The unpleasant flop at Zisco
THE fiasco at the Zimbabwe Iron and Steel Company (Zisco, or Ziscosteel) is not an enviable one. For a project that was celebrated as the biggest, post-independence transaction marking Zimbabwe’s turn into an international investment destination, the mega-buck buy-out of Zisco by Essar Africa Holdings Limited (EAHL) was supposed to be a real turning point.
The economy, which suffered a sustained period of broad-based decline between 2000 and 2008, which led to a cumulative decline of 50,3 percent in real gross domestic product (GDP) growth, had equally experienced a debilitating flight of capital.
This had inevitably aggravated hyperinflationary pressures which led to an erosion of the defenceless local currency, eventually abandoned in 2009 for a hard currency economy.
There was a big statement made when government — represented at the highest level by leaders of the political parties in the then-inclusive government — and EAHL executives launched the New Zim Steel to takeover or succeed the failed Zisco.
The furnaces at Zisco, once one of Africa’s largest, integrated steelworks, ceased running in 2008 and the complex has become a rusty, abandoned cemetery of scrap giving no life to the national economy.
However, EAHL executives were buoyant at the announcement of their takeover. They said in a joint statement with government: “The launch begins a new chapter in the economic growth of Zimbabwe, for all Zimbabweans and particularly for the communities in and around Redcliff and Chivhu.”
Redcliff hosts the furnaces — a plant that sustained Rhodesia and enabled it to bust United Nations sanctions during the colonial era — while Chivhu has vast and unexploited iron ore deposits that were owned by Zisco.
Whether this is urban legend or truth, it has been said that the Kariba Power Station, now one of two critical electricity generators for the country, was constructed to support Zisco.
So the EAHL takeover of Zisco was indeed something to celebrate. Thousands of workers depended on this institution for sustenance, as well as an entire community, Redcliff, and other environs like Kwekwe.
Here was a chance for its resurrection. There could not have been a better answer to a prayer!
Now, it looks like people celebrated too early, too soon.
Zisco is still the same derelict firm whose furnaces turned silent in 2008.
EAHL never took over control of the company in 2011; it assumed no ownership of the steelmaker.
Information obtained by the Financial Gazette this week indicates that EAHL was supposed to pay US$45 million to government to takeover a 51 percent shareholding in the company but has not yet done so.
Yet the announcement by both EAHL and government in 2011 said the takeover transaction had been sealed on August 3, 2011 after a joint announcement launching NewZim Steel (Private) Limited and NewZim Minerals (Private) Limited.
The statement said the launch of the two companies had closed “the transaction process that started in August 2010 with a public tender for a majority stake of (government of Zimbabwe) shareholding in Zisco”.
An impeccable source who has closely monitored the deal said: “Essar never took over Ziscosteel. Alois Gowo and his staff are still in charge.”
Gowo is the chief executive officer of Zisco.
Yet reports swirling on the market, and in fact as first reported by this newspaper a few weeks ago, suggest that EAHL has pulled out of Zisco.
The Financial Gazette called on Wednesday to clarify these reports. He told this newspaper: “We’re still in the dark. We have received no official comment that (EAHL) have pulled out, but they are not present at the plant.”
Although EAHL management had initially deployed its staff to the Redcliff plant after the launch of New Zim Steel, these never occupied the executive offices at Zisco and operated from other offices at the plant.
EAHL directors who were expected to take charge of the business were housed at offices in Harare, they said.
A government official told the Financial Gazette confidentially: “At no point did Essar deploy full-time workers to Zisco.
“They brought people here on business visas and sent them back home when these expired. New people kept coming and leaving.”
Industry and Commerce Minister Mike Bimha has vehemently dismissed reports that EAHL had pulled out of the Zisco deal, insisting that it had taken a back seat because of the weak steel prices on the global market.
Bimha has not confirmed whether the Indian firm had indeed taken over the company as announced by government. If it did not, from what would EAHL pull out? An agreement or Zisco?
In terms of the agreement entered into on March 9, 2011, EAHL had committed to an investment of approximately US$750 million, which included relieving government and Zisco of all their liabilities.
These liabilities included guaranteed foreign debt; historic liabilities in respect of trade and other creditors, including unpaid salaries and associated benefits owed to the employees; fixed capital investment for reviving the plant to 1,2 million tonnes per annum steel production; and working capital requirements for operations.
Subject to the conclusion of discussions with minority shareholders, NewZim Steel was to be owned 40 percent by government and 60 percent by EAHL.
New Zim Steel was to acquire the existing assets of Zisco and revive and expand Zisco’s steelmaking capacity in two phases, according to the joint statement by government and EAHL.
The first phase entailed refurbishment of the plant at an investment of US$115 million, which was to be completed in 12-18 months from the day the transaction was publicly launched in August 2011. This was to deliver a production capacity of 0,5 million tonnes per annum.
Phase two was to increase production capacity to 1,2 million tonnes per annum, including investment in a Greenfield multi-fuel cogeneration power plant of 50 megawatts and an oxygen plant at an incremental investment of US$275 million.
This was scheduled to be completed within three years.
In the long term, EAHL had a vision to increase the capacity of the plant up to two million tonnes per annum.
NewZim Minerals, which was to be owned 20 percent by government and 80 percent by EAHL, was to acquire a 100 percent stake in BIMCO from Zisco.
It was to also embark on the exploration and development of Zisco’s mining assets, including the Ripple Creek Iron Ore Mine in Redcliff, its limestone deposits and the Mwanesi Iron Ore Deposit.
“The priority of NZM (NewZim Minerals) will be to ensure sufficient supply of good quality iron ore to NZS (NewZim Steel) for the life of its operations including the increased volumes required by any planned capacity expansions.
“The iron ore at Ripple Creek will be mined to feed NZS’ steel plant requirements in the short term. The Mwanesi deposit has been relatively unexplored to date and initial work indicates that it largely comprises of jasphalite ore, which is of average to poor grade, indispersed with hematite ore. EAHL will fund NZM for a full testing programme to establish the quantity and quality of the ore, including its beneficiation properties and the latest technologies which can be used for such beneficiation,” the joint statement had indicated.
Apparently, the project first stalled after bickering in government resulted in the failure by the company to assume ownership of mineral rights previously held by Zisco.
This was mainly due to power wrangles within the inclusive government, which had former prime minister Morgan Tsvangirai’s MDC-T sharing power with President Robert Mugabe’s ZANU- PF and Welshman Ncube’s MDC.
Ncube, who was the industry and commerce minister in the inclusive government, was in charge of the EAHL deal.
At a joint press conference in May last year, EAHL and government said they had resolved their differences over mineral rights and the Indian firm was now to build a 500 000-tonne steel plant at Zisco for US$650 million in two years.
But speaking before a Parliamentary portfolio committee three months later, Gowo said: “Zisco is on its own at the moment. There is no other party on the ground. We are waiting to hear from our majority shareholder — the Government of Zimbabwe and the strategic partner on the negotiations.”
He indicated that EAHL and government officials had visited the plant earlier that year and pledged that work would resume at the plant and that contentious issues that had stalled the project “had now been resolved”.
But exactly over a year later, nothing is happening at Zisco.
Questions sent last week to Firdhose Coovadia, the resident director for Middle East & Africa — Essar Global Services Ltd — who was directly in charge of the Zimbabwe project, had not yet been responded to by the time of going to press.