Why the ESSAR-ZISCO deal has taken too long

The rehabilitation of ZISCO Steel, now known as Zim Steel, is likely to take some time as 80 percent of the machinery had become obsolete but the Indian investor ESSAR is geared up and will start importing some of the raw material required by local industry.

The Deputy Minister of Industry and Commerce Chiratidzo Mabuwa told the Senate that it would take at least a year before the new plant can roll out any products. Initially, the government had thought that this would be done in six months.

The Deputy Minister said that Zimbabwe would not be short-changed by the importation of billets as the company was investing in modern machinery and was putting up a power plant at Hwange.

Mabuwa said there had been delays in getting ESSAR to start work because there had been disagreements, but this had now been resolved.

The company was also taking over the foreign debt and that of the workers.

Q & A:

*SENATOR MUMVURI: My question is directed to the Deputy Minister of Industry and Commerce. Recently, we were overjoyed when we heard that ZISCO Steel was up and running but now, from what we read from the media, we understand that nothing is taking place. May the Deputy Minister explain to us what exactly is happening because the workers are not getting any salaries?

*THE DEPUTY MINISTER OF INDUSTRY AND COMMERCE (MS. MABUWA): Thank you Madam President. I would like to thank the hon. senator for this pertinent question. This question is very important and it is of interest to the press because when we look at the iron and steel manufacturing industry in any country, it determines the economic development in that particular country. Those who admire also look at this industry and emulate what you will have done. Those that do not like you also look at this industry because the impact of the industry shows the economic growth of the country.

The issue that is there currently with ZISCO Steel is that as Government, we have managed to get partners or investors about seven years back. It might appear as if people are asking so many questions concerning this because it has been quite a long time but when we look for investors to fund ZISCO Steel, we need to consider how the situation was at that time. You will find that the company had become broke when we sold it and for us to sell an industry that was dead was also not viable. Now, we hear of the ESSAR deal. This company is now being called New Zim Steel.

The investors we got have already started working on it. Yes, there had been some disagreements on the implementation of the agreement we had signed but we addressed this and the media gave a true reflection. Our partners were here last week. ZISCO Steel will not only become the old ZISCO Steel but it is going to be a new company.

On the production of iron and steel, for us to start running those machines, we need to buy or rehabilitate the machinery up to the levels of about 80% as most of them have become obsolete in order for people to invest in it; not that the machines have just become obsolete but because technology is dynamic and we have to factor that. As they begin to work on this iron and steel industry, we have just given a road map that reflects that after a year, only then will we be able to see the products from the company. I remember that I once mentioned this in this House or in the House of Assembly that when we signed the agreement, we had agreed that within six months, we should be able to realise the production of other iron and steel products such as deformed bars.

Now, this will be done because we will have bought the machinery that is needed and the machinery will be coming from India. India has better pricing for those machines. On our revised plan, this is going to take place. We will also see the resuscitation of Lancashire Steel and then on other issues, we will look at having the distribution centers throughout the country for the New Zim Steel and we will also begin to sell the various iron and steel products. Other products will also be imported from other countries to ensure that our workers remain employed. The partners are also coming in to put a thermal power plant in Hwange and that should supply 300 mega watts of the electricity. This electricity will be used at New Zim Steel but they will not be able to consume all this. Therefore, the remainder will be absorbed into our national grid. They will also assist in the exploration of gases.

On the last issue that you mentioned, the issue of the workers, as the Government, we cannot go down to really check on what is happening to the workers but that is classified under administrative issues. However, we will continue to find out what will be happening concerning their welfare. What we know is that the investors have informed us that they have got funding and this is from other companies and also from the workers. So they have requested that we talk to the workers on the issue of education as well as the medical aid. The workers had a challenge that they had accrued so many debts and the investors are willing to take up these debts so that they bear the debts as a company to safeguard the welfare of the workers. New Zim Steel is also embarking on a skills review assessment to establish whether the current skills base will be able to use the new machinery. Those who will not be able to work in the new industry will be given a package of a three months notice in the form of a salary.

Other businesses which have huge debts with ZISCO Steel are also having talks with the investors because they also had shares in ZISCO Steel and wanted to attach some of the Government property. This included the national aircrafts but it was discussed and agreed that they would not attach Government assets. So the investors are people who want to do business with us and these are issues that can be addressed. What we urge you to do is to assist us and understand that this is really a very big issue. Resuscitation of this industry will resuscitate other industries. Thank you.

SENATOR CHITAKA: Minister, in your response you mentioned three issues from which I would like some further clarification on. The first one is, you mentioned that ESSAR is now importing billets for processing downstream from India and ESSAR is an Indian company. Are we not being used for an outlet for ESSAR’s plants overseas because the whole idea, if I understand it was that the New Zim Steel was supposed to manufacture the same items here using raw materials found here in Zimbabwe? Now, if we are going to allow New Zim Steel to start importing ingots from India or wherever ESSAR operates and then feeding them into Lancashire Steel and all that, to make the final products, what guarantee do we have that they will be very comfortable doing that rather than manufacturing the steel?

The second part Hon. Minister is that, you keep talking about this power station at Hwange that ESSAR is going to build. There are two dimensions that I wanted you to explain there. Was that part of the new Zim Steel investment protocol or Memorandum of Understanding? Was that part of the deal or is it something that ESSAR is talking about that they might do and if so, a green fueled thermal power station in Hwange is going to take you several years.

The seven and eight that is currently being done, we have heard reports from the responsible Minister that it will not be working until after 2017. Now, with a new power station which needs completely new infrastructure, I doubt whether the construction of that power station will be ready before 2022 or 2023. So, are we not just being lied to by little sweetening talk from these investors?

The last question is, you mentioned in the last part of your response about the assumption of debt by ESSAR. You talked about a number of different types of debts, but the one that I want to focus on which you seem to hint on is, we thought that the deal involved ESSAR assuming, especially the foreign debt and the major local debt that caused ZISCO Steel to go under. Why is there now an issue? Why are they not paying up the debt as per the agreement? If they assume a debt then they must pay the debt. That was part of the agreement. So, if I could get debt clarification on those issues, hon. Minister. I thank you.

MADAM PRESIDENT: May I appeal to hon. senators or remind you to stop addressing the Senate. Pose your questions to the Ministers. Your questions have to be based on the policy of that Ministry on a given topic. Please, do not address the Senate. You are eating into our question time. We want to hear responses from Ministers because those Ministers will help you as the people’s representatives.

MS. MABUWA: Thank you Madam President. I would like to thank the hon. senator for the follow up questions that he raised. I will try to be precise. The first question was, is India or ESSAR not going to use Zimbabwe as a trading ground? I say, no. This is a stop gap measure. We cannot continue to wait for our own output when we have to rehabilitate our machinery at 80% rehabilitation. That will take us above a year to do and we cannot continue to wait.

So, the importation of billets is not only going to be from India, but I mentioned that it was also going to be from South Africa because of the costs that are involved that have been assessed by management. On the second question regarding whether or not it is strategic for us to consider and ululate about the introduction of investing in this thermal power station, yes and no; it is part of the memorandum because there is no production that will take place if there is a shortage of power.

So, looking at that, the investors had not meant for us; I agree with you that it takes several years to put up a thermal power station, but you will agree with me that most of the time is consumed in constructing the turbines. If the turbines are already available, like in the case where already two turbines of 150MW in strength are already available, they were diverted.

An hon. senator having passed between the Chair and the hon. senator speaking.

MADAM PRESIDENT: Order, order. Hon. senator, you may not come between the Chair and the member who is on the floor.

MS. MABUWA: Thank you Madam President. I was saying that much of the 20 years or so that you are talking about is meant for the construction of the turbines, but in our case, we were fortunate and that is why we celebrate that we already have two turbines that have been put aside for this particular thermal station. So, it will not be all those years.

On the last part, the assumption of foreign and local debt; I already mentioned that it was the foreign debt that was now encroaching to the other Zimbabwean assets and we celebrate today that it has been solved. It has been taken over by ESSAR and negotiations are currently underway. They have already engaged the local debtors, who include the workers as well, in pursuance of wanting to take over those debts. I thank you.

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