A steel deal not yet sealed

Resistance over the sale of a national asset in Zimbabwe could yet derail Essar’s Africa foray

October 06, 2013 09:35 pm | Updated November 28, 2021 08:57 pm IST

Zimbabwe Iron and Steel Company (ZISCO) plant, located just outside Kwekwe,Redcliff, Zimbabwe. Photo: Newzimbabwe.com

Zimbabwe Iron and Steel Company (ZISCO) plant, located just outside Kwekwe,Redcliff, Zimbabwe. Photo: Newzimbabwe.com

A bankrupt state-owned steel mill, an Indian industrial conglomerate, and a divided government comprise the cast of Zimbabwe’s biggest privatisation deal in decades. Yet, the transaction has faltered as principal actors have strayed from their scripts amidst arguments over ownership of un-surveyed iron ore deposits potentially worth billions of dollars.

In 2011, the Essar Group, a Mumbai-based multi-national with investments in minerals, energy, telecom, shipping and business outsourcing, announced the $750-million acquisition of the debt-ridden Zimbabwe Iron and Steel Company (ZISCO), a state-owned steel company, that attracted rival bids from Naveen Jindal’s Jindal Power and Steel Ltd. (JSPL), Lakshmi Mittal’s Arcelor Mittal, and Global Steel Holdings, a company once owned by Pramod Mittal, Lakshmi Mittal’s younger brother, before it was bought by JSW Steel.

ZISCO is intended as the keystone of a $3.5-billion trans-national project, including refurbishing the steel mill, paying off ZISCO’s $340 million debt, a 1,000-MW power plant and a rail corridor to ship surplus ore and products to Beira in Mozambique, where the company hopes to build brand new terminal capable of exporting 20 million tonnes of material each year to India, China, and across Africa. The deal accounts for 70 per cent of all foreign direct investment in Zimbabwe over a three-year period.

Two years on, this grand vision stands suspended as Essar and the Government of Zimbabwe (GoZ) negotiate over ZISCO’s vast iron ore reserves. The stakes could not be higher. For Zimbabwe, ZISCO’s privatisation signals that this southern African economy has reopened for business after a decade of political turmoil, sanctions and capital flight. Essar has invested in processing plants such as the 10 million tonnes per annum steel facility in Hazira, Gujarat but remains the only Indian steel major without a domestic captive resource. Mine allocations in Chhattisgarh have been stymied by legal claims and Maoist guerillas have repeatedly disrupted an ore-slurry pipeline that supplies pellets from NMDC’s operations in Bailadila. The company has sunk $80 million into its Zimbabwe project already, but the deal is worthless without the mines.

JSPL and Arcelor-Mittal’s contending bids for ZISCO are confirmation of a broader trend of ore-starved Indian companies scouring the globe for assets at a time when African governments, like the GoZ, are increasingly wary of resource-grabs by international investors.

Essar officials declined to be interviewed, citing confidentiality agreements with the government. “Essar remains committed to the transaction it signed with the Government of Zimbabwe and continues to work with the government towards the closure of the transaction,” said Firdhose Coovadia, Resident Director-Middle East & Africa, Essar Global Services Ltd., in an emailed statement.

Historic liabilities

Established in 1946, ZISCO was briefly the largest steelworks in independent Africa, producing a million tonnes of steel each year. Yet, at the time of its acquisition by Essar in 2010, the company was heavily indebted and scandal struck: its assets had been stripped, it was designated a ‘sanctions target’ by the U.S. treasury, and hadn’t produced steel for three years.

An aborted $400 million management contract with Pramod Mittal’s Global Steel Holdings almost led to the impeachment of Obert Mpofu, Zimbabwe’s mines minister at the time, while in 2008 Germany’s KfW Development Bank nearly seized a ship carrying a cache of Chinese arms intended for the Zimbabwe government as collateral for a $60 million loan that was lent to refurbish ZISCO in 1998 but was never repaid. Welshman Ncube, the Minister of Industry at the time, valued the company at only $40 million.

Crucially, the company retained control over untapped iron ore deposits that were last surveyed in the 1960s and are yet to be rigorously valued. Unsubstantiated reports in the local press claim the deposits contain up to 45 billion tonnes of ore, while other reports value the ore at up to $30 billion.

“Public opinion says this asset is worth billions and billions of dollars, so ZISCO is viewed with immense national interest. It is in the Midlands, a political hotbed between the [opposition] MDC and ruling ZANU,” said a source privy to the deal, noting that a fractious coalition government of national unity signed off on the contract, “A lot of political capital is harnessed by this deal.”

For now, all that is publicly known of the ore is that it is fairly low grade, present in large quantities and spread out over a large area. “The deal was signed by the MDC’s minister of industry without fully consulting the ZANU-PF minister of mines,” said Rugare Gumbo, ZANU-PF’s spokesperson in an interview, adding that the newly formed ZANU-PF government was committed to consummating the deal.

Patrick Chinamasa, ZANU-PF’s Minister of Justice at the time (and now Minister for Finance) said concerns were raised when the deal was pushed through without consulting the Justice Ministry. The GoZ and Essar have since set up a joint committee to survey the deposit and work out a viable business plan.


Yet, any business plan must consider U.S. sanctions, imposed for a variety of reasons, which forbid U.S. companies from doing business with ZISCO. This might make it difficult for Essar to finance the project, particularly from on-shore U.S. and U.K. investors. A treasury spokesperson declined to comment on the matter. Essar’s unbundling of ZISCO into two new companies, NewZim Steel and NewZim Minerals, could be one step towards working around these prohibitions.

The other major challenge is the “Indigenisation Policy” that formed a major plank in ZANU-PF’s recent electoral victory. As per law, foreign mining companies must offer 51 per cent of their equity to the Zimbabwe Government. Under the present agreement, Essar shall own 60 per cent of NewZim Steel and 80 per cent of NewZim Minerals, clearly above the stipulated limit. ZANU-PF representatives say the government has the power to make exceptions in special cases, such as those in which a company takes on previous liabilities — like ZISCO’s $340 million debt.


While the delays have proved frustrating for the company and the government, ZISCO’s workers have borne the brunt of the delay. “It has been very, very hard,” said Benedict Moyo, Chairman of the ZISCO Joint Workers Union. “We’ve got families to look after. There is nothing to sustain the children. It has been hell,” he added.

Essar officials say they have paid nearly $20 million in salaries, despite having no legal obligation to do so, to provide some interim sustenance to workers while negotiations continue. In the meantime, workers continue to report to the dysfunctional plant every morning.

“Religiously they are going there in the hope that something will come out right,” Mr. Moyo said, “The workers, they just want to get back to work.”

The author is Africa correspondent of The Hindu


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