US$750m Essar deal crumbles

via US$750m Essar deal crumbles – The Zimbabwe Independent April 7, 2015

THE Essar project to revive Ziscosteel appears set for total collapse after some of government’s outstanding debts accrued to finance the dormant steelmaker’s operations over the years were recalled, throwing fresh obstacles in the way of the US$750 million deal.

Kudzai Kuwaza

Insiders privy to the latest developments said the troubled deal is threatened by government’s US$50 million debt to one of China’s largest steel companies, Shougang Corporation, for the upgrade of Ziscosteel blast furnace four which was completed in 1998.

Shougang has now requested that government hand over the iron smelter to them in lieu of the debt, sources said.

This comes at a time Essar has informed government that it is not economically viable to revive the giant steelmaking plant in its current location of Redcliff, and now wants the operations moved to Chivhu due to the availability of iron ore deposits at Mwanesi ranch near the town.

Essar’s plans could go up in smoke should Shougang get their way.

In March 2011, government signed a US$750 million deal with Indian firm Essar Africa Holdings in which the foreign investor agreed to take over and resume operations at the defunct state-owned Ziscosteel, but the troubled deal is yet to be implemented amid protracted re-negotiations.

“It has become a fight between China and India over the asset and from the way things look, the Chinese are winning,” the source revealed.

Further throwing spanners in the deal, sources said, is the move by German bank Kreditanstalt Fur Wiederaufbau (KfW) to call its debt of US$187 million as of May 2014, accrued by Ziscosteel to fund its operations. Ziscosteel borrowed the money from the bank and other commercial institutions against its exports, but has since failed to repay the loan dating back to 1998.

Essar has balked at paying the KfW debt, a major drawback to the consummation of the deal, said the source.

However, an Essar official who spoke on condition of anonymity denied that the deal with government is on the verge of collapse.

“That is not accurate. We have had a series of meetings with the government over the last two weeks and I am very optimistic that we are close to beginning operations,” the official said.