dinkic's loss of 
confidence.  Unofficially, Dinkic told Navijalic that he had to 
support cancelling the contract to avoid possible political 
 
BELGRADE 00000365  002.2 OF 002 
 
 
attacks from DSS against the western leaning parties, including 
G17 and DS.  Ivana Grbic, a G17 member close to Dinkic, said 
pressure from Srdjan Saper, president of the advertising agency 
McCann Ericsson in Serbia and President Boris Tadic's campaign 
manager and media advisor, may be the real reason for the 
decision.  According to Grbic, Oleg Deripaska, the owner of SMR 
is one of McCann Ericson's largest clients in Serbia. 
 
 
 
COMMENT 
 
------- 
 
 
 
¶6.  The cancellation of RTB Bor's sale to A-Tec may be yet 
another example of campaign politics at work, with the democrats 
using the decision to dodge another DSS attack.  GOS could argue 
that it was more than fair with A-Tech by extending its payment 
deadline once.  However, a decision to sell RTB Bor to SMR given 
the company's recent purchase demands would be a blatant display 
of favoritism to yet another Russian company.  A sale to SMR 
could also been seen as a conciliatory gesture to Russia after 
postponing the ratification of the Serbian-Russian energy deal. 
Either way, the cancellation of the sale constitutes another 
black eye for Serbia's foreign investment climate.  End Comment. 
MUNTER