Zicosteel hit by row over tenders.

A confusing row over which company has been awarded the contract to rehabilitate Zimbabwe's steel company, Zicosteel, is threatening not only to hold up anticipated production but also to jeopardise future privatisation deals. DOMINIC DHILWAYO has the details.

A rehabilitation programme to revive the struggling Zimbabwean steelmaker, Ziscosteel has been jeopardised by revelations that the Ministry of Industry and Commerce has chosen German company Ferrostaal against the recommendations of government appointed consultants, at a cost of US$102m more than their selected candidate, Voest-Alpine Industrieanlagenbau (VAI) of Austria.

The revelation has caused severe disquiet in both government and Ziscosteel senior management, and there is now some confusion as to whether the contract will actually go ahead.

Industry minister, Mr Nathan Shamuyarira, publicly stated that Ferrostaal had been given the contract, but junior ministry officials maintain that it has yet to be awarded, and this is also the opinion of VAI who have not been notified of the government's choice.

Documents prepared by the consultants, Coopers and Lybrand, show that under VAI's recovery plan, at a cost of US$265m, Ziscosteel would eventually produce 800,000 tonnes per year of steel products, up from its current production of about 250,000 tonnes.

However, VAI declined to play a part in plans for Ziscosteel's eventual privatisation saying that equity participation was against company policy. It also suggested a US$180m cash injection into the company by the Zimbabwean government to improve the appalling state of its balance sheet. Coopers and Lybrand stated that VAI provided "a more complete solution" to the problems that plague Ziscosteel in terms of financial and economic restructuring and plant rehabilitation.

By comparison, Ferrostaal's bid of $367m would see the eventual production of 700,000 tonnes per year of steel products. The German company proposed dividing Ziscosteel into two companies: one consisting of the old but revamped steelmaking equipment and the other to be made up of new and revamped downstream operations in the form of rolling mills. It said it would take a stake, believed to be in the region of 5%, in this second company which it claimed would be unencumbered by Ziscosteel's overstaffing problems and dilapidated equipment. Ferrostaal maintains that the reason it was chosen ahead of VAI was for its funding which would be provided by state-owned German development bank, Kreditanstalt fur Wiederraufbau, in the form of a soft loan.

Ferrostaal also has a long-term relationship with Ziscosteel, having unsuccessfully bid for the revamp of the No.43 blast furnace against Chinese company Shougang International, and has also made a number of suggestions to the government as to how to transform the steel company into a profit making enterprise.

It is understood that it was at first unwilling to take part in the government privatisation and revamp tender launched in April 1997 but did so at the request of government officials who said that standard tender procedures had to be followed to satisfy institutions such as The World Bank.

A third company, Skodaexport of the Czech Republic, put in an even cheaper bid at US$169m, but this was thought to be unsuitable.

While confusion continues to reign, Ziscosteel's rehabilitation appears to have been put on hold, and in the context of the economic difficulties currently being experienced by the Zimbabwean government, a concrete decision is not likely to be made soon.

The only consolation for the steel company is that its separate contract with Shougang for the blast furnace repair appears to still be on course -- this may restore Ziscosteel to some form of meaningful production even if this remains well under its true capacity. Without a more comprehensive recovery and restructuring programme it is also unlikely that financial hemorrhaging from the company's balance sheet will be stemmed.