Executive Summary

• Smederevo Steel mill is a large steel-producing plant with around 5000 employees, which is located in Smederevo, a city downstream from Belgrade on Danube river;
• The plant was founded in 1913 as a private company, nationalized in 1945, and privatized in 2003;
• The company once again became state-owned on January 1, 2012, while it was privatized for the second time in 2016;
• Smederevo Steel mill has an annual capacity of around 2 million tonnes of steel products, but that capacity was rarely in full use;
• Related projects are the construction of new Smederevo port and single-track railway Mala Krsna-Smederevo.

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Project Key Facts

Regional and Local Context

Smederevo Steel mill is located in the vicinity of the city of Smederevo, a city downstream from Belgrade on Danube river. The plant is very important to the community, due to the number of people it employs. On the other hand it has a negative environmental impact. Summarizing bellow are the most important aspects connected to the project:

1. Smederevo Steel plant was founded in 1913 as a private company under the name SARTID (Srpsko akcionarsko rudarsko topionicarsko industrijsko drustvo or Serbian joint-stock mining smelting industrial corporation). It was nationalized in 1945 and remained state-owned until the privatization in 2003, when it was purchased by the American integrated steel producer, U.S. Steel, for USD 23 Million;
2. The problems began after 2008 when the prices of steel products dropped dramatically due to the World economic crisis. This caused the withdrawal of U.S. Steel from Serbia on January 1, 2012, after almost a decade of operation during which it was one of Serbia’s biggest exporters. The Smederevo Steel mill was re-nationalized becoming the greatest burden of the state budget, because its 5400 workers continued to get their salaries while there was no production;
3. This was followed by the 4-year period of struggles during which the Government of Serbia tried several times to privatize the Smederevo Steel mill. There were negotiations with the American company Esmark Steel Group, but they were unsuccessful. In 2015, the management over plant was given on a 3-year period to the Dutch company HPK Engineering, led by the Slovak businessman Peter Kamaras;
4. After the Republic of Serbia joined Belt and Road Initiative (BRI) and became part of 16+1 format, Smederevo Steel mill was the first offer to the Chinese side. On April 18, 2016, the Government of Serbia accepted the bid made by the Chinese company, Hesteel Group (HBIS), in the amount of EUR 46 Million. Additional EUR 300 Million investments into the plant were promised, as well as the rise of production to the full capacity of over 2 million tonnes of steel products.
5. The first big investment made by the HBIS GROUP Serbia Iron & Steel was in the agglomeration plant, which worth was estimated at USD 120 Million. Projects developed by the Government of Serbia related to the Smederevo Steel mill are the construction of new Smederevo port and single-track railway Mala Krsna-Smederevo. Their estimated values are EUR 93 Million and EUR 9,5 Million. The new port will partly be funded by European Investment Bank (EIB).

Actors and strategies

Project insights

Smederevo Steel mill is one of Serbia’s biggest exporters which employs more than 5000 workers. Once the greatest burden to the state budget due to minimal or no production at all, now expects large investments, as well as an increase of production to its maximum capacity of over 2 million tonnes of steel products. All of that contribute to the increased number of challenges related to the project.

Political/Legal

• EU quotas - The production of Hesteel Group (HBIS) steel plant in Smederevo is currently suffering due to quotas on imports of steel products imposed by the EU. Although, the quotas are response of the EU to the new US trade policy, third countries are suffering from it as well. At this moment, it seems that the Smederevo Steel mill was not affected at the large scale, but if trade disputes escalate, the plant could suffer the 2012 fate once again.

Economic

• Production - During the whole life-time of Smederevo Steel mill, there were assumptions that the production is not economically viable, due to lack of all necessary raw materials in the vicinity of plant. After the Hesteel Group (HBIS) took over the Smederevo Steel mill, there are suspicions that the new Chinese owners are not actually producing over 2 million tonnes of steel products, but instead covertly importing it from China, where the production is much cheaper, and re-exporting it, while declaring Serbia as a country of origin.

Environmental

• Possible negative impact - There is no doubt that the acquisition of Smederevo Steel mill by the Hesteel Group (HBIS) is very beneficial to the economy on all levels, simply due to the transfer of operational costs from the Government to the new owner, as well as the rise of salaries. On the other hand, considering an increase of production, it will definitely make an impact on the environment, but its level will depend on implemented technology and management.

Forecast

Considering the political support from both the Republic of Serbia and the People’s Republic of China, as well as the financial one from the Chinese side, we can expect that the Hesteel Group (HBIS) continue to manage the Smederevo Steel mill. On the other hand, there is always a threat that the Hesteel Group (HBIS) could withdraw from the plant in Smederevo due to the EU quotas, similarly as U.S. Steel already did in 2012. Nevertheless, the infrastructure projects developed by the Government of Serbia related to the Smederevo Steel mill will almost certainly be completed, because the funds are already secured, and the work has already begun.

Strategy and Operational options for EU actors

There are two distinct ways in which the EU companies could engage with this project:

1. Support the infrastructure development of the related road, railway and waterway routes. Given the large pledge to invest in the connected infrastructure, there is a good opportunity for European construction and infrastructure companies to participate in the development of all these projects.
2. Technological support depends strongly on the openness of Chinese actors to accept European technological transfer. Given the age of the mill and the pledge to renovate and invest in more production facilities, we can see a potential engagement for the European companies in providing the required technological and logistical assistance. This is conditioned nevertheless by the Chinese openness to such engagement. 

While searching for ways to engage in the mining and primary materials production sector of Serbia, all interested actors from the EU should take into account that basically the whole sector has been taken over by the Chinese companies, either by the Hesteel Group (HBIS) in Smederevo, or by Zijin Mining in Bor. EU actors could consider a limited engagement within the sector in cooperation with US companies or a possible partnership with the Chinese. Both of these scenarios can prove difficult to implement, however given the existing context, there is no easy entry on the market. 

Sources

1. eKapija. Počela gradnja postrojenja Aglomeracije u Železari Smederevo - Ulaganje od 120 mil USD u novi ekološki pogon za čistiji vazduh i veću produktivnost. Available at: https://www.ekapija.com/news/2582072/pocela-gradnja-postrojenja-aglomeracije-u-zelezari-smederevo-ulaganje-od-120-mil-usd (Accessed on: 25.12.2019)
2. eKapija. Potpisan ugovor o prodaji "Železare Smederevo" - Preuzimanje će biti okončano u junu. Available at: https://www.ekapija.com/news/1415282/potpisan-ugovor-o-prodaji-zelezare-smederevo-preuzimanje-ce-biti-okoncano-u-junu# (Accessed on: 25.12.2019)
3. MGIS. Izgradnja novе prugе, od prugе Mala Krsna-Smеdеrеvo do Novе lukе Smеdеrеvo. Available at: https://www.mgsi.gov.rs/lat/projekti/izgradnja-nove-pruge-od-pruge-mala-krsna-smederevo-do-nove-luke-smederevo (Accessed on: 28.12.2019)
4. MGIS. Proširеnjе kapacitеta tеrminala za rasutе i gеnеralnе tеrеtе lukе Smеdеrеvo. Available at: https://www.mgsi.gov.rs/lat/projekti/prosirenje-kapaciteta-terminala-za-rasute-i-generalne-terete-luke-smederevo (Accessed on: 28.12.2019)
5. RSE. Da li će kvote EU ugroziti smederevsku Železaru? Available at: https://www.slobodnaevropa.org/a/eu-smederevo-zelezara/29721600.html (Accessed on: 28.12.2019)
6. RSE. Kvote za čelik: Hoće li Srbija izbeći 'metak u čelo'? Available at: https://www.slobodnaevropa.org/a/celik-srbija-kvote-kina-smederevo/30002323.html (Accessed on: 28.12.2019)

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