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Hesteel Smederevo Steel Plant

Smederevo, Serbia
Written by Igor Rogelja.
Updated on 31 March 2021.
The Smederevo steel plant in Serbia was acquired by Hesteel Group in May 2016. The total value of the deal is made up of a 56 million USD asset purchase and a 364 million USD investment pledge. The acquisition was heralded as a success story of Sino-Serbian cooperation and was inaugurated by Chinese president Xi Jinping himself during a visit in 2016. Despite this, the plant’s takeover has been controversial over fears about Chinese steel dumping onto EU markets, as well as labour and environmental effects locally.

Basic Information

Chinese Name: 河钢斯梅代雷沃钢铁厂  
Location: Smederevo, Serbia  
Type of Project: Industrial 
Project Developer(s):  HBIS Group Co., Ltd., also known as Hesteel Group
Known Financiers: n/a
Cost: 420 million USD  
Project Status: Operational 

Project Outline

The Smederevo steel plant (Železara Smederevo in Serbian) is one of Serbia’s oldest and largest industrial facilities. Located on the banks of the Danube about 70 kilometres east of Belgrade, the city of Smederevo was one of Serbia’s medieval capitals, but has been known as an industrial centre since socialist Yugoslavia.  

In 2016, the Smederevo steel plant was acquired by Hesteel, a provincial state-owned enterprise from Hebei, and one of the largest steel makers in the world. Following its acquisition, the Smederevo steel plant has become the country’s largest exporter with nearly 400 million USD of exports even in pandemic-hit 2020. The steelworks, which employ around 5,000 people, were first privatised in 2003, when the assets of the state-owned enterprise were sold to US Steel, the second-largest American steelmaker, headquartered in Pittsburgh. US Steel acquired the valuable assets, while the old state-owned enterprise was left with debts and still owes the Serbian state 77 million USD of debt in 2020. Following a collapse in steel prices, US Steel sold the plant back to the government of Serbia in 2012 for 1 (one) USD. The next three years saw the plant managed by a private consultancy firm. Exports and production languished during this controversial stewardship of the plant, which cost the state over 130 million USD in subsidies in some years and ended in an arbitration suit with the management consultancy—which the Serbian government lost

In November 2015, a framework agreement was signed with Hesteel. The acquisition was structured as an asset acquisition carve-out, meaning the old (debt-laden) corporation was retained by the state, while the profitable assets were transferred to HBIS Group Serbia, a wholly owned subsidiary of Hesteel. Serbian media reported debts of around 360 million USD were retained by the state as a result of the deal. HBIS paid 56 million USD for the steel plant’s assets (valued at 110 million USD by a KPMG audit), with a further 364 million USD in pledged investment that was however not part of the contract.

The inauguration of the acquisition was attended by Xi Jinping and Aleksandar Vučić, Serbia’s then prime minister and president since 2017, highlighting the significant political importance of the deal for both sides. The acquisition marked the first step in Hesteel’s internationalisation, while for Serbia, re-privatising the plant was a long-term objective. The city of Smederevo also signed a twin city agreement with Tangshan in Hebei province.

The acquisition was supported by most of the trade unions present in the plant and Hesteel has, for the most part, lived up to its promises of retaining the workforce as stipulated by the acquisition agreement. The staunchest opposition to the acquisition came from outside Serbia, with the European steel industry going as far as calling the plant a ‘Trojan horse’ for Chinese steel dumping

Ralja, Smederevo Steelworks. Credits: Lošmi (CC).

Project Impacts

  • Employment & labour rights: Although Hesteel has retained the steel plant’s existing workforce, it also successfully pressured Serbia’s Ministry of Labour— via the Chinese embassy—to water down Serbia’s legislation on sick leave rights. The Ministry complied, announcing a nation-wide crackdown on ‘fake’ sick leave in 2017.  
  • Environment: Increased production and round-the-clock operations have affected the surrounding environment, setting off localised protests over air pollution and hazardous waste disposal. A 2016 change in national legislation exempts the steel plant’s waste from Serbia’s waste management laws, treating it instead as construction material. A lack of reliable pollution monitoring is exacerbating the situation, but even existing measurements indicate worryingly high levels of particulate air pollution. 
  • Governance: Off-loading the steel plant has been a long-standing priority for Serbia, which subsidised the plant with up to USD 100 million annually before Hesteel acquired it. The rapid transformation of the company into a profitable exporter has, however, raised eyebrows as well, and the Smederevo steel plant has been the subject of complaints over steel-dumping.

With a workforce of 5,000 and a long list of contractors and affiliated businesses, the steel works cast a long shadow over the Smederevo region. Throughout the uncertain period of the plant’s re-nationalisation (2012–16), the government’s priority has been protecting jobs at the plant with a combination of subsidies and tolerance of non-payment of inputs such as electricity from state-owned suppliers. 

The takeover of the steel plant by Hesteel was predicated on retaining levels of employment and most workers were rehired by the new Chinese-owned company. As a bonus to the new owners, the government took on old debt and agreed that past state aid would not be payable by the new owners. A year after the takeover, Serbian media broke a story that HBIS managers exerted pressure on the Serbian government to curtail workers’ rights. While neither HBIS nor the government confirmed the story, in October of 2017, the Minister of Labour first announced the formation of a ‘pilot study’, and then only days later announced a nation-wide tightening of controls on sick leave. This would include increased oversight of medical professionals issuing sick leave and was undertaken ‘after talks with Chinese investors, Turkish investors in south Serbia, and unions and employers’ groups’, according to the Minister’s statement.

HBIS increased production to the plant’s maximum capacity, which also resulted in almost immediate environmental consequences. These are most acutely felt by the villagers of nearby Radinac and Vranovo, who are protesting the tons of waste materials that have been deposited by the entrance to the steelworks. HBIS is not obliged to dispose of this waste, because a law passed by the Serbian parliament specifically exempts waste from the steel plant from the national waste management legislation by reclassifying it as ‘building materials’ instead. Apart from waste, air quality has been an issue in the surrounding area. Although red dust frequently blankets the area, no official measurements of air quality exist due to dysfunctional equipment—resulting in the wider Smederevo area being ‘unrated’ by the Serbian Environmental Protection Agency. HBIS has acknowledged the problem and pledged a 140 million USD upgrade of production facilities in 2020.  

Increased production also meant the company returned to profitability, posting a 20-million-USD gain in 2017, a mere year into Hesteel’s management. The rapid increase in production and sales did not go unnoticed by the European steel manufacturers’ association, EUROFER, which alleged the plant will serve as a  ‘Trojan Horse’ for Chinese steel overproduction. The Smederevo steel works has been at the centre of a legal dispute over price dumping between the EUROFER and the European Commission, supported by HBIS and the Republic of Serbia. In 2016, the Commission launched an anti-dumping investigation following a complaint by EUROFER, but Serbia was exempt from tariffs imposed on other steel exporters such as Brazil and Russia. EUROFER then sued the Commission in 2017, alleging the Chinese takeover will result in a tripling of export to the European Union, and that the Chinese controlling interest makes it more likely Serbia is price-dumping its steel, rather than just following global prices. Although the court dismissed the suit, Serbia has been on thin ice with the Commission. HBIS has moreover expanded production and export volumes not only to the European Union, but to the United States as well. That the parent company of HBIS, Hesteel, owns a 51% stake in the world’s largest steel trader Duferco only adds to fears about Serbia being part of a ‘Trojan Horse’. As of February 2021, Serbia remains exempt from punitive tariffs, but increased production and export volumes, coupled with concerns over the internationalisation of Chinese steel overproduction, will fuel future disputes over Serbia’s steel exports into the European Union.

In-depth Sources 

  • Đorđević, Dina. 2020. ‘Air Harmful across Serbia, Official Data Late to issue Warning in Some Locations.’ Center for Investigative Journalism of Serbia website, 18 December. Link.
  • Đorđević, Dina. 2020. ‘Air Pollution Higher Than Shown by Official Data.’ Center for Investigative Journalism of Serbia, 18 December. Link.

Updated on 31 March 2021.

Igor Rogelja is a Lecturer in Global Politics at University College London, where he works mostly on international infrastructure and Chinese politics. He was previously based at the Lau China Institute at King’s College London and completed his doctoral studies at SOAS, University of London. He is interested in the politics of space and is involved in several research projects examining the effects of Chinese infrastructural investments in the so-called Belt and Road Initiative.