HARARE - An international consortium of investors nearly suspended a $750 million investment at New Zimbabwe Steel, formerly Ziscosteel, apparently because of pervasive corruption and demands for bribes by Cabinet ministers.
The investment needed now is estimated to be around $1 billion.
The revelations came after a leaked email between Omani business tycoon Kamal Khalfan, who also owns Catercraft, which does catering for airlines in Zimbabwe, with German investor Dietrich Herzog, averring that the Ziscosteel deal failed to take off after Indian conglomerate Essar Holdings had decided not to solve problems by slipping money under the table.
Essar Group chairman, Shashi Ruia, and company director Arun Savin. Pic: The Hindu
Khalfan boasts about his connections with top government officials and how he could arrange deals with the Zimbabwe government.
President Robert Mugabe has acknowledged that corruption is a national problem, and curbing official graft was one of the goals of his fresh tenure outlined under the economic blueprint ZimAsset.
In March 2011, government sealed a $750 million deal with Essar that resulted in Ziscosteel being unbundled into two companies, NewZim Steel and NewZim Minerals.
The deal gave Essar 54 percent control of the new company New Zim Steel.
As part of the deal, Essar was also awarded 80 percent ownership of NewZim Minerals, with the government holding the remaining 20 percent.
But the deal has taken far too long to complete notwithstanding a Cabinet resolution to revive the plant, which has pushed over 3 000 workers out of employment.
Khalfan, who claims to be politically connected, assures Dietrich that taking a principled decision not to pay bribes in Zimbabwe was detrimental to business deals.
“I think you should take into account the experience of Essar, a well known Indian company,” wrote Khalfan in an email to Herzog seen by the Daily News.
“They have been negotiating a contract of well over US$700,000,000.00 ($700million), if I am not mistaken, and talks have been going on for over three years, and after spending around US$37,000,000.00 ($37 million) according to the papers, they still have problems. And the reason? Wrong connections and wrong advice.
“I am not claiming that I can solve all the problems that may come your way, but I think with the experience I have and the connections built up over the last 32 years, I will be able to give you the guidance needed to avoid such pitfalls.”
Efforts to extract more details from Khalfan hit a brickwall yesterday after the Catercraft boss cancelled a scheduled meeting saying he had been advised that “the Daily News is anti-government and anything that I will discuss with you will be twisted.”
Informed sources in government told the Daily News yesterday that the Essar deal was stymied by a named government minister, who also wanted a sweetener.
Perhaps as testimony to the importance of sweeteners, it has taken over three years for work to begin at the old ZiscoSteel plant in the Midlands town of Redcliff.
Workers are living in poverty and have been plied with empty promises from the government.
Harare, which has ostensibly been disagreeing on the nature of the deal with Essar in regard to iron ore deposits in Mwanesi, claims it has ironed out the sticking points.
Mike Bimha, minister of Industry and Commerce, this week indicated that work at NewZimSteel would start this month. Last year, government had again promised that Ziscosteel would be revived before December.
But emails seen by the Daily News clearly show that without money to grease palms of ministers and middlemen, it would be difficult to secure the deal.
For instance, Dietrich outlines his business proposal but is told that it must be re-done because apparently it did not accommodate funds for “special purposes.”
Khalfan proposes monthly fees to “cover the unavoidable assistance I will need to offer to ensure I am provided with as much support as I need in pursuance of our objectives. I look forward to the figure you feel is appropriate.”
Foreign executives have complained privately for decades that bribery is an integral part of
Zimbabwean business culture, often tolerated or silently rebuffed.
In fact, foreign companies retain legions of lawyers so they can adhere scrupulously to regulations in hopes of avoiding providing an opening for bribe-seeking officials.
Zimbabwe has fared badly on Transparency International’s corruption perception index (CPI), ranked 157 in 177 countries polled worldwide, according to the December 5, 2013 CPI.
The corruption has become so endemic that traffic police routinely take cash bribes.
However, it is the next level of official venality, so-called administrative corruption that is most harmful to business and authorities with the power to halt business activity are blatantly demanding bribes, a move that has riled even the President.