Essar has not started operations at Ziscosteel and has in recent weeks threatened to withdraw from the deal in protest over the government’s failure to guarantee adequate iron ore supplies, which are critical in the production of steel.
So concerned was Mugabe about Essar’s threats to pull out that he left cabinet in session on Tuesday this week to attend to the problem with Prime Minister Morgan Tsvangirai and Ncube. Mugabe and Tsvangirai directed Ncube and Mpofu to urgently come up with a lasting solution to problems dogging the deal.
The deal, which was sealed in March last year, resulted in Essar acquiring 60% of Ziscosteel and setting up a new company, NewZim Steel Ltd, to take over operations. Essar also acquired 80% of iron ore mining unit Buchwa Iron Mining Company (Bimco) and formed NewZim Minerals Ltd. Bimco held the rights to iron ore claims for feedstock into Ziscosteel operations.
Essar wants to exploit iron ore claims at Mwanezi ranch in Chivhu but the Mines ministry has blocked the move on the grounds that it needs time to verify the claims and establish the value of the minerals in the area.
Some government officials have raised concerns that Essar’s 80% stake in Bimco would give it a monopoly on iron ore reserves resulting in the country facing challenges should it want to involve more players in steel-making in the future.
Ncube confirmed the meeting with Mugabe and said follow-up negotiations were held between officials from his ministry, the Mines ministry, Essar, Ziscosteel and Bimco on Wednesday. As a result a committee was established to come up with recommendations to resolve the impasse to prevent Essar from pulling out of the money-spinning deal.
“Hopefully by next week they would have come up with a solution which protects both the government and Essar’s interests,” said Ncube. “Their recommendations should, however, be ready by April 13 when the ministers (Mpofu and Ncube himself) will meet over the issue,” he said.
Ncube said it was unfortunate that while cabinet had approved the deal, it had still not solved the sticking points a year down the line although Essar had shown its commitment by spending about US$30 million on salaries with no production taking place.
Ncube said the Mines ministry had agreed to transfer Buchwa and Ripple Creek iron ore claims, which separately have 15 million tonnes and 30 million tonnes of iron ore deposits, respectively, to Essar but this did not meet the giant Indian steel-maker’s requirements.
“The problem at Buchwa is that the 15 million tonnes are now so deep that they’re not capable of being mined unless new technology is introduced. By the time Ziscosteel stopped operating, Bimco had already stopped mining there (at Buchwa),” said Ncube.
“Ripple Creek in Kwekwe has about 30 million tonnes, but at the level of mining which Essar wants to undertake, the iron ore will be exhausted in five years. Essar is saying by that time they would not have recouped their investment and there is therefore no reason for them to invest where they will run out of raw materials before they get returns,” he said.
Essar wants iron ore claims in Mwanezi ranch in Chivu that a former Ziscosteel employee, Roderick Mumbire, claims to own through a company called Bearable Prospects (Pvt) Ltd in which he is the sole shareholder. The government has challenged Mumbire’s claims in court, leaving the disputed concessions effectively encumbered. Mumbire however insists the claims belong to him.
The government had previously issued a special grant to Bimco which saw the registration of some claims that were not being mined. Ncube said the problem was that the ministry of mines did not renew the special grant when it lapsed, resulting in Mumbire pegging and registering the claims through his company and hence the court battle.
The delay has also resulted in Essar shelving plans to import material and equipment from countries such as China and Germany to exploit the iron ore as well as refurbish blast furnaces used by Ziscosteel.
Ncube said despite the hiccups, Essar was still committed to the deal and had recently acquired new offices in Harare.
The Essar deal also saw the rehiring of about 3 700 Ziscosteel and Bimco workers who had lost their jobs when the former steel-making company collapsed in 2008 after struggling to remain operational for years.
The permanent secretary of Mines Prince Mupazviriho said this week that technical teams were working towards finding a solution to the impasse jeopardising the deal.
Essar has pledged to restore Ziscosteel to its production capacity of 1,2 million tonnes of steel a year within 18 months of operations.
Ziscosteel was one of the most critical state enterprises in the country and its demise has been directly linked to the collapse of several industries in Bulawayo that depended on it and the link between its activities and Hwange Colliery and the National Railways of Zimbabwe headquartered in the second city.