THE controversy surrounding the deal to buy Zimbabwe Iron and Steel Company (Zisco) by India’s Essar African Holdings deepened this week with revelations that Essar is yet to sign a contract with government and that the two are still haggling over the price.
Industry and Commerce minister Welshman Ncube confirmed to businessdigest on Wednesday that the dormant steel making company and the Indian conglomerate were yet to sign the deal which was announced in November last year.
“The two are meeting this week,” said Ncube. “The Essar team has been working at Zisco since last year.”
He would not explain why the Indian company started work at the giant steelmaker without a contract.
The delay in the signing of the contract, which would see Essar effectively controlling 54% in the company through the purchase of 60% of the equity owned by government, did not come as a surprise to many market watchers given the controversy surrounding the deal.
Many are cynical about the pact especially the deployment of Essar personnel at Zisco even before the deal had been completed.
Essar, which beat 12 other companies to the tender, including South Africa’s Arcellor Mittal, proposed to invest in the revival and expansion of Zisco.
The conglomerate said in its proposals that it would leverage its expertise in the steel sector to grow the inactive steel making company, which plays a significant role in the economy.
The Essar-Zisco deal, aimed at not only turning around the steel making company’s economic fortunes but a number of industries downstream, caused a stir with many spurned local suitors alleging lack of transparency in the award, which government dismissed as a case of sour grapes.
International market watchers said the deal was a major coup for Essar which was also eyeing the huge iron ore reserves owned by Buchwa Iron Mining Company, a subsidiary of Zisco.
“Buying a one-million tonne steel plant of Zimbabwe Iron & Steel Company (Zisco) may seem a small acquisition for any steel player, but for Essar it has turned out to be a goldmine,” said Putumangun, a website that specialises on mining and markets.
“Once the deal is completed, Essar will have access to probable iron-ore reserves of 20-25 billion tonnes, which are enough to last its current steel capacity for a thousand years.”
The Buchwa iron ore reserves are inferred, meaning that further investment could be needed to establish the full quantum of the resources.
Putumangun said the company’s steel capacity would reach 14 million tonnes this year and thus Essar needed close to 23 million tonnes of iron ore per year as it takes 1,6 tonnes of iron ore to make one tonne of steel.
Buchwa owns and operates several iron ore mines and limestone quarries.
Sources close to the deal on Tuesday said Essar Holdings would pay less than US$65 million for the 54% stake in Ziscosteel.
“Every day that Zisco is not operating its net value declines. When we last did an assessment for Ziscosteel, the 54% we wanted to sell was valued at US$65 million,” a high placed official said.
“It is obvious that today the price cannot be above US$65 million. Negotiations for the actual price were still underway.”
Sources said Essar and government were separately carrying out assessments at the Zisco plant to determine the price.
“Government has done its own assessment on the state of the plant. They (Essar) will do their own assessment before we agree on the cost,” said the official.
As part of the agreement of sale, Essar will settle the US$40 million debt Ziscosteel owes to German bank, KfW BankenGruppe, among other creditors.
Essar will also inject nearly US$230 million in fresh capital required to rejuvenate the local steel manufacturer.
During its prime, Zisco used to produce one million tonnes of steel per annum and was the second largest producer in Africa after Arcellor Mittal.