Nyasha Makuvise, chairman of Zimbabwe Iron and Steel Company (Zisco), said Essar Africa is considering setting up an independent power centre to provide electricity to the local steel maker, according to news reports from Zimbabwe.
After almost 8-9 months of scrutinising various bids, the Zimbabwe government agreed to sell 60% stake in Zisco, an integrated steel company with an annual capacity of one million tonne, to the Ruias-controlled $15 billion Essar Group.
Zisco was engaged in the manufacture of long products with operations situated in the Redcliff region and distribution centres in Bulawayo, Kwekwe and Harare.
The company has raw materials linkages through its subsidiary Buchwa Iron Mining Co (Bimco), which owns and operates several iron ore mines and limestone quarries.
The fully operational Zisco plant, once touted as a major source of revenues for the government, came to a grinding halt in 2008 after the company accumulated huge debts of up to $300 million.
The plant was put on the block in 2009 when the African government decided to bring in foreign investment of $10 billion through disinvestment after the country faced huge losses during the downturn. Out of all the companies on the government list, Zisco was the first state-owned firm to be put up for sale.
According to a press release issued by Essar, as part of its proposal, Essar will invest in the revival and expansion of Zisco and enhance its productivity by leveraging Essar’s expertise in the steel sector, Zisco’s existing infrastructure and availability of key raw materials including coal and iron ore.
“Essar has been chosen as the preferred bidder. However, we are still finalising our detailed plans for the revival of Zisco and hence it is too premature to comment on the same,” Essar said in an email response to a query over the development.
An industry source close to the Essar Group said setting up a power plant is again a step towards making the plant self-sufficient as the group is always keen on leveraging its expertise in an array of sectors to make its investments profitable.
He said the company had done the same thing in Ontario, Canada, after acquiring Algoma Steel in April 2007 for $1.63 billion. “After the acquisition, the company had set up a 100 mw power plant based on waste gas to reduce costs,” he said.
ZISCO is the first privatisation under a power-sharing government formed last year by bitter rivals Robert Mugabe and Morgan Tsvangirai. The southern African nation is struggling to attract the $10 billion of foreign investment economists say is needed to right it after a decade of decline and hyperinflation.
Once a major foreign currency earner, ZISCO is now saddled with about $240 million in debt, which Essar will take over.
Bimha said Essar had been assigned "the the responsibility of comprehensively reviving the country’s steel giant".
Mugabe in May rejected shortlisted bids from the South African unit of ArcelorMittal and India’s Jindal Steel, saying the companies were too big and Zimbabwe preferred medium-sized investors. .
Essar, a steel-to-shipping conglomerate, is controlled by brothers Shashi and Ravi Ruia, whose combined net worth is estimated at $15 billion, making them among the richest men in India.
The company raised nearly $2 billion by listing its energy and power business in London earlier this year
ZISCO stopped operations in 2008 at the height of Zimbabwe’s economic meltdown, weighed down by $300 million of debt.
While the coalition has stabilised the economy, frequent wrangles and an empowerment law seeking to localise control of all foreign firms has discouraged many foreign investors.
However, the government has said ZISCO’s privatisation is excluded from the empowerment law, which compels foreign-owned firms including mines and banks eventually to sell an at least 51 percent shareholding to local blacks.