State-owned creditors of Bulgaria’s biggest steel mill Kremikovtzi have started to gradually phase down deliveries of raw materials and services to the plant in retaliation for payment delays.
The steelworks has paid about 70 per cent of the amount it owes to Bulgarian State Railways (BDZ), but it still has a debt of about 17 million leva, prompting BDZ to halt cargo deliveries to Kremikovtzi in mid-February.
On February 22, Bulgargas followed suit and slashed its gas supplies to the steel mill. The reason? Kremikovtzi owes the gas distribution company six million leva.
Power grid operator National Electricity Company (NEC) is also expected to reduce power supply to the plant.
On top of all that, the National Agency for Post-Privatisation Control won its court action against Kremikovtzi’s majority shareholder, to the tune of 239.3 million leva. Bulgarian-registered Finmetals, fully owned by India’s Global Steel, had not met its investment commitments outlined in the privatisation contract, a Sofia court ruled.
Kremikovtzi asked for a three-month grace period to repay its debts to NEC and other state-run companies, but the Government refused to grant its request, making it clear that it wanted a new strategic investor for the steel mill. Global Steel said that it hoped to find a partner within three months, which would chip in to pay the debts. The steel mill ended last year 35.9 million leva in the red and only a fire-sale of assets prevented a bigger loss.
Suppliers are not the only ones complaining of late payments. Kremikovtzi workers renewed their protests in front of the plant’s main administrative building, demanding their salaries and shouting “Give us the money”. They promised to go on with the protests, threatening to take them to Sofia downtown, until they receive their pay.
Lyudmil Pavlov, from trade union bloc Podkrepa, said that Kremikovtzi’s staff needed a clear statement of intent from the Cabinet about its plans for the steel mill. It was barely operating, as production had to be cut drastically because of the reduced gas supplies.
“It is obvious that (Indian owner Pramod) Mittal does not have money to invest and therefore the state has to look for a new investor,” Pavlov said. Closing down the mill was not an option, according to the trade unions and the steel mill’s employees.
Kremikovtzi’s former chief executive Alexander Tomov, replaced by Mittal last month, blamed the steelworks’ woes on the global credit crunch. “Kremikovtzi’s owner went through a small-scale financial crisis, which cut into the mill’s cash flow and undermined any trust in him, and it was related to the global banking crisis,” Tomov said on February 26, talking to private broadcaster Nova TV.
“The factory won the political battle and was not closed down,” Tomov said, adding his voice to the request of Kremikovtzi’s current managers for a little breathing space for investment bank Merrill Lynch to find a new investor. But he warned Mittal, who commissioned the bank, not to waste time with the search, saying that if it went on too long, that would only serve to anger Kremikovtzi’s employees.
Tomov, who is a former Socialist deputy prime minister, also laid some blame on the Cabinet and the ruling coalition, in which the Socialist party is the senior partner, for not subsidising Kremikovtzi operations.
“The state would not credit steel production in any way, so the only solution is a financial injection in the factory,” he said. The names of the prospective investors were unimportant, as long as they were willing to pump in at least 100 million euro right away – 50 million to boost cash flow, 20 million for environmental upgrades and 30 million for the steel mill’s development plan.
“Whoever meets these conditions could, and should, be Kremikovtzi’s new investor,” Tomov said. Until then, the Government should appoint a trustee to manage the steel mill’s finances, which would offer an immediate return, as it would bolster investor confidence, he added.
