The Grey Chronicles

2009.July.18

Understanding GSHL: The Zimbabwe’s Deal



ZimbabweThe Zimbabwe Iron and Steel Company [ZISCO] is one of the largest state-owned enterprises in Zimbabwe and is sub-saharan Africa’s second largest steelworks after South African ISCOR. At full capacity, ZISCO produced 2 million tons per year [Mtpy] of steel (Sokwanele, 2006).

In 1997, an unsuccessful privatization tender was held for ZISCO, situated near the city of Kwekwe in the Zimbabwe Midlands province. Bids were received from Ferrostaal, India’s Tata Group, Slovakia’s Skodaexport and Voest-Alpine Industrial Services from Austria (Dhilwayo, 1997).

Zimbabwe pulled off a major coup, instead, in a 50:50 agreement with the metallurgical plant equipment manufacturer, Ferrostaal. Ferrostaal was tasked to upgrade the steel-casting plant which was expected to take 18 months. It would then revamp the construction steel-making billet and rod mills, originally commissioned in 1961 and 1975, respectively. In addition to its modernization, the rod mill’s capacity will be more than doubled to 250,000 tons per year (Dhilwayo, 1997).

In addition, after almost a year of delays caused by the Zimbabwe’s unwillingness to guarantee a loan, China’s Shougang International provided a $35M loan and begun its $50M repair of the No.4 blast furnace, idled in 1992. Once completed, the repaired blast furnace will lift ZISCO’s output to close to l.0-Mtpy, up from its present production of 250,000 tons per year (Dhilwayo, 1997).

In 2001, the USGS reported that ZISCO’s crude steel production decreased by 40% to 156,000 tons following a 3-day strike in August by 4,000 workers who were protesting for wage increases. The violent strike action led to the death of three workers and damaged the main blast furnace and other equipment, which took 3 months to return to operation. ZISCO was also having problems paying its suppliers of coal (Wankie Colliery Co. Ltd.), iron ore (Buchwa Mine Iron Mining Co.), and electricity and transportation (Coakley, 2001).

In 2003, ZISCO produced 366,737 tons of iron ore compared to 271,812 tons in 2002. Subsidiary BIMCO (Buchwa Iron Mining Company) exploits the Ripple Creek mine, which provides iron ore and limestone as feeds to ZISCO steelworks. Iron ore production has dropped dramatically, with 2001’s production at 361,000 tons, down from 2000’s 450,000 tons (MBendi, 2009).

ZISCO’s steel production further collapsed from 14,200 tons in July 2005 to 1,000 tons in July 2006 (Engineering News, October 2006).

ZISCO was among six companies earmarked by Zimbabwe in 2005 for privatization, joint ventures or management contracts (AFX News, 2006) under President Robert Mugabe’s government attempt to revive the country’s ailing economy (The Namibian, 2006).

Global Infrastructure Holdings Ltd [GIHL] was roped in after previous negotiations with Shougang Corp. of China over a possible US$200M deal collapsed because Zimbabwe declined to cede a controlling share (The Zimbabwe Independent, 2006). South African steel-industry observers believe that GIHL was attracted to ZISCO because of access to nearby iron-ore deposits, to the Hwange coal field and access to the railway network connecting it to the much larger South African market (The Engineering News, April 2006).

In March 2006, GIHL was awarded a 20-year management concession for ZISCO. The transaction was described as a “rehabilitate, operate, and transfer” concession (Engineering News, October 2006). Global Steel Holdings Ltd [GSHL], erstwhile GIHL, immediately appointed as Chief Executive Officer [CEO] of ZISCO, Lalit Kumar Sehgal, who joined GSHL after retiring from SAIL’s Bokaro and Bhilai steelworks then moved to Zimbabwe after his stint as CEO of Delta Steel and Ajaokuta Steel, both in Nigeria (Steel Guru, 2006).

GSHL’s promised US$400-million investment over 20 years was earmarked for the rehabilitation of the blast furnace, coke-oven batteries and rolling mills; including the refurbishing of the mini power station at Redcliff, which services ZISCO (The Engineering News, April 2006). Zimbabwe central bank Governor Gideon Gono said the deal with GSHL would see output leap to 1.1—1.4 million tons within 12-18 months (The Namibian, 2006).

In July 2006, the fifth month under GSHL, the Reserve Bank saved ZISCO from closure by providing an emergency Z$2 trillion (old currency) lifeline (Sokwanele, 2006). Then effective first week of August (The Zimbabwe Independent, 2006), GSHL scuttled the proposed US$400M investment, citing massive corruption at ZISCO involving high-level government ministers (VOA, 2006; Engineering News, October 2006), plus the lack of assurances on coal supplies (The Financial Gazette, 2006). GSHL also withdrew Lalit Kumar Sehgal as CEO and was replaced by Alois Gowo as acting CEO (VOA, 2006).


Notes:

AFX News Limited (2006). Zimbabwe signs 400 mln usd deal with UAE’s Global Steel Holdings. Harare: Forbes AFX News, 01 March 2006. back to text

Campbell, Keith (2006a). Indian steel company in $400m Zimbabwe steel deal. Creamer Media’s Engineering News, 14 April 2006. back to text: 1 | 2

Campbell, Keith (2006o). Indian group rejects ‘corruption cesspit’. Creamer Media’s Engineering News, 20 October 2006. back to text: 1 | 2 | 3.

Coakley, George J. (2001). The Mineral Industry of Zimbabwe, U.S. Geological Survey Minerals Yearbook—2001. Washington: U.S. Geological Survey, July 2001. p. 31.2. back to text

Dhilwayo, Dominic (1997). Kiss of life for Zim steel, African Business, IC Publications Ltd. Gale, Cengage Learning, November 1997. back to text: 1 | 2 | 3.

Mafunda, Kumbirai (2006). Hwange blamed for failed ZISCO deal, The Financial Gazette. The ZIMBABWE Situation, 15 September 2006. back to text.

MBendi (2009). Iron Ore Mining in Zimbabwe – Overview. MBendi – Information for Africa, accessed : 17 July 2009. back to text

The Namibian (2006). US$400m for Zim steel deal. Harare: The Namibian, 03 March 2006. back to text: 1 | 2

Nyakazeya, Paul (2006). Talks over ZISCO collapse. Harare: The Zimbabwe Independent, 07 July 2006. back to text: 1 | 2

Sokwanele – Zvakwana (2006). ZISCO: The cost of Zimbabwe’s kleptocracy. Zimbabwe Civic Action Support Group, 14 December 2006. back to text: 1 | 2.

Steel Guru (2006). GSHL appoints new CEOs for ZISCO & Kremikovski, News Archives 2006. New Delhi: Steel Guru, 05 April 2006. back to text

Zulu, Blessing (2006). Indian Steel Firm Withdraws From Venture With Harare, Cites Interference. Washington: Voice of America News, 25 August 2006. back to text: 1 | 2

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