ZISCO-ESSAR deal still in limbo

The resuscitation of the Redcliff-based Zimbabwe Iron and Steel Corporation, now renamed New Zim Steel, is still unclear as the agreement between the government and India’s ESSAR Group had to be renegotiated and is yet to be signed.

Deputy Minister for Industry and Commerce Chiratidzo Mabuwa said the deal previously set at US$750 million four years ago had shot up to US$1 billion.

Local liabilities which stood at US$70 million had increased to US$200 million.

Mabuwa said no money had changed hands so far.

She said that the government and ESSAR had agreed on interim measures to inject money into the project to pay workers who received only 13 percent of their salaries in December. 

“Whilst adjustments to the agreement are taking place, the government of Zimbabwe and ESSAR agreed to implement immediate interim measures that would inject some funding into New Zim Steel and also offer relief to workers,” she said.

Q & A:

COMMENCEMEMT OF OPERATIONS BY ESSAR

SENATOR. W. SIBANDA asked the Deputy Minister of Industry and Commerce to state:

a) when ESSAR will commence operations in view of the fact that it has been three years since the ESSAR project was commissioned by the President;

b) the value of the investment and how much has been received by the Government from this deal;

c) what has been purchased by ESSAR in terms of iron ore deposits and assets, and if the Minister could furnish the House with the agreement of this deal.

THE DEPUTY MINISTER OF INDUSTRY AND COMMERCE (MS. MABUWA): ESSAR will scale up operations as soon as the amended agreement is signed. The original Share and Asset Purchase Agreement (SAPA) had Conditions Precedent that required both parties to the agreement to fulfill first before full closure of the Agreement could be released. Fulfillment of those Conditions Precedent took a long time to realise and hence, there was a delay in the closure of the transaction. To date, most Conditions Precedent have been fulfilled by both parties to enable the full closure of the transaction to take place.

The SAPA is currently being cleaned up for final closure by Legal Counsel from both parties to capture the adjusted plans as per the bid document to now encompass the additional costs associated with the time lapse since 2011 when the original agreement was signed. Whilst adjustments to the agreement are taking place, the Government of Zimbabwe and ESSAR agreed to implement immediate interim measures that would inject some funding into New Zim Steel and also offer relief to workers.

On the value of the investment, the value of the total investment by ESSAR in Zimbabwe was originally expected to be US$750 million comprising ESSAR’s clearance of the SinoSure and KfW debts amounting to US$300 million and the US$450 million for recapitalisation and the steel plant at Redcliff. This has since risen to over US$1 billion owing to the changes in revival plans and obsolescence of the plant.

The original implementation plan had to be revisited due to changes in circumstances. By way of example, the completion of the ongoing work such as the relining of Blast Furnace No. 4 as well as refurbishment of the rolling mills which was originally put at US$430 million has now been revised to over US$600 million as the new plan now envisages 80% replacement (instead of relining and refurbishment) with totally new equipment.

Similarly, local liabilities initially put at US$70 million at the time of signature have now ballooned to over US$200 million. As a result, scaling up of operations has thus delayed but engineering work has already started.

Mr. President, in terms of how much was received from the transaction, no money has exchanged hands between the two parties as consideration for the Asset Purchase of ZISCO Assets. This is expected to take place after the closure of the transaction.

Regarding what ESSAR has purchased in terms of iron ore deposits and assets, Mr. President, ESSAR did not pay for the iron ore deposits but it received an entitlement to mine the iron ore for feedstock after the initial exploration at Mwanesi. The feedstock is required for the steel plant when it is revived. ESSAR was granted access to the iron ore claims subject to payment of royalties and a claim transfer fee for each claim.

No purchases have taken place, save to say that BIMCO claims deemed minable are transferred pro rata to New Zim Steel. For Mwanesi, only exploration rights have been extended to ESSAR to explore jointly with ZMDC.

The last part requests that there be a presentation of the agreement before the august Senate. Please be advised that the revised and amended copy of the original Share Asset and Purchase Agreement (SAPA) is not yet available. The SAPA is currently being cleaned up for final closure by Legal Counsel from both parties. It is expected that, once the transactions have been closed, I or the Minister will present the agreement before the Senate at the appropriate time. I thank you.

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