HomeLocalHow govt scuttled Essar deal

How govt scuttled Essar deal

In 2011 President Robert Mugabe officiated at the opening of a new company, New Zimsteel, in the Midlands mining town of Redcliff.


The company was being born out of the ashes of the defunct steel-making giant, Ziscosteel in a $750 million takeover deal between government and India’s Essar Africa Holdings.


Essar had won the tender to take over Zisco in its entirety — operations, debts [including a massive outstanding wage bill] and mineral deposits at Buchwa and Chivhu, which would give the Indian company 54% shares of the company.

Essar had beaten other bidders like ArcelorMittal — the world’s leading integrated steel and mining company.
Mugabe then told the company’s over 3 000 workers that government’s Look East policy was beginning to pay dividends.

He said Essar would bring back to life the steel company’s three furnaces within 12 months, while blast furnace Number Four would be put back in place inside 27 months.

This, he said, would enable the country to produce 2,5 million tonnes of steel per annum.

But today — four years down the line — there is no smoke coming out of any of the four furnaces.

In fact, Finance minister Patrick Chinamasa recently said the deal had collapsed and government was searching for another partner.

Chinamasa did not explain how the Essar deal failed after four years of negotiations and promises.

However, former Industry and Commerce minister Welshmen Ncube, who led the crafting of the arrangement, blamed the Mines ministry for the collapse of the arrangement.

“During my time in the ministry, the sticking point to the deal was with the Ministry of Mines, which for reasons best known to themselves, were refusing to sign over the Chivhu mining claims to New Zimsteel,” he said.

“They insisted that New Zimsteel could only take the Buchwa claims which had been exhausted anyway.

“The future of Ziscosteel and therefore Essar lay in the Chivhu claims.”

“These mining claims were part of the tender and we never understood what the problem was with the Mines ministry in refusing to sign them over to New Zimsteel. We could only speculate that it was corruption-related, but we did not have the evidence.”

Obert Mpofu was the Mines minister at the time. The new minister, Walter Chidhakwa last week dismissed accusations that his ministry refused to cede the Chivhu iron ore mining concessions to Essar.

Instead, he shifted the blame to Essar, saying the company had failed to pay the required fees after they had successfully applied to get the mining concessions.

“To say that the ministry scuttled the deal would be saying I defied Cabinet because this was a government issue and my ministry did everything that we were supposed to do,” Chidhakwa said.

“They applied for concessions and we processed their applications and gave them the concessions for which they were supposed to pay something like $430 000, but they did not come to pay.”

Chidhakwa said the deal did not collapse because of government’s failing as there was a directive to ensure the deal sailed through.

“It was them [Essar] who did not come back to us and after that, government took a decision which was not based on the failure of the Mines ministry,” he said.

Chidhakwa said he even wrote a letter outlining that his ministry was ready to sign all papers possible to ensure that the deal went through.

He said he could not cede the concessions to Essar before the payment was made as that would have been illegal.

Ncube said the Chivhu concessions were part of the $750 million takeover deal as advertised in the tender.

“Government advertised Ziscosteel with its mining concessions and the $750 million was a whole package and, therefore, asking for new fees would have been breaching the tender,” said Ncube.

Firdhose Coovadia, the Essar Africa board director, was not immediately available for comment and did not respond to e-mailed questions.

But he is on record confirming that his company was waiting for the Zimbabwean government to issue new share certificates before they invested their money.

Essar immediately started paying salaries to the over 3 000 workers at Ziscosteel but later suspended the payments in 2012 as government dug in on the new share certificates.

There were then rumours that Essar was mulling a pullout from the deal.

At that time, Ziscosteel communications manager Sabinah Chitehwe said progress was being made.

Early 2014, Essar appeared to have won their fight and announced that they had opened plans to start work at the Ziscosteel plant in Redcliff, with Coovadia saying a ship was on its way with equipment.

He also went on to promise a new era for the workers who had just been promised a three-month salary pay-out and medical aid.

According to Ncube, Essar was exposed to over $20 million in payments of salaries, preparatory work to take over the plant, new employment of critical staff and opening of a Harare office to co-ordinate the deal.

“They lost millions of dollars but there was a clause in the deal which said if the deal was to fail because of government’s errors then they would be entitled to get back their money,” he said.

In May last year, Indian Ambassador Jeitendra Tripathi accused some individuals in government of having vested interests which threatened to scuttle the deal. But at the time he thought his intervention was sufficient to save the deal from collapse.

He said his team persisted together with Essar to ensure that government honoured its pledge and that the deal was brought to life despite the governance problems which were affecting Zimbabwe internally.

MDC-T’s Tapiwa Mashakada said the scuttling of the deal would affect investor confidence.

“It is clear they have jettisoned Essar and they are looking for new investors,” he said recently.

“It means people like [Aliko] Dangote will not be confident that they will be treated fairly when they come to Zimbabwe.”

Mashakada said this a few days after Speaker of the National Assembly Jacob Mudenda had, in a speech during the 2016 post budget meeting, praised government for cancelling the Essar deal.

Recent Posts

Stories you will enjoy

Recommended reading