In the middle of the Second World War in 1942, the Rhodesian Government established the Iron and Steel Company that we now know as ZISCO at Redcliff just 14 kilometres from the town of KweKwe. By 1957 it was producing a quarter of a million tonnes of steel a year and at its peak, production was about 1,2 million tonnes a year. In 1990 its staff exceeded 5000 and it was perhaps the largest industrial undertaking in the country with four wholly owned subsidiaries – the Mining Company BIMCO, Lancashire Steel, Frontier Steel and the Zisco Distribution Centres. Its combined turnover must have exceeded US$1 billion a year.
In 1998, in an attempt to revive the company, it borrowed money from a Chinese company and the German Bank KfW GBMH in Frankfurt to update its blast furnace number 4 with a capacity of over 2000 tonnes of pig iron a day. However, by then the majority of the plant was obsolete and in addition, the Company was struggling to pay its creditors and staff. In 2008, despite the investment in a new Sinter Plant and the attempt to rebuild blast furnace number 4, output slumped to 12 500 tonnes of pig iron and the plant was virtually shut down.
By 2010 the total debts of the Company were over US$500 million with domestic liabilities rising strongly with unpaid salaries and service charges. The Government stepped in and invited bids to take up two-thirds of equity, leaving the Government with a shareholding along with some minorities that had remained from the heydays of the company’s operations when the private sector had held the majority of shares which were quoted on the local, South African and UK Markets.
Several international firms looked at the proposal but eventually it was the Indian Steel giant ESSAR that made an offer that was acceptable to the State. This was signed by the President in 2011 watched by the Prime Minister and other Ministers and dignitaries. The deal was estimated to be worth US$10 billion with ESSAR paying the Government US$750 million to clean up the Zisco balance sheet and then investing nearly US$3 billion in a new plant next to Zisco and another US$7 billion in a bulk iron ore complex at Chivu.
By 2015 the deal had virtually collapsed, iron ore prices had declined in the previous two years making the Chivu project unviable and the Company had always argued that the Zisco Steel investment was a second rung option. By the end of the year, ESSAR had withdrawn from the country after spending US$60 million on negotiating the transaction.
In this period, Chinese steel companies had steadily increased their domination of the international steel industry. The steel industries of Europe and the USA and even South Africa were in steep decline, unable to compete effectively with the Chinese. It was to the Chinese that the Government and the Zisco Steel Company turned and in the next three years several companies showed interest and then withdrew. The consensus of all these players was the same – Zisco Steel in its present form was not a viable entity and could not be recovered. The longer term problem was that building a new plant, with say 2 million tonne capacity in Zimbabwe did not look like a viable enterprise. Internationally steel is produced in massive plants producing many times this volume and the cost and risks associated with such an investment on this site was simply not an option and could not succeed.
So what do we do with Zisco Steel Limited? It is a massive investment by this country, we import half a million tonnes of finished steel products a year and undoubtedly there is a market for steel in the region. We have ample natural resources to support such an enterprise. The problem is that it is an industrial dinosaur and its day is long gone. In most other countries these are termed “sunset industries” and are abandoned, shut down and sold for scrap.
In 2017 Mr. Bill Moore approached the authorities with an idea that he could get one of the Zisco Steel Divisions working again – that part of the Company involved in producing and supplying coke to the steel plant. This is the largest such enterprise in southern Africa and was linked to a chemical plant that processed the by-products to produce many industrial products for sale and distribution in Zimbabwe. Bill had been a long term consultant and contractor to Zisco and was owed money like many other firms. His speciality was coke oven construction, maintenance and operations.
I suggested (as a Member of the House Committee on Finance) that the Ministry of Finance consider a debt/asset swop to support Mr. Moore’s proposals. The Minister was surprised at this suggestion and said to me “are they prepared to pay money for that pile of scrap?” I looked at the proposals and said yes, I thought the investment could support the liabilities involved. We agreed to target the KfW debt which at that time was at Euro 168 million and rising at nearly 7 per cent per annum in interest.
The Minister took to proposal to Cabinet and a Committee of four Ministers was established to essentially negotiate a debt/asset swop. It was agreed to fix the KfW liability at US$225 million and Zisco Steel then negotiated an agreement of sale of some of its assets to match the value of this debt. These included the coke batteries themselves, the coal supply system and 328 hectares of industrial land as well as the shares in Zimchem (Private) Limited. The later has been operating at about 10 per cent capacity for 12 years and has significant debts as well, but is an essential part of the overall plant for operational purposes.
The deal was signed in July 2017 and the Government then set about securing the agreement of KfW Bank and the German Government itself, to the proposed transaction. This took two years. Eventually in early 2019 the debt assumption deal was accepted and a draft agreement sent to the Ministry of Finance. It took another few months for the Attorney General to agree to the draft Agreement – essentially a tripartite agreement between KfW, the Ministry of Finance in Zimbabwe and Zimcoke Limited. The deal was given the green light by the Zimbabwe Cabinet in May 2019 and the final transfer agreements signed by the Zisco Steel Board in July 2019.
What does this transaction mean for the country and even Zisco Steel itself? It means that a private sector group, mainly Zimbabweans, with regional support from African Banks is going to invest US$500 million in the Coke operations at Zisco over the next 5 years. The result; exports and local sales of over US$250 million a year, employment both direct and indirect of about 2 500 people, 700 at Zisco itself, nearly all former employees. Two and a half million tonnes of bulk cargo on the railways, and market for another 1,5 million tonnes a year of high quality coal from Hwange Colliery.
In 7 years the company will extinguish a debt of over US$380 million with the KfW bank – a third of all our bilateral debt with Germany and a significant proportion of our national debt. Any time the Zisco Steel Company wants to restart production Zimcoke has agreed to supply the company at cost plus a margin. It’s not the total solution, but it is a giant step towards such a solution.
I think that is a pretty good deal.
Post published in: Business The Zimbabwean