January 31, 2012 / 1:55 PM / 8 years ago

Serbia looks east for quick steel plant sale

* Govt signs deal to buy back plant from U.S. Steel

* Loss-making steel plant a major exporter, employer

* Concern over strain on budget

By Aleksandar Vasovic

BELGRADE, Jan 31 (Reuters) - Serbia said is looking east to quickly offload its sole steel plant, a major employer and exporter it bought back from U.S. Steel for $1 after years of underperformance.

Signing the buyback deal, Prime Minister Mirko Cvetkovic said on Tuesday the government hoped to find a buyer swiftly, amid concern over the strain the plant will place on the budget of the struggling Balkan country.

“We have no plans to run it long-term,” he told reporters. “Investors could come from Ukraine, Russia or even the far East.”

The government said last week it would buy back the loss-making plant to avert a closure and the loss of 5,500 jobs, mindful of an election due by May amid an official unemployment rate of 23.7 percent.

U.S. Steel bought the then bankrupt Sartid steel mill in the central city of Smederevo in 2003 for $33 million, the first major privatisation deal after the ouster of former strongman Slobodan Milosevic in 2000.

The plant has been running well below annual capacity of 2.4 million tonnes for the past five years, and in the first three quarters of last year U.S. Steel’s Serbian and Slovakian units made a combined loss of about 50 million euros ($65.57 million).

Cvetkovic said Serbia would finance production and wages from the budget until the sale.

“There will be no additional deficit and we will find money either through borrowing from banks or we will reshuffle budget allocations,” he said.

Fitch ratings agency last week warned of the potential strain on the budget if the government bought back the plant.

The International Monetary Fund has already postponed the first review of its 1 billion euros ($1.31 billion) deal with Serbia, saying the country’s 2012 spending plans did not meet the terms of the deal.

Serbia’s target budget deficit is 4.25 percent of GDP.

After the signing ceremony, David Rintoul, U.S. Steel’s vice president for operations in Europe, said the company had to write off assets in the Serbian unit worth up to $450 million.

U.S. Steel had earlier blamed the plant’s woes on its reliance on purchased coke, a less favorable product mix, the slow pace of economic recovery in the region and pressure from lower-priced imports.

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