The Privatisation of the Zimbabwe Iron and Steel Company

Zimbabwe has a steel plant located in the Midlands with an installed capacity for about 1,2 million tonnes of steel a year. However, the plant has been vandalized and badly managed and maintained and will require a complete redevelopment before it can produce a kilogram of steel. In addition it has about $700 million dollars of debt in various forms.

The third largest steel manufacturer in the world, ESSAR has negotiated a deal that gives them 60 per cent of ZISCO and 80 per cent of BIMCO the associated mining company. In return for this equity stake under this arrangement ESSAR gets management control, intends renaming the company and paying all debts. Then it proposes the following major developments all funded by ESSAR:

1. Rebuild ZISCO and raise steel production to 2,5 million tonnes a year. This includes taking over the Munyati Power Station and refurbishing it to produce 130 megawatts of power. A secondary power station will use gases from ZISCO to produce another 30 megawatts and this will make the steel company independent of ZESA. The cost of this project is $3 billion and includes railway refurbishment including an upgrade of the line to Beira and new Port facilities in Beira.
2. Reorganise BIMCO so that it can mine the requirements of ZISCO as well as the needs of a new smelter and pelletisation plant at Chivu which will be capable of producing 2 million tonnes of iron pellets with a 95% Fe content for export to India. This project is enormous and will involve two 600 megawatt power stations based on coal and $7 billion in new investment. It would also involve a new rail line to the Mozambique coast.

The deal as negotiated includes 50 billion tonnes of iron ore at Mwenezi with a 45 per cent Fe content. This is enough iron ore for 1000 years of operations. The deal as signed includes all the rights to these reserves (one of the largest in the world) and the ESSAR position is that as far as they are concerned the deal for ZISCO has negative value their real target from day one has been BIMCO and the Mwenezi iron ore reserves.

The contract for this exercise was signed by President Mugabe 18 months ago and then launched in a formal ceremony at Redcliff attended by half the Cabinet as well as the President and the Prime Minister. However, it has not been consummated because of the failure by the Ministry of Mines to allow the transfer of ownership and control of iron ore reserves to ESSAR as provided for in the contract.

After nearly two years of wrangling over this critical issue, the Chairman of ESSAR came to Zimbabwe last week to try and get the outstanding issues resolved. Instead he was confronted by further demands from the Zanu PF leadership that the deal be completely renegotiated to give the State a 51 per cent stake and control even though the cash resources to fund this huge investment was to come totally from ESSAR. ESSAR have now stated that if these issues are not resolved and the deal consummated as signed in 2011, they are withdrawing from the Contract. Statements in the Zanu PF controlled press that the deal is being renegotiated are simply not true.

If this problem is not resolved immediately and the State insists on the retention of a major part of the iron ore reserves and majority control, then ESSAR will walk away, even though to date they have spent some $50 million in the negotiations. They have a skeleton staff in Harare and have already downscaled their operations here by 90 per cent already.

If this happens we have to consider the implications, I suggest the following:
1. This would be the second time the ZISCO negotiations have failed, in both cases involving players of global stature and importance;
2. The impact on our reputation would be very considerable and would affect all similar negotiations involving the sale of State Assets in the future as well as any new joint ventures with the State in Zimbabwe;
3. It would mean another two years of negotiations leaving the plant and the Mine in limbo, all staff out on their own without any income; vandalism and the theft of assets will accelerate and render the plant even less valuable;
4. It would delay the rehabilitation of infrastructure and the installation of substantial new power generation capacity (1350 megawatts). The new investor in the iron ore may not be willing to undertake the investment to concentrate the iron ore, pelletise and build the massive rail and Port facilities needed.
5. The setback to the economy and the Midlands would be very serious. This is a $10 billion investment over five years - $2 billion a year. Sales would be worth at least 500 million dollars a month when both plants are fully operational. In three years they would double our installed power generation capacity at no cost to ourselves. Surplus power would be available internally.
6. They would employ not less than 22 000 people when the projects are all operational.
7. The impact on the midlands economy will be huge, the multiplier effect will be at least 3:1 and when you consider that present exports for the whole economy are $500 million a month this programme will accelerate our GDP expansion in the next 10 years very dramatically.

This is yet another example of the disastrous and criminal approach of Zanu PF to the economy and the welfare of the people. Greed and corruption are the norm and the insistence on the demand for 51 per cent control something that no investor is going to accept under any conditions, is ridiculous and very damaging to the interests of Zimbabwe.

The Government of Zimbabwe, representing the three political parties, has one last chance to rescue this deal. If they fail to do so, the failure will be directly attributable to the Zanu PF elements in the Government but the consequences will be borne by every Zimbabwean and especially the thousands of ZISCO employees who will go to bed hungry again.

Eddie Cross
25th August 2012