CABINET has finally agreed to implement the original Essar deal without any amendments after more than a year of bickering with the Indian company over the shareholding structure of NewZim Minerals, formerly Buchwa Iron Mining Company.
Report by Brian Chitemba
The government signed a US$750 million deal allowing Essar to take over the now defunct Ziscosteel in which the Indian company assumed an 80% shareholding of NewZim Minerals, with the other 20% remaining in the hands of government.
However, Essar failed to start operations after government made an about-turn and sought to restructure the deal giving it 51% control of the iron ore mining claims in line with the country’s controversial indigenisation policy.
The deal also gave Essar a 54% stake in the new company, NewZim Steel, with government retaining a 40% shareholding. Minority shareholders hold the balance.
Mines minister Obert Mpofu argued the deal was actually worth US$30 billion instead of the US$750 million Essar paid, saying the iron ore claims were valued far more than government had attached to them.
Essar refused to give in to government’s demands, reminding the authorities that it had inherited Ziscosteel’s US$340 million debt and also splashed US$12 million on wages for more than 3 500 workers despite the fact that operations had not started.
Essar pledged to resuscitate steel production capacity to about 1,2 million tonnes per annum within 18 months, helping save more than 3 700 jobs of former Ziscosteel and Bimco workers.
After a year of wrangling, a delegation from the company’s headquarters in India flew into the country a fortnight ago for a make-or-break meeting with President Robert Mugabe and Industry and Commerce minister Welshman Ncube over the deal.
Ncube re-tabled the original agreement at Tuesday’s cabinet meeting where it was endorsed for immediate implementation.
Ncube confirmed the Essar deal was deliberated on at the meeting chaired by Mugabe and cabinet expressed concern over the year-long delay to revive operations at the former steelmaking giant.
Cabinet highlighted the urgency of resuming production to save livelihoods of workers who had not received salaries since May after Essar suspended payments as a way of pressing government to finalise the agreement.
Ncube said cabinet resolved to approve and implement the Essar deal as signed in March 2011 “without any amendments”.
“We are going to stick to the original agreement despite having spent a year trying to renegotiate the NewZim Minerals shareholding structure,” said Ncube.
He said cabinet tasked his ministry with meeting Essar representatives to implement the March 2011 agreement. Ncube said operations at NewZim Steel would depend on the time taken to discuss the full implementation of the project with Essar owners.
“As government, we are positive that after one year operations will resume although the timing will be determined by the implementation matrix still to be discussed,” he said.
Economist John Robertson said the indigenisation policy government wanted to use to renegotiate the Essar deal scared away investors as was shown clearly in this case.
“The government should be wary of its indigenisation policy because it discourages new investors,” he said.