GOVERNMENT may not be able to meet its obligation to settle New ZimSteel’s domestic debt which it agreed to repay as part of the conditions to resuscitate operations at the steel manufacturer, a development which could delay the resumption of operations at the fallen steel giant.
New ZimSteel, formerly the Zimbabwe Iron and Steel Company (ZISCO), was taken over by Indian conglomerate Essar in 2011 although government retains a 40 percent interest in what was once Africa’s only integrated steelworks outside South Africa.
Government and Essar entered into a US$750 million deal to revive operations at the Redcliff-based steel company but full implementation of the deal has been held up by squabbles between government and Essar over debt settlement and the control of iron ore reserves in Mwanesi.
Under the agreement, government sold 54 percent shares in ZISCO to Essar Holdings and as part of the deal it was agreed that government would assume the steel producer’s domestic debt while Essar would take over the company’s foreign debt and operationalise New ZimSteel.
The domestic debt, which amounted to about US$72 million at the time of signing the agreement, has now ballooned to about US$200 million after government failed to settle its side of the bargain. Due to the sluggish economic performance, chances are that government, which is battling to settle salary obligations with civil servants, will fail to meet its ZISCO obligation in the coming few years. Essar took over the company’s foreign liabilities which amounted to US$300 million.
Industry and Commerce Minister, Mike Bimha, told the Financial Gazette a fortnight ago that he had approached Treasury to facilitate a loan to pay off the debt which has become a major stumbling block to the steel maker’s revival.
“I have spoken to Treasury to facilitate a loan to pay off the debt which we hope will happen soon,” said Bimha.
“However, it won’t be easy to raise this amount and it will take a while to restart the troubled steel maker.”
The company’s closure in 2008 has negatively impacted on Zimbabwe’s economy, the development of Redcliff in particular and the Midlands area in general. Hundreds of New ZimSteel workers who have borne the brunt of the delays have not been paid salaries in full since 2011, except for a brief intervention by Essar in 2012 before the firm suspended paying salaries, citing lack of production and government commitment in resolving outstanding issues.
According to the agreement, Essar would take over ZISCO’s old plant in Redcliff, Buchwa Iron Mining Company, Mwanesi Iron Ore Claims in Chivhu, Ripple Creek Mine in Redcliff, some iron ore claims in Hwedza and Gwanda and Limestone claims in Kwekwe.
The deal failed to take off after government insisted on re-negotiating the shares in New Zim Minerals (formerly Buchwa Iron Mining Company) citing some anomalies in the initial agreement. There was also political gridlock between government and Essar over the control of iron ore reserves in Mwanesi with the Ministry of Mines, which had no input in the structuring of the deal, constantly refusing to sign off these claims as part of the transaction.
Government raised concerns that Essar was getting the iron ore deposits worth US$30 billion when the company only paid US$750 million for the ZISCO plant, its subsidiaries and the vast iron ore deposits in the country. Following the impasse, Essar withdrew further funding to New ZimSteel. However, President Robert Mugabe’s Cabinet later made a series of resolutions over the iron ore deposits. Bimha said government and Essar were prepared to put to finality the deal to pave way for the resumption of operations at Redcliff. The implementation of the New ZimSteel deal would go a long way in promoting economic growth in the country.
Before the closure of steel production operations at Redcliff in 2008, the firm was strategic to the country’s economy, employing more than 4 000 workers and, at its peak, producing about a million tonnes of steel per year for the domestic and foreign markets. Essar has since announced plans to increase production at New ZimSteel to 14 million tonnes per year.