December 9, 2008 / 2:31 AM / in 9 years

Divided Kosovo city mines a dream of riches

MITROVICA, Kosovo (Reuters) -- Nazmi Mikullovci puts the value of minerals beneath the ground here at 10 billion euros ($12.8 billion). But a river running through the area marks a rift so deep they cannot help the Balkans’ newest state.

<p>A miner works in an underground tunnel in Mitrovica November 13, 2008. Nazmi Mikullovci puts the value of minerals beneath the ground here at 10 billion euros ($12.8 billion). But a river running through the area marks a rift so deep they cannot help the Balkans' newest state.The Trepca mines are a loss-making mountain of debt, environmental damage and legal tangles straddling a disputed border between Serbia and Kosovo, the Albanian majority republic which declared independence from Serbia in February. Picture taken November 13. To match feature KOSOVO-MINES/ REUTERS/Hazir Reka</p>

The Trepca mines are a loss-making mountain of debt, environmental damage and legal tangles straddling a disputed border between Serbia and Kosovo, the Albanian majority republic which declared independence from Serbia in February.

The muddied brown of the Ibar River marks that border.

On Tuesday, a mission of 1,900 European and American officials starts arriving to foster peace and stability under a United Nations plan.

Such stability could help revive the mines, a vast complex of lead, zinc and silver that in the past was a font of Yugoslav export revenue and employed 23,000 people.

With mining operations mostly halted during the 1998-99 Kosovo war, many of its factories and warehouses now lie abandoned, a jumble of rusted conveyer belts, pipes and cracked windows where weeds grow tall.

Across the river, half the complex lies in similar disrepair in the northern half of Mitrovica, run by Serbs. Albanian Kosovars rarely venture there to face the Serbs’ bitter opposition to independence.

Mikullovci, a 65-year-old Albanian who directs the south side, has not crossed to the northern section in six years.

“It is strange,” Mikullovci said. “In 2002, the last time I was in the north part of Trepca, I had problems, and they asked me so as to avoid future problems not to come again.”

In the past Serb and Albanian miners cooperated, and experts say they could do so again if the mission -- overseen by the European Union in Kosovo up to the Ibar River and by the United Nations in Serbian areas -- helps ease tensions.

“Given the right circumstances they can work together,” said Michael Palairet, an honorary fellow at the University of Edinburgh who has written a history of the Trepca mines.

Finding a legal and political basis for the mines would be a significant step for the country, recognized by 53 countries so far but not Russia or Serbia.

Wedged between Serbia, Macedonia, Albania and Montenegro, its main exports are scrap metal and minerals along with food. Unemployment is around 45 percent and with corruption widespread, Kosovars make just $1,800 per person annually -- a third less than their cousins in neighboring Albania, according to the U.S. State Department.

$13 BILLION HEADACHE

Economically, the timing for Trepca could hardly be less propitious. Industry experts say it is the world’s third largest mining region for lead, zinc and silver, but as the world economy slows prices for metals have slumped.

Silver has more than halved from its peak, zinc has fallen more than 60 percent this year, and lead is worth less than a third of its value at the height of the commodities boom.

“This year we have faced many problems because of the prices on the world market,” Mikullovci said, adding the Trepca mines face a 1.2 million euro loss in 2008, excluding labor cost subsidies. “The situation at the moment is not sustainable.”

<p>Miners walk in an underground tunnel in Mitrovica November 13, 2008. Nazmi Mikullovci puts the value of minerals beneath the ground here at 10 billion euros ($12.8 billion). But a river running through the area marks a rift so deep they cannot help the Balkans' newest state.The Trepca mines are a loss-making mountain of debt, environmental damage and legal tangles straddling a disputed border between Serbia and Kosovo, the Albanian majority republic which declared independence from Serbia in February. Picture taken November 13. REUTERS/Hazir Reka</p>

Last year the mines broke even thanks to a three-million euro Kosovo government subsidy; the north side gets Serbian subsidies, said Mikullovci.

The south mines are running at a fraction of former capacity, extracting 7,000 tons of zinc concentrate a month, 4,000 tons of lead concentrate, and 4,000 kg of silver a year, Mikullovici said. The north side produces similar amounts.

Mikullovci estimates the mines’ debt at 50 to 250 million euros, a hazy number as many past claims are disputed.

Environmental clean-up costs could add another 120 to 180 million euros, according to international officials based in Kosovo. Updating technology for major future operations could cost another 100-500 million euros.

Its ownership is tangled too. A socially owned firm under Yugoslav-era designation, the company is under government protection as it reorganizes. Even its name, “Trepca Under UNMIK Administration” is a reference to the local U.N. force.

Slideshow (4 Images)

“It’s like a Latin American telenovella on television -- it’s a very long story,” said Mikullovci.

WORK FOR LAWYERS

“You’ve got, obviously, economic problems ... technical and engineering problems ... and political problems,” said historian Palairet. “It’s going to be a wonderful job for lawyers.”

For the mine itself, some see no immediate hope.

”This global economic crisis discourages potential investors,“ south Mitrovica Mayor Bajram Rexhepi, Kosovo’s first elected post-war prime minister, told Reuters. ”I don’t think Trepca has a perspective for more than five or 10 years.

“They try to present it as a success story but in reality it was not. People live with the illusion and dream that Trepca would be profitable again,” he said.

Over on the Serb side of the river, Marko Jaksic, an influential Serb nationalist hospital director, is equally blunt: “If I were a businessman, it would be the last place I would invest my money.”

Mikullovci acknowledges the difficulty but -- as he must -- sees a way forward. He believes a swift privatization would help, saying Trepca could be in private hands by end-2010.

One plan under consideration would be to sell off Trepca’s assets while separating its debts and legal liabilities such as the future cost of environmental clean-up. Sale proceeds would fund a debt and legal settlement for past creditors.

“Our idea in the near future is for either a concession or privatization in 2009,” Deputy Prime Minister Hajredin Kuci told Reuters.

Whoever would take on such headaches would make a big difference to the 2,500 or so people who work in the complexes. More than half of them are in the south and earn around 236-325 euros monthly.

As they head in thick rubber boots and helmet lamps for an elevator ride down, the aging workforce entering the south mines pass under a large sign in Albanian: “Good Luck.”

Additional reporting by Branislav Krstic; Editing by Sara Ledwith

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