Q: What is the current situation in the Bor region?

Bor used to be one of the most developed industrial municipalities in Serbia thanks to a discovery of major copper ore resources in 1903. The collapse of the socialist economy and the chronic lack of investment have led to a rapid decline of mining operations over the past fifteen years. Given its low ore grades and high production costs the major copper producer RTB Bor can not operate at a profit.

The mining industry crisis had a catastrophic impact on the regional economy. Both Bor and Majdanpek have become one of the poorest regions in Serbia with soaring unemployment rates. The natural resources in the Bor region are still significant and mining activities will most probably continue to play an important role in the regional economy.

Q: What is the current situation with the RTB Bor?

Rudarsko-Topionicarski Basen Bor (RTB Bor) is a heavily subsidized socially-owned mining and processing holding in need for a major restructuring. Despite substantial state subsidies, RTB Bor accumulated more than $500 million debt. Combination of obsolete technology and poor maintenance has made RTB Bor's operations, especially the smelter, extremely harmful to the environment and public health.

RTB Bor's high production costs are partially explained by tremendous overstaffing. In an attempt to reduce surplus workers, RTB Bor offered severance packages to redundant workers and by the end of 2006 some 2,300 workers have taken advantage of this offer and left the company voluntarily.

Q: What is the Government doing to address the situation?

Closely assisted by the World Bank, the Government of Serbia (GoS) prepared and adopted, in June 2005, the Action Plan for Restructuring and Privatization of the RTB Bor Group's copper mining and downstream activities, including rationalization of staffing level, separation of non-core assets, and resolution of the core assets. Given the previous two unsuccessful attempts to fully privatize RTB Bor undertaken in the last two years, the GoS decided to proceed with a strategic partnership (a PPP-type arrangement) where the GoS will keep the minority stake at RTB Bor. The third invitation for bids was issued in October 2008. The deadline to bid is February 27, 2009.

By the end of 2006 some 2,300 workers have taken advantage of the severance packages to redundant workers offered by RTB Bor and left the company voluntarily, in addition to at least 5,000 workers who left the company earlier in the decade. The National Employment Center is running several programs on redeployment and retraining.

Q: What is the Bor Regional Development Project? What are the main components of the Project?

The Bor Regional Development Project aims to support the Government of Serbia's (GoS) efforts to revive the depressed Bor region through: 1) dealing with urgent environmental and social legacy issues arising from mining sector restructuring, and 2) fostering new sources of economic growth and job creation in the region.

The Project has three main components:

• Environmental Management and Remediation Component will support i) strengthening of the GoS capacity to manage the past environmental liabilities and monitor the compliance of the new operator(s) of RTB Bor mining and smelting assets with Serbian environmental norms, and ii) remediation of the most pressing environmental problems remaining within state responsibility.
• Socio-Economic Remediation Component will support the improved labor redeployment programs and employment services aimed at unemployed population of the Bor region and promote the development of the private sector in the region by providing training and consulting services to entrepreneurs, supporting establishment of business incubators and providing access to microfinance.
• Project Implementation and Evaluation Component will support project implementation and its monitoring and evaluation.

Q: What is the World Bank's role in the Project?

The Bank will play a key role in supporting the GOS in: a) remediating the urgent environmental hazards associated with past mining operations, b) addressing the poverty impact of mining sector restructuring, and c) coordinating efforts of multiple stakeholders.

It is important to understand that the project will only cover the costs of remediating certain environmental trouble spots (such as tailing ponds and a collector tunnel), whereas other parts lying within the license area to be offered to the prospective private investor (such as smelter) will be covered by the new operator(s). The Project will focus on the historic environmental liabilities excluded from privatization.

An important aspect of the project is the overall improvement of the socio-economic situation in the region, including provision of redeployment and employment services and private sector development.

Q: What other alternatives (other than adopted in the Project) were considered and why were they rejected?

• One of the main alternatives considered was to de-link the Bank support to the Bor region from the resolution of the core assets of RTB Bor. The option was rejected because the continued existence of RTB Bor as a heavily subsidized socially-owned enterprise would perpetuate the environmental pollution and deepen decline of the region. Global experience with mono-industrial regions had demonstrated that it is impossible to reverse the decline without addressing the problems of the core industry.
• The second main alternative considered was to immediately close mining and processing operations due to their detrimental effect on the environment and public health. The option was rejected because the liquidation of the main employer in the region would be devastating for the social stability and political economy in the region and in Serbia. Besides, given the abundant natural resource endowment of the Bor region, mining activities are destined to remain one of the mainstays of the regional economy.
• Among other main options considered were: a) financing severance pay for redundant workers from the World Bank loan proceeds – this option was rejected because it offers a passive, short-term, unsustainable measure, and b) physical relocation of unemployed and redundant workers to other parts of Serbia – this option was rejected because of the potential brain drain effect which would further perpetuate the decline of the region.

Q: What are the expected main benefits for the population of the Bor region?

Direct benefits of the Project include improved environmental conditions in the region, a reduction in the number of unemployed people, and growth of the local SME sector. The project will create additional opportunities for jobs creation, business development and better access to finance.

Indirectly, the project will help increase the general level of economic activity in the region, attract additional investments and donor assistance, and reduce the need for state subsidies.

Q: When will the Project be implemented and what is the duration of the Project?

The project implementation will start at the beginning of 2009. Given technical complexity of the activities planned under the project, the implementation will take at least five years.

Q: Why was the Project implementation delayed?

The World Bank funding for the project was approved by the World Bank Board of Directors in June 2007, but it hasn't been ratified by the Serbian Parliament until September 2008 due to extended period of political instability in Serbia. The Project was declared effective in December 2008, following the completion of remaining conditions of effectiveness, i.e. appointment of the Project Steering Committee and approval of the Project Operations Manual.

Q: Does the Bank support Government's idea of strategic partnership to resolve core assets of RTB Bor?

The World Bank fully supports GoS's intention to resolve core RTB Bor assets. This is the only viable way to find sustainable solution to both economic revival of the region and the past and ongoing environmental liabilities.

Q: Is resolution of the core assets of RTB Bor a condition for the World Bank support within the Project?

Yes, the resolution of core assets is a condition for the full implementation of the project. In fact, the resolution of core assets of RTB Bor is specified in the following implementation covenant specified in the Financing Agreement to which the GoS has committed: “Not later than twelve months after the Effective Date of this Agreement, the Recipient shall have successfully completed the resolution of RTB Bor's Core Assets, in a manner satisfactory to the Association.” To this end, the implementation of the Project is conditional on completing the resolution of RTB core assets in environmentally responsible manner, which could be achieved by (i) finding a strategic investor who will be willing and able to upgrade the RTB assets, particularly smelter, to meet Serbian environment norms; or (ii) closing economically unviable (at least at current copper prices) and environmentally harmful assets (smelter).

Q: What will the Bank do if the RTB Bor core assets are not resolved after 12 months of Project effectiveness?

The team may consider two options: a) suspending the whole project; and b) suspending only the part of the project. The environmental component of the project will be suspended in the case there is no resolution of the core assets, as this implies there will be no resolution for the biggest polluter of the environment – RTB Bor smelter. The Bank might decide to continue the implementation of a local business development component.

Q: How will people living around the Project sites be affected?

Direct benefits of the Project include improved environmental conditions in the region, a reduction in the number of unemployed people, and growth of the local SME sector. The possibility of polluting the Danube River downstream will be brought to a minimum.

Q: Will RTB Bor workers lose their jobs as a result of RTB Bor restructuring?

The GoS provided substantial severance packages for recent lay-offs from RTB Bor, and no immediate major redundancies are expected as a result of future restructuring because the private investor will be required to commit to a social program agreed with the trade unions. Besides, the Project Component 2 will i) support the improved labor redeployment programs and employment services aimed at redundant workers and unemployed population of the Bor region, and ii) promote the development of the private sector in the region.

Q: What measures will be taken to protect affected RTB Bor workers and other vulnerable groups of population in the region?

The second component of the Project will focus on improving socio-economic situation in the region. It will support labor redeployment program and improved employment services targeting both the redundant RTB Bor workers and the general population in the region. The following activities are included:

• Job search assistance programs
• Off-the-job education and training services
• On-the-job training services
• Temporary employment programs
• Strengthening capacity of the National Employment Center

Particular attention will be given to providing adequate redeployment services to women and youth.

In addition to improved employment services, this component will focus on private sector development through provision of business development services, assistance to local communities with establishing and operating business incubation facilities, and provision of credit lines to qualified microfinance institutions.

Project's Role in Rehabilitating the Smelter and the Collector Tunnel

Q: What is the Bank's role in rehabilitating the smelter?

Rehabilitation of the smelter is not part of the Project. Smelter is in the so-called license area which falls under responsibility of the private investor.

Q: Why isn't the Bank involved in rehabilitating the smelter?

Rehabilitation of the smelter can improve the environment, but still not make it profitable business. The equipment of the existing smelter is so outdated that it requires full revamping - building a new one if the Serbian environmental standards are to be met. This is an investment up to US $300 million. Such an investment can only be undertaken by a future strategic partner.

Q: What are the potential impacts of the smelter closure on local population?

The closure of the smelter would cause a rise in unemployment in the region of Bor, as the people directly employed there (close to 1,000) will have to be laid off. On the other hand, if the smelter continues to operate under the current regime - with the existing equipment and using copper ore with high sulphur and arsenic concentration – pollution will get worse and already high health hazard will increase.

Q: What is the Bank's role in rehabilitating the collector?

The project will support rehabilitation of the collector through rerouting and rebuilding the vulnerable portion located beneath one of the tailings ponds.

Q: Why haven't the rehabilitation works started yet?

The project couldn't be implemented since it was not effective until the end of 2008. It took Serbian Parliament longer than a year to ratify the project.

In the meantime, the government has invested two million Euros in patching the existing holes in the collector. Local experts are monitoring the situation with the collector.

Q: Why rerouting of the collector was selected as the best option?

After analyzing carefully several engineering options for repairing the damaged river collector running underneath Veliki Krivelj TDF (Tailing Ponds Facility), the feasibility study recommended rerouting of a portion of the collector as the most cost-effective and sustainable solution.

Q: What is the potential impact of the collector and dam failure on local population?

The collector diverts the Veliki Kravelj river around the mine tailing ponds that have been constructed in the river valley. Its collapse would block the river outlet and create a build-up of water upstream of the tailing ponds. If no further and complicated emergency measures would be taken, this would lead to instability of the tailing structures and eventually their failure entailing release of massive volumes of materials and contamination. Many scenarios are possible, direct impacts would be the risky release of bulky materials and pollutants.

On a longer term, cleanup after the disaster would be complicated leaving a large area with contaminated materials unprotected against weather impacts. At a much smaller scale such a collapse happened earlier to the Saski Potok (1996) tailings dam in Majdenpek.

Q: What is the potential impact of the collector failure for Danube basin?

At the scale of the Danube river basin, the main concern would be the sudden release of pollutants (heavy metals) and elevated levels of those for the period after the collapse of tailing pond structures.