Government says it is making frantic efforts to revive its ailing steel unit, Ziscosteel, but admits “there are some issues” standing in the way, including a $300 million debt overhang.
The Industry and Commerce ministry in August opened a new tender for the privatisation of the country’s largest steel firm by as much as 60% after blocking India’s Jindal Steel and Power and ArcelorMittal South Africa, which were the front-runner suitors, preferring a medium-size partner.
“We have moved to a stage where we believe it is time we brought Ziscosteel back to life,” said Industry and Commerce minister, Welshman Ncube at a Confederation of Zimbabwe Industries (CZI) luncheon in Bulawayo last week.
“But there are some issues that we have said we will have to deal with, and this is what we believe, as government, it is going to take a bit of time to deal with.”
Ncube said government is still unsure how to soak away Ziscosteel’s debt — an issue that significantly reduces the company’s net asset value in a due diligence.
“As things stand at this moment, we have a situation where Ziscosteel is struggling with a US$300 million debt overhang. Cabinet has been discussing how this debt will be cleared.
“It is difficult to find the formula of how to clear this debt. We are determined as government to try and clear this and other debts that Ziscosteel incurred. You will all agree with me that this is a serious problem for us as a government as things are still shaping up in terms of the country’s economy,” said Ncube.
Recently, Ncube said government wanted an investor who would rejuvenate Zisco operations as well as deal with its debt overhang to a growing list of creditors, including German bank KfW Bankengruppe that it owes $40 million. But delays in finalising the tender have exposed Zimbabwe’s steel-dependent industries —mining, manufacturing and construction — to global market supply and demand shocks and associated price instability.
The World Steel Association this month predicted steel demand would hit a record high, possibly stocking prices, and this in addition to a recent surge in the price of iron and coal — major raw materials for steelmakers.
Ncube also revealed there had been, at Ziscosteel, a deliberate exercise to siphon resources and funds by government officials as well as members of the company’s management.
A report compiled on the company’s affairs five years ago revealed there were Cabinet ministers who had been in the habit of requesting for funds from Zisco’s management to foot personal bills.
Some of the bills included purchase of suits, dresses, household furniture, air tickets, and hotel accommodation.
“It has come to our attention that each and every time that Ziscosteel traded, the money was moved to pay for some other things that did not have anything to do with the company’s progress.
“At times, money was moved to foreign accounts such as that of Ramotswa Steel in Botswana and some other companies in Zambia and so forth.
“This is how the company was milked of resources. As we move forward, we believe as government, we have to nip some of these things in the bud,” Ncube said. Ziscosteel, Ncube added, is still faced with an equipment crisis as some of its equipment had far outlived its lifespan.
“In the report that we have presented to Cabinet and to the principals, we have cited the need to acquire equipment as soon as we can.
“There is equipment that was acquired by Ziscosteel on the understanding that the equipment was new. It only lasted a few months and collapsed. We definitely need to come up with a programme to re-equip that company if it is to come out of its doldrums,” said Ncube.