A unit of India’s Essar Group said it would build a 500 000 tonne steel plant in Zimbabwe for US$650 million in two years, revising a deal that had stalled mostly over mineral rights for nearly four years.
Essar Africa Holdings in 2010 agreed to buy 54% in Zimbabwe Iron and Steel Company (Zisco), with the government keeping 36% and 10% owned by minority investors.
The initial plan was to upgrade the existing steel plant in central Zimbabwe and produce 1,2 million tonnes of steel at a cost of US$750 million.
The deal immediately ran into problems when the government refused to give Essar mineral rights after it formed and owned 80% of shares in iron ore mining firm NewZim Minerals.
The government, which owns the remaining shareholding, in December finally agreed to grant NewZim the rights to the iron ore deposits in Mwanesi.
Firdhose Coovadia, Essar Africa director told journalists that Essar had resolved its issues with the government and had chosen Chinese and Indian engineers to build a new steel plant.
“After a significant review, we came to the conclusion that the plant needed substantially new rebuilding, meaning new blast furnace… new lime plant and new oxygen [plant],” Coovadia said.
“The investment is in new technology because it makes the per tonne production of your steel more globally competitive.”
Coovadia said Zimbabwe’s current steel consumption was 100 000 tonnes a year, which would leave the remainder for export. Essar will raise steel production to 1 million tonnes in the second phase and is planning a 300MW power plant.
The Essar deal is one of the biggest foreign investments in the southern African country, which has been shunned by investors, partly due to its black economic empowerment policy of forcing foreigners to sell majority shares to locals.
The economy also only started growing again in 2009 after a decade of contraction which critics attribute to the policies of President Robert Mugabe’s ruling Zanu PF party, which included the seizure of white-owned farms.
Zanu PF has maintained that drastic measures were needed to rectify the imbalances of colonial rule.
Zisco, which has been renamed NewZim Steel, ceased production in 2008 at the height of Zimbabwe’s economic meltdown.