Since August of 2011 when the Zisco-Essar deal was announced in the various media, there have been many conflicting media reports regarding the actual status of the deal. Essar Africa Holdings Limited (EAHL) is reported to have committed an investment of approximately US$705 million into, among other things, relieving ZISCO of its liabilities. This, as reported, forms the basis of the Zisco-Essar deal (the “Transaction”).
Media reports further state that two new entities would be created, the NewZim Steel Private Limited (NZS) and NewZim Minerals Private Limited (NZM). These, we are told, will be owned 40%:60% and 20%:80% by the GoZ and EAHL respectively. This transaction violates the indigenisation laws of the land but however, with good reason, many Zimbabweans would not have bothered much as long as it furthered their interests in a transparent and beneficial manner.
Zimbabwe boasts of abundant mineral resources. We have the second largest reserves of Platinum in the world. Equally, at an estimated 33 billion tonnes, Zimbabwe has arguably the largest iron ore reserves in the world. The government has been progressive in private-public sector partnerships lately. We see the indigenisation of the diamond sector set to bring about $600 million into the government coffers in 2012, an immense benefit to ordinary Zimbabweans coming out of the mineral resources that, if left entirely in private hands, would not be trickling to the benefit of every Zimbabwean. Similar initiatives in the mining of platinum and indeed localisation of the smelting will surely bring immense benefit to Zimbabweans.
Gone are the times when the IMF and World bank wood-winked resource-rich third world countries into giving up their resources almost for nothing to developed countries under the false pretence of being progressive. The crisis in the developed world today confirms beyond doubt that indeed economies that do not produce real goods cannot sustain themselves for a long time. It is getting clearer each day that indeed human beings on earth live on goods and commodities everyday, and the service industry is just there to smoothen the production and availability goods and commodities to ensure the survival of mankind.
As such, every transaction of national importance involving mineral resources should be given proper and due consideration to ensure that the interests of Zimbabweans and indeed the future generations are safeguarded to avoid any potential prejudice. The fact that Zisco has been lying idle for a long time should never be used as an excuse by the government to deprive Zimbabweans of their right to fair disposal of the underlying assets.
Three key aspects are very important about the deal. Firstly, the deal is the biggest disposal ever concluded by the state post independence. Secondly, it was negotiated at a time when the government had full knowledge of the various indigenisation initiatives currently underway in the mining sector. Thirdly, ZISCO assets are largely national assets that serve the very broad interests of Zimbabweans whilst being represented at the shareholding level by the state.
Given the above submissions, the disposal of any government shareholding in ZISCO, more so a majority shareholding, should be systematic and transparent to ensure that the interests of all stakeholders are appropriately safeguarded. A transaction involving the disposal of a significant shareholding in a deal where the underlying assets involve an estimated 33 billion tonnes of iron ore (above $100 billion) surely needs some high level of transparency and accountability. Indeed there should be a deliberate effort by the Minister responsible, Professor Welshman Ncube, to make public all the key elements of the transaction so that Zimbabweans can, with full information, adjudicate if indeed their interests have been safeguarded. Common sense says that it is virtually impossible to get unanimous approval of the deal from all Zimbabweans, and all the same, it would be unreasonable to call for a referendum on the same. But nevertheless, a transparent framework of the bidding process and subsequent disposal of national assets should be made pubic at one point in time. Confidentiality and non-disclosure aspects that generally accompany such similar transactions can surely not be used to deny the public the right to know how national assets are being disposed of, and in whose benefit.
The media has been full of the dark side of ZISCO pertaining to how much it owes foreign banks, local banks, employees, Zimra and so on. Zisco, so it has been painted, and rightfully so, is in trouble and needs to be resuscitated. But one thing has never been made public, and that relates to the assets of ZISCO. The injection from Essar, we read, will assume all the debts of ZISCO in exchange for shareholding, plus some cash injection that takes the total consideration to $705 million. Common sense says that a company cannot be sold on the strength of its liabilities, and as such, the over-emphasis of ZISCO’s liabilities and the subsequent disposal of Government shareholding on that strength raises more questions than answers on the whole transparency and fairness aspects of the deal.
Zimbabweans need to be furnished with at least three independent valuation reports of the iron ore and limestone reserves that are owned by ZISCO directly or otherwise at Ripple Creek, Mwanesi and Buchwa and other related mining claims owned by Zisco. The disposal of any mining assets cannot be done without geological and valuation reports of the ore reserves. Rivesdale Mining Limited, listed on the Australian Stock Exchange, prospected for coal in Mozambique and ascertained 13 billion tonnes of coking coal reserves in Benga and Zambezi. Tata Steel, Rio Tinto PLC and CSN, among others, bid up to $4 billion on the IPO in 2011. These companies bid up to $4 billion for the Mozambican coal reserves because they knew there was 13 billion tonnes of coking coal at stake. What iron ore reserves are we talking about at Zisco? Does it need to be a secret to a few cabinet Ministers when the owners of the assets, Zimbabweans at large who are the ultimate beneficiaries of the government shareholding in Zisco, are in the dark?
Of course without making the assumption that no drillings were done to ascertain the reserves during the Transaction, it is very important that independent valuation reports of the ZISCO mineral reserves and other assets be made public for Zimbabweans to understand the value being given up in ZISCO in return for the cash injection and debt assumption by Essar. That forms the basis upon which a conclusion can be reached on whether the deal was reasonable, fair and transparent. From a casual analysis, Essar, with their massive experience in the steel business, definitely knew what they were buying into by assuming significant shareholding in NewZim Minerals Private Limited and splashing $705 million into the deal. But there are huge doubts on whether indeed the Government of Zimbabwe, on behalf of Zimbabweans, acted on correct information in agreeing to the deal. If it did, then surely it has to be made public.
There are media reports that a 260km long slurry pipeline would be build from Chivhu to Mozambique to pump iron ore. There is potential prejudice to Zimbabweans in terms of loss in Value Added Tax, Corporate Tax and Pay-as-you-earn running into hundreds of millions of dollars every year if this is allowed to be an integral part of the Transaction. Equally, the valuation of unprocessed ore is very subjective and there are potential loopholes that could allow transfer pricing, resulting in Zimbabwe potentially losing billions of dollars. Whilst it is common knowledge that selling unprocessed iron ore to the Chinese is a very lucrative business the world over, many questions therefore arise on whether the Government of Zimbabwe could equally not just have sold part of the iron ore reserves to extinguish debt and later court partners from a point of strength.
Taxation aspects are a big issue in such big mining transactions. The explicit and implicit taxation concessions granted under this Transaction need to be made public as well. Resource rich countries such as Zimbabwe, Zambia, Nigeria and so on continue to lose billions of dollars in potential revenue from unbalanced tax concessions that do not take into account the depletion of the natural resources. Even nations such as Australia, whose markets and business laws are viewed by many as progressive, have lately been reviewing their taxation levels on mineral resources.
A number of media columnists and ordinary Zimbabweans, through the various media houses in Zimbabwe, have questioned the fairness of this deal, but unfortunately no official response has been given. Of course it is not that persons appointed to public office respond to all concerns that are raised in the media, but surely concerns involving 33 billion tonnes of iron ore belonging to Zimbabweans deserve a formal response, failure of which recourse to the courts of law may be the only way to elicit responses on such matters of utmost national importance and prejudice.
