Serbia restarts its only steel mill, hopes for an investor

BELGRADE, July 7 Mon Jul 7, 2014 6:03am EDT

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BELGRADE, July 7 (Reuters) - Serbia's loss-making still mill Zelezara Smederevo, which the government is keen to sell, restarted its only operational blast furnace after a two-month break on Monday.

The government bought back the Zelezara steel plant, which employs about 5,000 people, from U.S. Steel in 2012 for $1 to prevent its closure. U.S. Steel had bought the then-bankrupt steel mill in 2003 for $33 million.

Since then, several governments have tried to sell it without success. In May it idled its only operational furnace after the outbreak of a crisis in Ukraine jeopardized imports of ore, and sent employees home with reduced salaries.

"After a two-month delay, the furnace No 2 was sucesfully started ... and first tonnes of iron will be transported to the steel foundry and rolling mill in two to three days," Zelezara said in a statement.

Its sale is a vital part of Serbia's efforts to cut its fiscal deficit, seen at over 8 percent of national output, and cap its public debt which now stands at 63 percent of gross domestic product.

Last week, Prime Minister Aleksandar Vucic said the government was in talks with several companies and was willing to give away Zelezara Smederevo to any investor who could make it profitable.

The plant generates an average annual loss of about 102 million euros and has been running well below annual capacity of 2.4 million tonnes for the past five years.

Serbian media reported last week the government was near a deal to sell the steel plant to Luxembourg-based United Group SA, but there was no official confirmation.

In addition to Zelezara Smederevo, Serbia must also end subsidies to more than 150 loss making state-owned firms costing 750 million euros ($1.02 billion) every year, if it wants to secure a World Bank $250 million loan for budget support. (Reporting by Aleksandar Vasovic; Editing by Zoran Radosavljevic and William Hardy)

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