Hwange Colliery, when the wheels came off

Source: Hwange Colliery, when the wheels came off – Sunday News Apr 9, 2017

FROM a company that used to employ as much as 5 000 people and support a community of over 100 000 more people, Hwange Colliery has been reduced to a pale shadow of its former glory days. How such a huge company has collapsed is the subject of this discussion.

In 1893, Albert Giese, a young German prospector, learned from an African of “black stones that burn”. His informant led him to an area about 112 kilometres south-east of the Victoria Falls. In 1894 he returned and pegged the original location on an outcrop of shales in the Kamandama River.

During 1894, the Mashonaland Agency Limited, acquired from the British South Africa Company concession rights over a large area in the Wankie District. During 1897 Giese was engaged to peg the concession which covered 1 036 square kilometres, and in 1900 exploratory work was carried out on the concession. In 1901 the Wankie (Rhodesia) Coal, Railway and Exploration Company Limited, purchased the rights of the Mashonaland Agency, Limited. During August, 1901, shaft sinking commenced and in January 1902, the main incline shaft or main drift of what became No 1 Colliery had reached the coal.

In September, 1903, the first train arrived at Wankie and the first consignment of coal went south. However, during 1909, owing to the limited demand for coal, the company went into liquidation. It was immediately reconstructed as the Wankie Colliery Company Limited, which from 1909 showed a steady output expansion. The output for 1910 was 194 740 tonnes. By 1927 when No 2 Colliery was brought into production, it reached 1 004 349 tonnes but as a result of the depression No 2 Colliery was taken out of production. The Second World War brought about increased production but the company lacked the capital required for a modernisation programme to fulfill its potential. The capital was eventually raised and the No 3 mine opened. The company experienced a period of relative prosperity until 1957 when the Kariba hydro-electric scheme was commissioned, resulting in the closure of No 1 Colliery. It remained quiescent until 1937. However, in 1938 production exceeded that of the pre-depression years. In 1945 production was more than 1 818 000 tonnes.

In 1950 Powell Duffryn Limited, assumed responsibility for the Wankie Colliery Company Limited. The increasing needs of the territories served by the Colliery (that is to say, Northern Rhodesia, the Congo and, of course, Southern Rhodesia, as they then were) made it clear that production, then delivering 3 450 000 tonnes per year, would by 1956 have to be increased to at least 4 500 000 tonnes. In consequence, towards the end of 1953 No 3 Colliery was brought into production. During 1953 the Anglo-American Corporation of South Africa, Limited, took over from Powell Duffryn Limited. A falling-off in demand led to the closing down in 1958 of No 1 Colliery. No 2 and No 3 Colliery were capable of producing 2 000 000 tonnes each. The situation deteriorated further with the imposition of economic sanctions against the then Rhodesia after the Unilateral Declaration of Independence in 1965, as well as the opening of collieries in Zambia.

Demand increased in the early 1970s and the first opencast operation was commenced. Opencast mining continued to expand with the commissioning of the Hwange Power Station, which was designed to burn Wankie coal. A massive capital injection between 1981 and 1983 enabled the purchase of a dragline and other large-scale earthmoving equipment. The power station reached an operating peak in 1987 and assured the mine of a secure market.

The years 1980 to 1990 were characterised by severe shortages of foreign currency. Mining imports were acquired through permits obtained on application to the Ministry of Industry and Commerce. Government established the Mining Continuation Reserve (MCR) and the Mining Projects Fund (MPF). The MCR was used to import inputs meant to keep operations going, while the MPF was meant for capital projects to grow the production base. By 1983, allocations for the industry under these schemes were very low, impacting adversely on the availability of mining inputs. Shortages of mining inputs, combined with low revenues generated from exports, created production challenges. By 1984 a huge backlog of mining inputs had accumulated. With limited investment having been made before independence, the shortage of foreign currency to import spares badly affected the utilisation levels of the aged equipment and machinery.

In 1985, allocations of Z$34,776 million (US$21,189 million) were made against bids of Z$74,934 million (US$45,658 million). Government negotiated a loan of £70 million from two British banks to augment the allocations made under the MCR and MPF. This facility was available to exporters only under the Export Promotion Programme. Mining was allocated £35 million; the first tranche of Z$23,67 million (US$14,422 million) was made in September as an addition to the MCR and MPF. In 1987, Government made allocations of Z$32,707 million (US$19,666 million) to the MCR and Z$15,724million (US$9,455 million) to the MPF. Demand for foreign currency for both recurrent and capital items was Z$90 million (US$54,116 million) annually during the period 1984 to 1990. The actual allocations were nowhere near these levels. By 1990, allocation of foreign currency was Z$112,414 million (US$45,550 million), inclusive of allocations made under the Export Promotion Programme. This compares unfavorably to Z$92,5 million (US$43,604 million) in 1989, Z$80,4 million (US$44,132 million) in 1988 and Z$48,43 million (US$29,120 million) in 1987. To cater for non-exporters’ requirements, a percentage of the exporters’ foreign-currency entitlement under the MCR was set aside. Companies such as Hwange Colliery and others were able to maintain operations as a result of this arrangement.

The decrease in coal production between 1991 and 1993 is associated with shortages of foreign currency. Coal was one of the minerals that benefited little from the export retention scheme because most of its production was for domestic consumption.

Thus the acquisition of imported spares critical for mining and mineral processing was problematic, and servicing foreign creditors became a challenge. This affected the availability of machinery and ultimately production levels. Production fell from
5 505 000 tonnes in 1991 to 5 174 000 tonnes in 1996, a decline of six per cent over the Esap period though the number of people employed increased from 12 875 to  19 588 over the same years.
Hwange Colliery in post-2000

The increase in coal production from 2000 to 2001 can be attributed to improved operational efficiency at Hwange Colliery, although the production level of 4,064 million tonnes recorded in 2001 is below the 4,575 million tonnes recorded in 1999.

Shortages of foreign currency led to frequent production stoppages: spares for the coal-haulage fleet were difficult to acquire during 2002, and foreign currency problems also affected the blasting operation. As inflation continued to rise, production costs also increased, leading to increases in the price of coal, a development that impacted on the cost of electricity generation. The inability of the National Railways of Zimbabwe to supply the colliery with sufficient wagons affected production during 2002, and the persistent shortage of wagons led to reduced coal production and its availability on the market.

The shortage of coal affected the agriculture and manufacturing sectors, where linkages are very strong, as well as the production of cement, which affected the construction industry. From the third quarter of 2002, Zesa was unable to operate all the electricity-generating units at Hwange power station because of the coal-supply situation. These problems persisted through to 2008, with little intervention being made to assist the sector.

Hwange Colliery had invested in equipment that allows for direct loading of coal into train wagons, but since NRZ can provide only 35 percent of the daily wagon requirements; this has contributed greatly to the reduction in coal production and shortages on the market. As coal constitutes 11 percent of mining GDP, these factors had an important bearing on the overall reduction in the mining sector’s contribution to GDP.

Grand corruption and poor management at Hwange Colliery?

It was alleged that corruption and lack of transparency at Hwange Colliery is largely a result of lack of sufficient conditions and mechanisms for regulation and enforcement of corporate governance rules which resulted in the perceived dysfunction.

These alleged weaknesses created conditions and opportunities necessary for corruption and lack of transparency and accountability to manifest. Perhaps the notable weakness in the legal framework governing most parastatals in Zimbabwe is the amount of ministerial discretion enjoyed by ministers whose portfolios oversee the particular parastatal. The Mines and Minerals Act, for instance, gives opportunities for the Minister of Mines to act unilaterally “with little regard for the principles of accountability, transparency, and professionalism”, some argue. Under the Act, the minister has the final say in the granting of an Exclusive Prospecting Order (EPO) instead of it being done collectively with the Mining Affairs Board.

It is anticipated that in the next instalment I will look at how the three interdependent companies, NRZ, Ziscosteel and Hwange colliery can be turned around through value chains for economic development in Zimbabwe.

Butler Tambo is a Policy Analyst and can be contacted on butlertambo@gmail.com.