Essar Steel might be forced to shell out a lot more money than it intended to if the Zimabwean government has its way.
Essar was chosen in November over the world steel leader, ArcelorMittal and India’s Jindal Steel and Power, to revive Zisco, the state steel maker with an annual capacity of a million tonnes. As things stand, Essar Steel was chosen the “preferred bidder” but still hasn’t signed a definitive sale agreement.
Essar is to buy 54 per cent of the Government’s 89 per cent, including $270 million of liabilities. However, differences have emerged between Essar and the Zimbabwean government over valuation of the 54 per cent stake. Newspaper reports from the southern African nation suggest the money Essar offered, according to the government, was only for the steel capacity. Essar believed it included Zisco’s iron ore reserves, too.
Though nobody will publicly say so, the strategic reserves of Zisco were the key attraction for the global steel makers who had participated in a hard-fought battle. Essar Steel would not comment for this report.
Sources say Essar had proposed to pay $60 million for the stake and expected Zisco’s mammoth ore reserves to be a part of the deal. An industry expert who wished not to be named said, “There is no sense in investing in a plant if it is not integrated on the raw materials front. Since Zisco has Buchwa Iron Company, with hige iron ore deposits, most of which are unexplored till now, it is only fair that Essar gets the mines to support the plant. How else is the revival of the steel plant supposed to happen?”
Adding: “Why would companies like ArcelorMittal, Jindal Steel, Essar and others want to revive Zisco, or any other company for that matter, if there are no incentives for them? In this case, it is the virgin iron ore deposits of Zisco that attracted the global steel majors.”
The steel plant has been functioning below capacity for a long time and its debt has ballooned to unmanageable levels. The Zimbabwean government is keen to revive it,
Firdhose Coovadia, resident director, Essar (Middle East & Africa), had said on November 9, “We are delighted to have been selected as the preferred bidder for the revival of Zisco. We believe it is well positioned to be a low-cost steel producer that can meet the growing demands of the regional steel market and capitalise on the robust forecasted growth in sub-Saharan Africa. We also recognise Zisco as a vital and strategic asset for the Zimbabwean economy and Essar looks forward to making a meaningful contribution to the future development of Zimbabwe and its people.”
