Government accepts Esmark bid for steel plant

Government accepts Esmark bid for steel plant

The government accepted Esmark's bid after considering a report by the commission set up to implement a strategic partnership model for the privatization of Serbia's steel mill.

Previously, two tenders were called for the Smederevo steel plant, but no bids were submitted.

The third tender was called on December 5. Three companies submitted their bids, but only the one from Esmark proved to be valid.

“The negotiations on the strategic partnership with the Smederevo Zelezara will begin during this week,” Chair of the Commission Bojan Bojkovic told Tanjug after the government meeting.

Serbia's Privatization Agency issued an invitation to tender for a strategic partner with a capital input in the steel plant, where the government is to preserve a 19.99 percent stake in the ownership structure.

James Bouchard, Esmark's founder, chairman and CEO, told Tanjug recently that the company would invest USD 400 million in the Serbian steel plant over the following few years if it won the tender, adding that nobody would lose their job at the plant.

He stressed that Esmark would invest USD 28 million in Zelezara in 2015 alone, and would restart the second blast furnace and make new investments in the central plant.

The steel mill was first sold after the bankruptcy in March 2003 to U.S. Steel for USD 23 million. By early 2012, it was a big exporter and accounted for 13 percent of Serbia's total exports.

In January 2012, the Serbian government bought Zelezara back from U.S. Steel for a symbolic price of one dollar.

The government has been providing around USD 10 million every month to sustain the plant's production.

"The re-sale of Zelezara is expected to save 5,000 jobs and probably open 17,000 new ones," said Tanjug.

"Norms ignored, benefit unclear"

Economist Mahmut Busatlija pointed out last week that the tender procedure for the company's added capitalization failed to respect international norms.

"The very fact that it was known who made an offer as they were placed points toward international tender norms not being respected," this associate of the Economic Institute said.

As he explained, in order to have a successful tender, at least three valid bids must arrive, "and when you have only one, which the state claims is good without making any checks, then I don't know how the process will end, and what will be the benefit from this privatization."

Busatlija noted that speculation was allowed on which offer was good and which was not, and stressed that he was unclear on how Prime Minister Aleksandar Vucic was able to know that "only three bids were good, and the rest were not."

"The whole procedure is (taking place) outside the public eye, it is neither known what the goal of selling state-owned capital is, nor under which conditions it is offered for sale, and now there is speculation about the way the negotiations will be led with the only company that supposedly had a successful offer," he said.

This expert was particularly concerned over the fact Esmark ranks lower than U.S. Steel, but has found an interest in buying Zelezara "when U.S.Steel was not able to hold on to it within its production and placement system."

"It is important that the state, as it sells state capital, does not take on the costs created through bad business practices," Busetlija concluded.

Another economist, Goran Nikolic, said he believed Esmark will be given good conditions from Serbia, and added this was "probably already agreed on." He stressed that the sale of Zelezara was "not a sale in the real sense of the world - the state will have to enter this deal with a large amount of money, and everything will have to be finalized by January 31."

"The steel industry situation is not promising. Zelezara Smederevo has a large debt of about half a billion euros. I expect that there will be significant investment by the state, on Esmark's demand," Nikolic said.

He added that it was "good to make a deal because shutting down Zelezar would leave 5,000 workers jobless."