×
NewsDay

AMH is an independent media house free from political ties or outside influence. We have four newspapers: The Zimbabwe Independent, a business weekly published every Friday, The Standard, a weekly published every Sunday, and Southern and NewsDay, our daily newspapers. Each has an online edition.

Nicholas van Hoogstraten’s offer to Hwange Colliery: An Unsolicited Bid?

Opinion & Analysis
A national daily recently reported that Nicholas van Hoogstraten (Hereafter, NH) had proposed a $50 million rescue package for Hwange Colliery, an ailing but potential mining giant.

A national daily recently reported that Nicholas van Hoogstraten (Hereafter, NH) had proposed a $50 million rescue package for Hwange Colliery, an ailing but potential mining giant.

Painona with Tapiwa Nyandoro

The British mogul currently controls 30% of Hwange Colliery shareholding. The unsolicited proposals seemed to be in response to a $20million loan request raised by the illiquid colliery.

On the face of it the response should be welcomed, though requiring analysis, as any mistake would hand the Colliery into NH’s arms in the event of the loan and interest going unpaid leading to the ballooning debt being converted into equity in the course of time.

It is a strategy wily investors would use, by taking advantage of the emotional bond other shareholders may have to the percentage of their ownership of the asset. Intuitional misgivings, therefore, may be behind the hostility from workers and other “experts” reported in the daily and the disparaging remarks directed at NH, attributed to a Deputy Cabinet Minister, outside the relevant Ministries.

Lessons in etiquette, diplomacy (really?) and discipline may be in order. Speaking at a recent Alpha Media Holdings sponsored seminar on the economy, Finance Minister Patrick Chinamasa said, “There [is] need for the creation of a conducive environment in word and speech so that the country could move forward”. It is advice his colleagues must heed.

There were, however, sketchy details on the $50 million. As the Zimbabwean government has a significant shareholding in the Colliery, the entire proposal should be made public before even the Board makes its recommendation to Shareholders.

A cursory analysis shows that the 10% interest rate offered, for instance, may be high and most, if not all of the money would at best be directed towards equity, whilst a full fledged Rights Issue could be the best and most transparent way forward.

Equally important, with such a national asset, are guaranteed time framed production targets to result from any investment.

At the moment, annual output from Hwange is miniscule. It needs to be raised from under 4m tonnes per annum to between 50m and 100m tonnes per year, the resource Horizon permitting.

For too long, Zimbabwe has been tinkering with the asset to its disadvantage.

Energy industry experts in the RSA are of the opinion that the Republic needs new sources of 50m tonnes of coal in the near future. Kenya is set to spend $15 billion in the next 40 months on power plants. It hopes to get some of its coal from Zimbabwe.

Japan seems keen to decommission its nuclear power stations, creating a market for more coal.

China too, has a string of coal fired thermal power station on its investment program for the next decade or so.

Zimbabwe itself needs to quintile its installed capacity within two to three decades. With the market beckoning, it is time to translate big dreams into action.

The African Development Bank and the Development Bank of Southern Africa could jointly underwrite a considerably larger Rights Issue for Hwange Colliery.

As raw material beneficiation is all the rage, turning some of the coal into more electricity on site should be actively considered. Stretching imagination a little further could see SASOL invited for a feasibility study on a Coal to Liquid plant.

The result could be a Zimbabwe that is both energy and fertiliser independent. Transformational investments of this nature, running into billions of dollars, are what Zimbabwe needs.

Whilst exporting the electricity from an expanded Hwange Thermal Power Plant can utilise current infrastructure to a large extent, exporting twenty to hundred million tonnes of coal to RSA and beyond would need more investment in the NRZ, Transnet, Mozambican and Botswana railways as well, besides a port or two, in Mozambique and, or RSA.

The Hwange project, though urgent, should therefore not be viewed in isolation. Public Private Partnerships (PPPs), Joint Ventures, followed by Parastatal bonds, should be the source of some of the funding for regional rail and port infrastructure upgrade to handle the envisaged Zimbabwe exports, and thus drive up intra-regional trade for mutual benefit.

The tragic retrenchments at Hwange Colliery and the proposed ones at the NRZ, run counter to the Agenda for Sustainable Socio-Economic Change and calls for a more focused, integrated approach at the highest level, and across SADC’s borders.

Zimbabwe needs to grow employment through significant investment and far greater production/output at both the NRZ and Hwange Colliery. That way, the country will grow the tax base and GDP to ensure the adequate funding of social services such as health and education. Productive projects of the nature outlined above should take priority over everything else.

Unsolicited bids such as this Private Finance Initiative as NH’s proposal maybe, are not unusual commercial activities. But, they require diligence and the right expertise to evaluate them in as transparent a manner as possible, inclusive of laying them before the public and inviting comments (or better bids!) from all stakeholders.

That expertise may be lacking in the Board and Management of Hwange and in government Ministries. Harnessing IMF or World Bank expertise, and then calling in a suitably experienced Transaction advisor could therefore be the way to go.

In the medium to long term a dedicated, well resourced PPP/ PFI unit should be added to government bureaucracy, as Nigeria and RSA have done.