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DE RUEHBW #1430/01 3361453
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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 
 
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¶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 
 
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¶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