The memo on the Trepča issue that follows was prepared for me after my July 2005 arrival in Mitrovica as UNMIK Regional Representive. (Trepča was under UNMIK management.) During my time in Mitrovica, I paid special attention to the various economic issues, which in many cases were in contention between Serbia and K-Serbs on one side and the K-Albanians and the internationals supporting them on the other. These included Trepča -- which had facilities and workers on both sides of the ethnic divide -- as well as electricity production and delivery (KEK and Obilić), water (Gazivoda), telecoms and ownership of Serbian owned entities such as JugoPetrol. I believed that a final political settlement -- difficult in any case -- could be facilitated by reaching fair agreements on economic matters giving both sides an incentive to make the agreement work. Thus I encouraged Special Status Envoy Ahtisaari to address these matters in his final status proposal but he decided against apparently under pressure from the pro-Albanian internationals and especially the US. I believe Trepča status is still unsettled.
Trepca Mining
Complex
Briefing Notes for new Mitrovica
Regional Representative
What was/is Trepca.
Trepca was a massive and diverse base
metal mining conglomerate operating throughout the former Yugoslavia
with its principle assets and activities based in Kosovo, managed
from offices in Mitrovica, Zvecan. With operations commencing in the
mid 1920’s by a British company, at its peak in the early 80’s,
the now state owned business employed over 20,000 workers. With three
primary lead and zinc mining centres in Kosovo situated in Leposavic
in the north, Mitrovica and Kisnica in the south and metal refining
operations in Mitrovica, its operations touched all of the Kosovo
population.
Following the conflict years and
NATO’s arrival, all operations ceased. However, some 2,000 workers
come to work each day and a further 2,500 ex-workers receive a
monthly stipend, all paid for from the Kosovo Consolidated Budget.
The company is now overseen by a small team of international mining
engineers and experts, employed by UNMIK through KTA.
The Trepca Vision Statement
The under explored Trepca Minerals
Belt provides a very good potential for finding additional ore
resources at and in the vicinity of the existing mines which offers
excellent opportunities for a vital, active and viable base metal
(lead and zinc) mining company which would provide an estimated 2000
real, direct jobs. Indirectly, according to the experience of the
Worldbank, another 4000 jobs will be created in the supply and
service sector.
Metallurgical activities, associated
with and peripheral to the former primary lead and zinc metal
production facilities, form the basis for an industrial company
serving industrial and environmental businesses in the Balkans.
Strategy
“Develop and bring into operation
promising business units with the limited funds available over the
next two to three years. This will enable Trepca management to
explore markets, test competitiveness and gradually establish viable
businesses. This strategy will determine the viability of each
project and lead to the creation of real jobs. Incompetent,
uncompetitive companies will have to close. The development of
businesses and successful companies will be attractive for investors.
This will enhance privatisation opportunities.”
The several recent international
expert reviews have confirmed the existence of promising business
units within the Trepca complex. The Trepca strategy has therefore
found wide support. Generally it is seen to be the only realistic and
pragmatic option left which relates to the specifics of Trepca’s
position in respect to its geographic location, the current
political, social and economic environment, the restructuring and
privatization objectives of KTA, the technical status of its plant,
equipment and mines, the qualification of its workforce, the
expectations of ex-workers and society and, last not least, the lack
of funds.
A summary of the Trepca Strategy and current status
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Core business-mining.
Funded through the Kosovo Consolidated Budget and funds from the
EAR.
The strategy is unchanged, four mines
and concentrators at all 3 mining centres are now ready to start
production. Explosives have just been delivered and blasting will
commence shortly building up gradually towards target production
levels towards the end of the year.
Yet again Trepca suffered severe
delays in 2005, partly due to regulatory requirements with respect to
the storage and use of explosives and partly due to funding
constraints. A request was made for a budget of € 11.1 million only
€ 8.1 million was approved, in addition a requested carry forward
of Capital from 2004 was not given even though verbal approval had
been given this caused Trepca to change plans and refurbish existing
equipment which will be less productive and less reliable than the
new equipment that had been planned. Trepca still does not have
sufficient funds to implement the approved plans and this has been
aggravated by delays in start up which means a delay in receipt of
revenue.
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Other business. Funded
by Trepca Own Funds.
Through funding realized from the
sale of existing semi products, wastes and scrap, Trepca has some
limited funds of its own. These it is directing into investment in
the plant with Action Plans now approved for reactivation of several
industrial production units, such as Aluminium Sulphate manufacture
at MIP, S. Mitrovica; Battery Recycling at Zvecan ; production of
Zinc and Zinc Oxide powder at MIP; Starter Battery manufacture at
MIP; Trailer factory; Custom Terminal. The Trailer Factory is already
operational as is the Customs Terminal. Limited Aluminium Sulphate
production has already commenced against contracts for supply in
Kosovo. Investment commenced in the Battery Recycling Plant at the
end of 2004 and the plant is due to commence production 1st
September 2005. The sourcing of sufficient used batteries is as
expected causing some problems. The rehabilitation of the Zinc
Dust/Oxide Plant commenced in April 2005 and is ahead of schedule.
However a funding shortfall may prevent completion this year.
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Environmental
Remediation. Funded by Donor Agencies.
Many programs have been completed
over the past two years All these funded by individual mission
donations including the Dutch Government, DANIDA and SIDA. Trepca is
currently negotiating a further donation from the Dutch Government
that will, if granted, fund the rehabilitation of Gornje Polje
Tailings Dam, Leposavic Tailings Dam, MIP tailings dams and several
other projects. The EAR are also examining how to best spend some €10
million during 2006-7 to assist job creation in Mitrovica/Zvecan,
some of these funds may be made available to assist Trepca.
Significant Issues
-
Trepca is being pursued
by Creditor Claimants
A number of very aggressive creditor
claims are being pursued through the courts (Special Chamber of the
Supreme Court). In total the creditor claims for Trepca are believed
to amount to over € 200 million and there may be over two thousand
claims. As Trepca’s assets are believed to be worth less than €85
million, Trepca is (like many SOEs) insolvent.
We are concerned that the claims
against Trepca should be dealt with in accordance with international
insolvency laws. There are three critical creditor claims which are
near judgment stage in the Special Chamber. To address the concern
that these will be executed soon against Trepca’s assets – by way
of seizure of assets, the SRSG signed an Administrative
Direction on 2nd June that stops the execution of all claims for
three months whilst a new Bankruptcy and Administration
Law is finalized and promulgated. This gives temporary protection to
Trepca but the company must be placed in Administration immediately
it becomes possible. A successful Administration process is not
possible without the co-operation of the Serbs in Zvecan and this
will not be gained without at least the tacit consent but ideally the
full approval of the Serbian Government. Funding for the
Administrator will be required at least in the short term until the
sale of assets can generate sufficient funds to pay the Administrator
-
Trepca must obtain
longer term budgeting commitment.
The short-term and piecemeal funding
is unacceptable for a business that MUST plan ahead for several
years. Yet again insufficient funds were provided and even these were
late. This caused programme delays.
-
The redundancy of
employees past and present has to be resolved.
For 5 years, Trepca has been forced
to manage an unpaid workforce of almost 5,000 solely to assure the
ongoing social peace and which continues to expect employment and
salaries but which is totally unrelated to Trepca’s present or
future needs. This is a social issue for Kosovo and has nothing to do
with the new Trepca. This issue continues to be a problem.
-
Trepca must receive a
business and VAT registration and move towards privatization.
Trepca is now registered as an SOE
but has still not been able to register for VAT The lack of
definition of the business position of Trepca continues to frustrate
all efforts to establish a long-term, viable company, which can be
successful in the international business world.
We cannot run a business unless we
ARE a business.
Obstacles and Difficulties
-
The overriding parameter for a
successful new start of some of Trepca’s previous activities is
the political will to do so. This will has been lacking or at best
not focused and that affects all tasks that management is faced
with.
-
There is has been no policy on
Trepca, therefore the management has had to coordinate on a daily
basis, project by project, with UNMIK, KTA, MFE, Government, KFOR
and Trade Unions. Coordination work takes time and as time goes by,
decision makers change and the management starts all over again.
Some progress has been made in unifying policy but there is still
incomplete agreement between UNMIK and PISG on the way forward.
-
There is no secured financing.
The lack of an industrial policy requires the management to present
its plans on numerous occasions as if a brand new story has to be
told. The different sources of funds (KCB, Donors) appear to be
uninterested of each other yet harmonization of these funds is a
critical task. Offers of funding are made then withdrawn or delayed
this makes planning of programmes impossible.
-
The administrative procedures
required by the procurement law are bureaucratic, inefficient and
not suitable to running a company. This resulted in 6 months delay
in expending capital in 2004 and then loss of funds and cancellation
of contracts these lead to loss of credibility and a recirculating
work.
-
There exists a large number of
unqualified, over aged and physically unfit workers, who in many
cases lack experience, skills and competence whilst we have put most
of these on early retirement, a permanent solution remains a
problem.
Summary
-
Trepca management has plans to
re-start production in the mines in the third quarter of 2005. The
production will be limited, traditional operating practices will be
applied and modern safety management systems shall be implemented.
The timetable for the implementation of the program is subject to
many factors outside the control of the management.
-
The pursuit of creditor claims
in the courts will stop all activities unless the protection
currently afforded by the AD signed by the SRSG on 2nd
June remains in force until there is a new law on Administration and
Bankruptcy and the company has been placed into
Administration. The Administrator once appointed will be responsible
for selling all the Trepca assets.
-
Getting Trepca into the
private sector is considered vital to the establishment of any long
term viable business since all the businesses need investment in
both their physical assets and their human resources.
Sale/privatisation is more likely to be successful if the initial
viability of selected business units can be demonstrated; thus the
strategy of Trepca’s management.
-
Trepca management believes in
the excellent mining potential of the “Trepca Minerals Belt”.
All efforts in re-starting mine production are also geared at
substantiating this perspective which will increase the
attractiveness for international investors. A special fund for an
exploration drilling program and regional geological investigations
would very much support this concept. Funds for this were cancelled
by the MFE at the end of 2004.
-
Rehabilitation work on
environmental hazards must continue which requires the allocation of
funds.
-
Certain metallurgical business
units are identified as potentially viable and these will be brought
into production as funds become available. These units, which appear
to be competitive, will have to establish themselves in a market
environment with a distinctive entrepreneurial drive.
-
Last and certainly not least,
the operational and managerial capabilities in combination with
safety attitudes and knowledge of everyone, be it operators,
engineers and managers, Albanians or Serbs, have to be much
enhanced. This requires several years of on the job training ideally
through qualified contractors.
