The Grey Chronicles

2009.July.19

Understanding GSHL: The Zimbabwe’s No Deal



ZimbabweFollowing a National Economic Conduct Inspectorate [NECI] report implicating high-ranking government officials in the systematic looting of ZISCO (The Zimbabwe Independent, 2006), a series of investigations and exposé rocked government circles, the biggest case of high-level fraud and corruption to come to light since Zimbabwe’s independence in 1980 (Sokwanele, 2006).

Ministry of Industry and International Trade [MIIT] Permanent Secretary Christian Katsande and Minister Obert Mpofu at first blamed Hwange Colliery Company’s [HCC] inability to supply enough coal to meet GSHL’s ZISCO 60,000 tons a month, but was only receiving 1,000. Although Hwange’s coal production had significantly declined by 20% in the first six months of 2006 in comparison to production for the same period the previous year, however, ZISCO’s lack of coal was seemingly due to nonpayment of its bills to the colliery (Engineering News, October 2006).

GSHL attempts to take equity in HCC was stymied by government, whereby within six months of GSHL control, ZISCO had terminated a series of supply contracts it had with local and regional suppliers of raw materials, substituting them for new contracts with South African company Stemcor in unclear circumstances. A contract with the Reclamation Group, a South African company, for the provision of technical services to assist production processes was cancelled in April 2006. ZISCO also cancelled that same month a contract with China’s Shougang Corp. to rehabilitate ZISCO’s No. 4 blast furnace. A contract to supply high-sided wagons for the ferrying of coal entered into with Morewear Industries, a subsidiary of Zimbabwe Stock Exchange-listed Gulliver, was also terminated. In June 2006, ZISCO revoked a one-year renewable contract for the supply of pool iron jointly signed with the Reclamation Group and the Minerals Marketing Corporation of Zimbabwe [MMCZ] in February (The Financial Gazette, 2006).

A parliamentary committee was set up to investigate the findings of the NECI report, including the contract with GSHL; then found that the contract was awarded to GSHL out of 9 competing companies, without due diligence, and the ZISCO board was unaware of the deal signed by Mpofu’s Ministry for Industry and International Trade. The committee also found that GSHL has a history of being on the receiving end of multi-billion US dollar lawsuits concerning agreements in Nigeria and the USA, where the company had entered into contracts which it had failed to honour (Sokwanele, 2006). Katsande later revealed that Liberia had handed over management of ZISCO, a key national asset, without a contract contrary to initial claims by government that a deal had been formally signed (The Financial Gazette, 2006).

The collapse of the deal dented President Robert Mugabe’s ‘look East’ policy aimed at strengthening political and economic ties with Asian and Muslim countries after strained relations with the West (MiningWeekly, 2006). On September 2006, Obert Mpofu backtracked on claims that senior officials of President Robert Mugabe’s government had fleeced ZISCO of billions of dollars through underhand dealings (The Zimbabwe Situation, 2006).

After the ‘Deal’ to ‘No Deal’ of GSHL, Zimbabwe tried to salvage ZISCO from closure. In September 2006, Steelmakers Zimbabwe (Pvt) Ltd submitted a proposal to help revive ZISCO (The Herald, 2006). In November, Zimbabwe’s Ambassador to China, Christopher Mutsvangwa, was quoted in the government-run Herald newspaper as saying the Metallurgical Corporation of China [MCC] had put in a $3 billion offer for a 60% stake in ZISCO. A day after this announcement, China Metallurgical Group Corp. [MCC] denied the bid (Reuters, 2006). In December, ZimOnline (2006) reported that Zimbabwean government, acting as guarantor, has been ordered to pay €40 million to a German bank Kreditanstalt Fur Wiederaufbau [KfW] after ZISCO failed to service a loan granted eight years ago. In December 2004, KfW appointed a debt recovery agency, Commercial Intelligence SE Asia Pte. Ltd, Singapore to collect the debt owed by Zimbabwe but the latter failed to make headway forcing KfW to appeal to the International Court of Arbitration [ICA].

In 2007, ZISCO resumed production, after three months of inactivity. The government is the major shareholder in ZISCO, with a 90% stake. Lancashire Steel, Stewart & Lloyds and Tanganyika Investments are the other shareholders. ZISCO also has huge external debts: €73.8-million to KFW, of Germany, and US$47-million to two foreign banks. It also owes another US$47-million to Export Import Bank and Sinosure. ZISCO is currently looking for investors to overhaul its ageing plant (Thondhlana, 2007).

Recently, several whistle blowers are lining up to sing on the scandal, now dubbed as the «Ziscogate Scandal». Millions in foreign exchange of public funds were spent or lost through various loopholes and deliberate siphoning (The Zimbabwe Independent, 2009).


Notes:

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

The Herald (2006). Steelmakers in bid to revive ZISCOsteel, The Herald. Harare: Steelmakers Zimbabwe (Pvt), 12 September 2006. back to text.

Mafunda, Kumbirai (2006). Hwange blamed for failed ZISCO deal, The Financial Gazette. The ZIMBABWE Situation, 15 September 2006. back to text: 1 | 2.

MiningWeekly (2006). India’s Global Steel Holdings Steel $400m deal fails. Arab Iron and Steel Union, 21 September 2006. back to text.

Muleya, Dumisani (2006). Ministers lead ZISCO looters. Harare: The Zimbabwe Independent, 08 December 2006. back to text.

Muleya, Dumisani (2009). Free for all at Ziscosteel. Harare: The Zimbabwe Independent, 17 July 2009. back to text.

Reuters (2006). China’s MCC denies $3 bln bid for Zimbabwe Steel. Harare: ZW News, 28 November 2006. back to text.

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

TalkZimbabwe (2006). Zimbabwe Ordered To Pay 40 Million Euro Debt. Genocide Watch, 22 December 2006. back to text.

Thondhlana, Barnabas (2007). ZISCO resumes production following months of inaction. Creamer Media’s Engineering News, 18 May 2007. back to text.

The ZIMBABWE Situation (2006). Minister backtracks on looting allegations. Harare: The ZIMBABWE Situation, 28 September 2006. back to text.

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