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

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A001800230004-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 11
• Document Creation Date: November 16, 2016
• Document Release Date: April 27, 2000
• Sequence Number: 4
• Publication Date: January 1, 1964
• Content Type: BRIEF

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SECRET
-,TO FOREIGN DISSEM
Current Support Brief
NEW STEEL PLANT MAY STRENGTHEN
BULGARIA'S ECONOMIC TIES WITH THE WEST
CIA/ RR CB 64-3
January 1964
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
NO FOREIGN DISSEM
SECRET
GROUP 1
Excluded from automatic
downgrading and
declassification
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This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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NEW STEEL PLANT MAY STRENGTHEN
BULGARIA'S ECONOMIC TIES WITH THE WEST
Bulgaria is pushing ahead with the construction of the half billion
dollar Kremikovtsi Metallurgical Combine (see the accompanying
photograph), a project that may require a significant increase in imports
of equipment and raw materials from the Free World. The first five
sections of the combine were opened formally in November 1963, and
Bulgaria's economic plan for 1964 provides for continued large in-
vestment in the project. The plant, with a capacity of 1 million tons
a year, is being built with financial and technical aid from the USSR,
but Bulgaria has inquired in the West about buying the steelmaking
and rolling mill equipment that the USSR may be unable or unwilling
to supply. Moreover, recent reports indicate that the iron ore mined
at Kremikovtsi may be unsuitable for economical operation of the blast
furnaces and that Bulgaria plans to import iron ore from Brazil. In
spite of doubts about the economics of the project, Party Chief and
Premier Todor Zhivkov 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 of the second stage some time before 1980. The Soviet
Ambassador to Bulgaria, Nikolay Organov, stated at the opening
ceremonies that the USSR will continue to help with completion of the
first stage (now about one-third finished), but Khrushchev, who has
said that he is unhappy with the project, must be distressed with
Zhivkov's talk about enlarging the combine.
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rly Planning
,vi.et planners in the beeinning seemed optimistic about the pc3s-
i 3llties of exploiting the. low-grade deposits of iron ore at Kremikc,vlsi.
}'l=ey apparently decided that the capacity of the first stage should
rter than the Bulgarians onainall,r had planned. The Bulgarian Third
Play) (1958-6?) provided for the construction of a cornbiric t;
},roduce 450, 000 tons=:* of cr3ide steel, but in November 1959, :after
nrmneers from the Soviet metallurgical planning organization, Giprorntez,
k{cd been brought in, the Bulgarian press announced that the USSR w.'atld
provide assistance in the construction of a notch larger facility. I/ "PHe
Soviet plans envisaged - - in addition to ore, mining, concentrating, dnof
Ig~jon?erating facilities -- two coke hitteries; two blast furnaces; thrt-t,
oxygen steelmaking converters; an electric steelmaking furnace; and a
rornplex of rolling mills to produce sheet, sections, wire, and tubes.
Projected capacities were 700, 000 tons of metallurgical coke, 1. 1 n1i.1-
liorr toils of pig iron, 1. 3 million tons of crude steel, and about 1 million
tons of rolled steel. 2/ The total planned cost of these and auxiliary
iac:lities was 660 million leva, a large undertaking for the Bulgarian
economy. 3/=. At US
( prices the cost is estimated roughly at $500 mil-
iior to $600 million.) According to a Bulgarian official, the USSR
provided credits for "half the capital needed" to construct the corn-
Construction
h' -3 construction of the Krr mikovtsi Combine, which started
c,-,.rly in 1960, has lagged behind schedule from the outset. The pace
of construction is indicated by the fact that the first blast furnace,
c~rp,iriatiy scheduled to be in one ration late in 1967, 5/ was re -
c}ieriu}ed for mid-1963 6f bat was not blown in until October 1963,
nearly i year behind the oricrinal schedule, 7/ In addition to the first
,=last furnace, other basic sections thai were formally inaugurated in
November include the therrnal power station,
one coke battery, a
machine and repai r shoo, and a plant for prefabricated building
.-:ornponents.
Ml 'onnagc figures in this -itublic, ion are given in metric tons.
I v values in this publication may he converted at the official
r ,te of exchange of 1. 17 leva to US $1. This rate does not neces -
,aItrily r'flect thc.? value of the Lev in terns of the dollar.
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The open-cast mine and concentration plant still are under con-
struction. The former was due to be in operation, by the end of 1963
and to be producing at the rate of 1 million tons of ore annually. The
concentration plant is scheduled to be completed "during 1964. " In
the meantime, the first blast furnace is to operate, with the use of
imported ore. 8 / It, has been reported that only 247 million leva,, or.
31.7 percent of the planned total, had been invested by November
1963. 9/
The USSR has supplied most of the equipment for the facilities
already completed and now underway, and the Soviet-Bulgarian trade
agreement for 1963 provided specifically for deliveries of equipment
to the Kremikovtsi Combine. 10/ However, a trade agreement cover-
ing the period 1964-65 and a long-term agreement concerning capital
assistance in the construction or expansion of 43 Bulgarian enter-
prises apparently contained no specific provisions for such aid to
Kremikovtsi, although the latter agreement did mention aid in ex-
panding a thermal powerplant at Kremikovtsi. 11 / For this and
other reasons, it is not clear to what extent the USSR will continue
to supply equipment, particularly steelmaking and rolling mill equip-
ment. The USSR probably is in no position to help with the converter
shops in view of the lag in its own converter program. The USSR,
in fact, has contracted with Austria for the construction of such
facilities.
Bulgaria also undertook negotiations as early as 1962 with
Western European countries for a basic oxygen converter installation
as well as for special types of rolling and finishing equipment. The
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 products -- types of steel
finishing capacity that have been developed less extensively in the
Bloc than in Western countries, 1.2/ More recently, Bulgaria directed
inquiries to a British firm concerning a large primary mill (for
producing blooms and slabs), 13/ although one report indicated that
part of the equipment for such a mill had been delivered by the USSR. 14/
In any case, there is no evidence that Bulgaria has placed firm con-
tracts with either the West or the USSR for the steelmaking and rolling
mill equipment required at the Kremikovtsi Combine.
3. Raw Materials Problems
Justification for the construction of the Kremikovtsi Combine was
based on optimism concerning the adequacy of domestic sources of raw
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materials and a favorable over-all comparison of estimated domestic
costs for production of steel 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
adversely.
One of the principal uncertainties concerning the efficiency of
operations at the Kremikovtsi Combine is the quality of domestic
sources of iron ore. Although existing reserves have been estimated
to be adequate for operations at the Kremikovtsi Combine for 50 years
at the projected rate of 1 million tons of rolled steel annually, 15/ 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 the lags in the construction of mines and con-
centrating facilities, which have necessitated the use of imported ore
at Kremikovtsi, can be attributed to technical difficulties in processing
the ore. Such difficulties, even if overcome, could necessitate sig-
nificant modifications of original plans for the processing facilities.
One report, in fact, indicates that the iron ore is too poor to be
processed in the equipment to be installed at Kremikovtsi. 16/ Other
reports indicate that the ore is not rich enough to be utilized eco-
nomically. 17/
As for coking coal, the other basic raw material required in the
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
little more than 20 years operation of the two-battery coke plant being
built at Kremikovtsi. 18/ Bulgarian coal has a high sulfur and ash
content and must be cleaned in order to yield a suitable concentrate
for coking. Moreover, it is necessary to blend this cleaned coal with
high volatile types of coal imported from Poland in order to obtain a
suitable 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 Sofia has re-
ported that rumors have circulated concerning Soviet unhappiness
with the project. 19/ An earlier report stated that Khrushchev
,
during his visit to Sofia in 1962, refused to inspect the new combine.
20/
S-E-
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Another source quoted him as asking Zhivkov on that occasion, "How
did you ever get sucked into such a venture?" 21 / More recently,
friction has been reported between Zhivkov andthe Soviet Ambassador
to Bulgaria, Organov> it is oos-
chantment with this project led to, or was re-
di
sen
Bible that Soviet
lated in some other way to, the bitter opposition of the USSR to the
Galati steel project in Rumania, where the raw material base is
similarly weak. Both Soviet and CEMA planners appear to have
downgraded, sometime after 1960, the importance
decided tkigsthel
West in production of steel, and they may have
industries in Bulgaria and Rumania did not make much sense economi-
cally.
Although the USSR may regret that the project was undertaken,
Soviet Ambassador Organov stated at the opening ceremonies at
Kremikovtsi that his country "in the future will fulfill its brotherly
obligations for showing technical cooperation in the further develop-
ment of Bulgarian metallurgy, " describing "brotherly obligations"
as those "arising from international agreements. " 23/ Organov's
remarks probably mean that the USSR i butos continue
not committed to
the 1-million-ton first stage of the combine
help with the expansion plans that Zhivkov has been talking about for
some time.
5. Zhivkov's Expansion Plans
Premier Zhivkov has advocated pushing ahead with a second stage
of the combine, apparently as a major objective of Bulgaria's 20-year
plan (1961-80). He stated that completion of the second stage would
increase total production capacity of the combine to 3 million tons of
pig iron, 3. 6 million tons of steel, and about 3 million tons of rolled
steel. 24/ However, Yovcho Yovchev, Bulgaria's head geologist, has
stated that "the combine's further expansion is contingent upon the
discovery of new reserves of iron ore. " 25/
. The scale of operations planned for the first stage of the Kremikovtsi
Combine reflected an estimate of domestic requirements for finished
steel of 1. 8 million tons in 1965 -- approximately 1 million tons from
Kremikovtsi, 0. 4 million tons from Bulgaria's other steel plant, and
0. 4 million tons from imports. Consumption of steel in Bulgaria is
likely to fall considerably short of the original estimate for consumption
in 1965, but the Bulgarian market for steel products will develop
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sufficiently in the near future to support a "first stage" Kremikovtsi
Combine. However, a plant producing 3 million to 4 million tons an-
nually appears unnecessary for many years, particularly in the face
of a growing worldwide surplus of steelmaking capacity. In tha view
of Berthold Beitz, the General Director of Krupp, the construction of
a plant with a capacity of 3 million to 4 million tons is ridiculous
because "Bulgaria obviously cannot consume or export such an amount
of steel. " 26/
6. Outlook
Bulgaria undoubtedly will push ahead with its plans for the con-
struction of the first stage of the Kremikovtsi Combine. The 1964
draft plan provides for a continuation of substantial investment in fer-
rous metallurgy (100 million leva), most of which is intended for the
Kremikovtsi Combine. 27/ Completion of the first stage will require
additional foreign assistance of which the USSR probably will provide
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.
In the event that domestic iron ore proves to be unsatisfactory
for blast furnace operations, plans for the first stage of the Kremikovtsi
Combine might be cut back somewhat. More likely, however, Bulgaria
would decide to go ahead with original plans by operating the combine
to the extent necessary on imported ore. The USSR, which is now
providing some of the stop-gap supplies of iron ore for the first blast
furnace at Kremikovtsi, might be willing to expand shipments to
Bulgaria on a permanent 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 for imports by
Bulgaria of Brazilian iron ore, amounting to 300, 000 tons in 1964
and increasing to 2 million tons by 1970. 28/
Enlargement of the Kremikovtsi Combine beyond the first stage may
not be an important issue at the present time. Completion of the first
stage does not appear likely before 1966 or 1967 at best. However, it
appears certain that immediate expansion would be opposed strongly by
both the USSR and CEMA. The Counselor of the Polish Embassy in
Sofia, Stanislaw Zgrzywa, remarked to a US official that he doubted that
Bulgaria would achieve its "great ambitions" for Kremikovtsi and that
it would "eventually have to face facts and base economic planning on
realities within the CEMA framework." 29/
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2. CIA. FDD.Rpt no. 23, Rudnichar, 24 Aug 61, p. 24. U.
3. State, Sofia. Airgram A-167, 13 Nov 63, p. 2. OFF USE.
4. Ibid., p. 5. OFF USE.
5. CIA. FDD Summary 3315, Weekly Report on Eastern
Europe (380), 21 Dec 61, p. 3. OFF USE.
6. FBIS. Economic Item 62 L 9036, Leningrad, 12 Nov 62.
OFF USE.
7. State, Sofia. Airgram, Joint Weeka 38, 21 Oct 63, p. 5.
OFF USE.
8. State, Sofia. Airgram A-167, 13 Nov 63, p. 4. OFF USE.
9. Ibid., p. 2. OFF USE.
10. USSR. Vneshnyaya torgovlya, no 2, 1962, p. 42. U.
11. State, Sofia. Airgram A-167, 13 Nov 63, p. 2. OFF USE.
12. CIA. CIA/RR EM 62-21, The Increased Dependence of the
Steel Industry of the European Satellites on Western
Equipment and Technology, Dec 62, p. 10. S.
13. Commerce. Memoranda no 554, 18 Mar 63, Case no 818778.
Admin. Rest.
14. FBIS. Economic Item 63 L 2717, Moscow, 10 Apr 63. OFF USE.
15. JPRS. Item 6965, Selected Economic Translations on Eastern
Europe, no 375, 22 Mar 61, p. 4. U.
25X1A 16.
17.
25X1A
Europe, no 375, 22 Mar 61, p. 4. U.
State, Belgrade. Airgram A-84, 27 Jul 63. OFF USE.
18. JPRS. Item 6965, Selected Economic Translations on Eastern
20.
21.
22.
23.
13 Nov 63,
ram A-167, 13 Nov 63, p. 3. OFF USE.
Sofia. Airgram A-167,
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24.
FBIS. Daily Report (USSR and East Europe), 14 Nov 63,
p. KK3. OFF USE.
25.
State,
Sofia. Airgram A-167, 13 Nov 63, p. 3. OFF USE.
26.
State,
Duesseldorf. Airgram A-108, 22 Oct 63. C.
27.
FBIS.
Daily Report (USSR and East Europe), 20 Dec 63,
p. KKS. OFF USE.
28.
United Press International. UPI-190, 18 Dec 63. U.
29.
State, Sofia. Airgram A-185, 23 Nov 63, p. 1. OFF USE.
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