Bosnian steel mill spurs trade in war-torn Balkans

ArcelorMittal, the world's largest steel company, has revived the mill with a $280 million investment.

For decades, the steel mill that dominates this city's skyline also dominated its economic life – supplying steel to all of Yugoslavia until the 1991-95 war tore the country apart. When the fighting stopped, the mill's prospects were dim: a Communist-era dinosaur isolated from suppliers and customers by wartime damage and postwar borders.

But today, the steelworks are operating again. By spring – when a new blast furnace comes on line – the mill will be back in full swing, converting Bosnian iron ore into more than 2 million tons of fresh steel a year.

"We took an unviable operation and turned it into one that is viable and sustainable," says M. K. Srinivasan, chief executive of the mill, which is owned by ArcelorMittal, the world's largest steel company. "I can say we are definitely one of the major drivers of the national economy.

Restoring the mill hasn't been easy under the country's ethnically divided government, and ArcelorMittal has made some enemies along the way. But supporters see the investment – the region's largest private foreign investment since the war – as a potential savior for Bosnia-Herzegovina's troubled economy, which suffers from 45 percent unemployment and a massive trade deficit, with imports exceeding exports last year by more than 2 to 1.

When returned to full capacity, the mill will employ 4,500, produce hundreds of millions of dollars in annual exports, and create demand for Bosnian iron and limestone mines and the cash-strapped national railway.

"It puts Bosnia in a position of being a major steel supplier for the entire former Yugoslav region," says Christopher Beauman, an industry expert at the European Bank for Reconstruction and Development in London, which helped finance the investment. "Whatever the pros and cons of breaking up Yugoslavia politically, it made no sense economically; these countries have to trade together and this investment is helping reintegrate the regional economy."

ArcelorMittal bought a controlling stake in the mill in 2004 and has invested some $280 million here, including $100 million toward returning the integrated production line to service. Production has increased from 200,000 to 600,000 metric tons since 2004, and will jump to 2.2 million when the integrated works comes on line later this year. Roughly 80 percent is for export, mostly to other former Yugoslav republics.

But the firm has experienced the frustrations of doing business in Bosnia, where effective government control remains largely divided on ethnic lines. Procedures vary between the Bosnian Serbs' state-within-a-state, Republika Srpska and the 10 cantons of the Croat-Bosniak Federation.

Zenica, a stronghold of the Bosniaks (or Bosnian Muslims) during the war, is in the Federation, while ArcelorMittal's iron mines are located in Republika Srpska. One of the mines is in Omarska and was the site of the Bosnian Serb's infamous wartime concentration camp. Serbs, for their part, remember Zenica as the wartime center of foreign mujahideen fighters, who committed atrocities against civilians – making ArcelorMittal's transethnic supply chain from mine to mill an uncertain venture. "We will really be testing the waters," says Mr. Srinivasan.

To date, one of the biggest challenges has been the electricity supply, which Srinivasan says is unreliable and overpriced. "We have been very disappointed with the situation," he says. "I wish we had more smart economic people in the government who understood that we are a major driver in the economy and you can't be exploiting us with high rates."

But local experts don't share his view of the mill as a key player. Nino Serdarevic, a University of Zenica economist, says that the steel mill has played only a minor and indirect role in the city's recovery. "Before the war the steel mill employed 23,000 workers and indirectly supported 80,000 of Zenica's 87,000 inhabitants," he says. At present it employs 2,700, whom Mr. Serdarevic says are paid an average salary of $390; the Federation average is $500.

"It's a huge investment, but it hasn't supported any improvement in the local economy," he says. The main benefit has been indirect: ArcelorMittal's investment has anchored the local government's low-rent business zone – home to a number of small businesses – and attracted industrial firms like Slovenian car-parts-maker Cimos, which plans to employ 600.

ArcelorMittal has also generated plenty of ill will, accused of having low wages, a lax safety culture, and a spotty environmental record. On two occasions last year, deliveries of radioactive scrap metal were discovered at the mill. Last summer, mill workers, some of whom are paid under $1.60 an hour, held an unsuccessful general strike for higher wages from the firm – whose Indian-born founder, Lakshmi Mittal, is Britain's richest man.

ArcelorMittal facilities in Eastern Europe have experienced a chain of fatal accidents that have killed 91 miners in Kazakhstan and 25 mill workers in Romania since 2001. At the Zenica mill last year, three workers died in a gas leak.

Srinivasan says the company puts a high priority on safety. "I won't say that everything has improved, but we have an agenda and we're working hard on it." And the public believes him, Serdarevic adds.