CURRENT SUPPORT BRIEF NEW STEEL PLANT MAY STRENGTHEN BULGARIA'S ECONOMIC TIES W

Created: 1/1/1964

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Current Support Brief

NEW STEEL PLANT MAY STRENGTHEN BULGARIA'S ECONOMIC TIES WITH THE WEST

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NEW STEEL, PLANT MAY STRKNGTHION BULGARIA'S" ECONOMIC TIES'WITH THE WEST

Thc first fivend ued largoillion tons

Bulgaria is pushing ahead with the construction of tho half billion dollar Kromikovtsi Metallurgical Combinetho accompanyingroject thatignificantmports

World

Of equipment and raw materials fromcctione of the combine were opened formal Bulgaria's economic planrovides vestmunt in the project. The plant,

a year, is being built with linancial and technical aid from the USSR, but Bulgaria has inquired in the West about buying the stcelmaking and rolling mill equipment that the USSR may be unable or unwilling to supply. Moreover, recent rcporln indicate that the iron ore mined at1vl may be unsuitable for economical operation of the blast furnaces and that Bulgaria plans to import iron ore from Braxil. In spite of doubts about thc economics ol the project. Party Chief and Premierivkov announced at the opening ceremonies at Kremikovtsi in November that production capacity subsequently would be tripled. He gave no timetable for his plan but evidently envisages completion ol the second stage some time The Soviet Ambatiador to Bulgaria. Nikolay Organov. stated at the opening ceremonies that thc USSR will continue to help with completion ol the first stage (now about one-thirdut Khrushchev, who has said that he is unhappy with the project, must be distressed with Zhivkov's talk about enlarging the combine.

The open-cast mine and concentration plant still arc under The former was due to be in operation.by the end3 and to be producing at the rateillion tons of ore annually. Thc concentration plant is scheduled to be completed In the meantime, the first blast furnace is to operate with the use of imported ore. ji / It has been reported thaiillion leva,ercent of the planned total, had been invested by. 9/

The USSR has supplied most of the equipment for thc facilities already completed and now underway, and thc Soviet-Bulgarian trade agreement3 provided specifically for deliveries of equipment to the Krcmikovtsi/ rade agreementtheong-term agreement concerning capital assistance in the construction or expansion ofulgarianapparently contained no specific provisions for such aid to Krcmikovtai. although the latter agreement did mention aid ina thermal powerplant at Krcmikovtai. iu For this and other reasons, it is not clear to what extent the USSR will continue to supply equipment, particularly steclmaking and rolling mill The USSR probably is in no position to help with thc converter shops in view of Uie lag in Us own convertor program. Thc USSR, in fact, has contracted with Austria for the construction of such facilities-Bulgaria also undertook negotiations as early2 with Western European countriesasic oxygen converter installation as well as for special types of rolling and finishing equipment. Thc latter equipment was for second-stage processing such as cold-rolled strip and sheet mills, electrolytic tinning lines, and continuous pickling and cleaning lines for flat-rolled productsypes of stool finishing capacity that have been developed less extensively in the Bloc than in Western countries. More recently. Bulgaria directed inquiriesritish firmargo primary mill (lor producing blooms and slabs)./ although one report indicated that part of the equipment forill had been delivered by the USSR-/ In any case, there is no evidence that Bulgaria has placed firmwith cither the West or thc USSR for the stcelmaking and rolling mill equipment required at the Krcmikovtai Combine.

3. Raw Materials Problems

Justification for the construction of tho Krcmikovtsi Combine waa based on optimism concerning thc adequacy of domestic sources of raw

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materialsavorable ovtr-all comparison of estimated domestic costs for production of ttael at Kremikovtsi with prices of imported steel. Although evidence is not available to assess the reliability of the comparison, difficulties in developing planned domestic sources of raw materials would appear likely to affect domestic cost estimates advo rsely.

One of the principal uncertainties concerning the efficiency of operations at the Kremikovtsi Combine is tho quality of domestic sources of iron ore. Although existing reserves have bean estimated to be adoquate for operations at tho Kremikovtsi Combins forears at the projected rateillion tons of rolled steel annually. it still remains to be demonstrated whether satisfactory results can be obtained with such low-quality ore in blast furnace operations. It is not clear to what extent tho lags in the construction of mines andfacilities, which have necessitated the use of imported ore at Kremikovtsi. can be attributed to technical difficulties in processing the ore. Such difficulties, oven if overcome, could necessitatemodifications of original plans for the processing facilities. One report, in fact, indicates that the iron ore is loo poor lo be processed in the equipmont to be installed at Kremikovtsi. Other reports indicate that thc ore Is not rich enough to be utilized17/

As for coking coal, the other basic raw material required in tho production of pig iron. Bulgaria has only limited domestic resources for the coking operations planned at Kremikovtsi. Known reserves, which are located in the Balkan Basin, are estimated to provide for littie more thanears operation of thc two-battery coke plant being built at Kremikovtsi. Bulgarian coaligh sulfur and aeh content and must be cleaned in order touitable concentrate for coking. Moreover, it is necessary to blend this cleaned coal with high volatile types of coal imported from Poland in order touitable charge for coke ovens.

4. Soviet Misgivings

There is much evidence that the USSR now has misgivings about the Kremikovtsi Combine. The American Legation in So/la hasthat rumors have circulated concerning Soviet unhappiness with the An earlier report stated that Khrushchev, during his visit to Sofia refuted to inspect the new combine.

Another source quoted him as asking Zhivkov on that occasion,you over get sucked into Morehas been reported between Zhivkov and the SovlojOrganov.

It isthat Soviet disenchantment with this project led to, or waain some other way lo, thc bitter opposition ol the USSR tosteel project in Rumania, where thc raw material baseweak. Both Soviet and CEMA planners appear tosometimehe importance of overtakingin production of steel, and they may have decided that bigin Bulgaria and Rumania did not make much sense

Although Ihe USSR may regret that the project was undertaken, Soviet Ambassador Organov stated at thc opening ceromoniee at Kremikovtsi that his country "in the future will fulfill Its brotherly obligations for showing technical cooperation in thc furtherof Bulgarianescribing "brotherly obligations" as those "arising from international Organov's remarks probably mean that thc USSR Intends to continue its aid forillion-ton first stage of Ihe combine but is not committed to help with the expansion plans that Zhivkov has been talking about for some time.

5. Zhivkov's Expansion Plans

Premier Zhivkov has advocated pushing aheadecond stage of th# combine, appa rentlyajor objective ofyear. He stated that completion of the second stage would increase total production capacity of the combineillion tons of pig iron. illion tons of steel, andillion tons of rolled steel. However, Yovcho Yovchev. Bulgaria's head geologist, has stated that "the combine's further expansion is contingent upon thc discovery of new reserves of iron

The scalo of operations planned for the first stage of tho Kremikovtsi Combine reflected an estimate of domestic requirements for finished steol ofillion Ions5illion tons fromillion tons from Bulgaria's other steel plant,illion tons from imports. Consumption of steel in Bulgaria is likely lo fall considerably short of thc original estimate for consumptionut the Bulgarian market for steel products will develop

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sufficiently in the near future tofirst stage" Kremikovtsi Combine. lantillionillion tonsappears unnecessary for many years, particularly in the facerowing worldwide surplus of steelmakiug capacity. In tha view of Bertbold Beits, the General Director of Krupp. the constructionlantapacityillionillion ions is ridiculous because "Bulgaria obviously cannot consume or export such an amount of

6. Outlook

ire c

Bulgaria undoubtedly wilt push ahead with Its plans for theof the first stage of thc Kremikovtsi Combine. 4 draft plan providesontinuation of substantial investment In f. rous0 millionost of which is intended for tt Kremikovtsi Completion of thc first stage will rcquii additional foreign assistance of which the USSR probably will provid an important share. Bulgaria may find it necessary, however, to turn to the Free World, as have the other European Satellites, for procurement of steelmaking and rolling mill equipment.

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In the event that domestic iron ore proves to be unsatisfactory for blast furnace operations, plans for the first stage ofrcmikovt Combine might oe cut back somewliat. More likely, however, Bulgai would decide to go ahead with original plans by operating thc combine to the extent necessary on imported ore. The USSR, which is now providing some of thep supplies of iron ore for the first blast furnace at Kremikovtsi. might be willing to expand shipments to Bulgariaermanent basis. Even without access to Soviet iron ore. Bulgaria probably would be encouraged to take this course of action in view of the surplus supplies of iron ore on world markets. Evidence of Bulgarian intentions to do so is provided by the recent trade agreement reportedly signed with Brazil calling forulgaria of Brazilian iron ore. amountingons4 and increasingillion tons

may

Enlargement of the Kremikovtsi Combine beyond the first stage not be an important issue at the present lime. Completion of the firsi stage does not appear likely67 at best. However, it appears certain that immediate expansion would be opposed strongly by both the USSR and CEMA. The Counselor of thc Polish Embassy in Sofia, Stanislaw Zgrrywa. remarkedS official that he doubled tbat Bulgaria would achieve its "great ambitions" for Kremikovtsi and that it woild "eventually have to face facts and base economic planning on realities within the CEMA

Analysts:

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