eBusiness Weekly
Golden Sibanda
The Zimbabwe Iron and Steel Company’s (Zisco) ‘onerous’ half a billion-dollar debt to local and foreign institutions/individuals was chief among the many factors that led to the collapse of the multi-million-dollar deal with Essar Group for the revival of the mothballed steel maker.
But Government says after taking over Zisco’s intimidating debt overhang, an implementation model will be concluded with Chinese billionaire investor Zhang Li’s R and F company in Government’s next 100 day programme.
Industry and Commerce Minister Mike Bimha told Business Weekly in an interview last week that the State owned mothballed company’s huge debts were the main reason behind the aborted investment by Essar. The deal with Essar had been signed in 2010 and collapsed in 2015.
Other reasons cited for the collapse of the deal included Government’s reluctance to release all iron ore claims held by BIMCO to a single investor.
BIMCO holds more than 75 percent of all iron ore rights in Zimbabwe. Estimates put the value of the iron ore reserves the company holds at $30 billion.
Reports also alleged that the company did not require Zisco as a mere investment, but to gain access to Zimbabwe’s vast iron ore resources in order to feed its other bigger steel manufacturing operations elsewhere.
Apart from the huge debts, it is believed Essar was frustrated by Government’s failure to guarantee unhindered access to rail transport system and access to coal reserves for its operations and a planned power plant.
Dr Bimha said that the decision to take-over the Zisco debts were a major milestone towards making the company attractive to foreign investors.
The debts are broken down as $212 million external loans, $6 million external supplies debt, $56,6 million domestic debt and $219 million debt to utilities and statutory bodies. Government will now assume all the debts.
The National Assembly’s Portfolio Committee on Finance and Economic Development held public hearings on the Zimbabwe Iron and Steel Company Debt Assumption Bill from 26th to 29th March 2018.
The Bill’s objective is for the State to assume Zisco’s debts, subject to validation and reconciliation by the Finance Ministry’s Debt Management Office.
This will clean Zisco’s balance sheet and pave the way for investors to start on a clean slate. Minister Bimha said there were problems in the past that stood in the way of investment deals, chief among them huge debts.
“Zisco had a very huge debt overhang and not many investors are keen to be involved in an arrangement where there is a huge debt and in the past we were saying investors interested in Zisco should come in and take over the debt and that has not been easy,” Minister Bimha said.
“The last time when Essar came and said they were going to take over the debts, the problem was how they (would) recoup that investment, bearing in mind the fact that they also had to put a lot of money into the rehabilitation of the plant.
“They also proposed how they would recoup the investment, but this was not in line with some of our laws particularly indigenisation and empowerment policy, so we had these problems,” Minister Bimha said.
Minister Bimha said all legislators were now agreeable that Government needed to assume Zisco’s debts to make it attractive to investors. The Bill for the $495 million debt assumption by the State is before Parliament.
Minister Bimha also said the various ministries with a bearing on investment, particularly regarding Zisco, during the inclusive Government, made it difficult to consummate the Essar investment into Zisco.
Minister Bimha said too many ‘hands’ negatively affected coordination and the investor ended up frustrated. “By the time we got our act together, commodity prices had gone down and the investor said this was probably not the right time to make such an investment,” he said.
“But this time around Government has assumed the debt and we are now very flexible on the issue of indigenisation and investment laws,” he said.
Government has amended the indigenisation to restrict the 51/19 shareholding requirement, in favour of locals it to only diamond and platinum, where it is still to promulgate the beneficiation policy or framework.
Elsewhere, investors can hold or acquire 100 percent stake in an area of their choice.
At its peak, Zisco produced about 1 million tonnes of steel per annum. Its suitor, Essar Holdings has operations across the world, but mainly in India, which produce at least 13 million tonnes of steel per annum.
Zisco also employed over 4 500 workers, most of whom lost their jobs when the company closed shop in 2008 to serious financial limitations.
In the absence of Zisco, Zimbabwean companies and all consumers of steel products have had to source from outside, which takes time and is costly.
The situation has become all the more untenable now given importing has become more difficult since it requires huge outlays of hard currency. Zimbabwe is currently facing serious challenges of forex.
