Dumisani Nsingo, Senior Business Reporter
HWANGE Colliery Company Limited (HCCL) is in negotiations to take over one of its strategic units in which the coal-mining giant is alleged to have lost over $100 million in a botched deal with a Chinese firm, Taiyuan Sanxin Economic and Trade Company.
HCCL managing director Mr Thomas Makore said negotiations to wholly take over operations of a coke oven battery from Taiyuan Sanxin Economic and Trade Company were in progress.
“We are still in negotiations about the takeover of the Hwange Coal Gasification Company coke oven battery,” he said. Further stating that: “The takeover will provide capacity to produce high value coke for the local and regional markets”.
Hwange Coal Gasification Company was formed through a Build-Operate-Transfer (BOT) arrangement between HCCL and a Chinese company, Taiyuan Sanxin Economic and Trade Company culminating in the commissioning of the coke oven battery in 2010. The deal was consummated with the Tendai Savanhu-led board that was appointed by the late Amos Midzi when he was then Minister of Mines.
Under the arrangement HCCL has a shareholding of 25 percent while the Chinese hold the remainder with the coal mining giant delivering coking coal to the coking plant while Taiyuan Sanxin Economy and Trade Company injected capital.
However, a forensic audit carried out in 2013 revealed massive externalisation of funds from the gasification unit resulting in the coal mining giant seeking the BOT to be revisited. To date the two companies are embroiled in a legal dispute over debts which they owe each other. In 2005 HCCL’s former board chairman Mr Farai Mutamangira was quoted by this publication as having said:
“We had done a structure with the Chinese on gasification which is really a mess. It was meant to succeed the current challenges we are facing with our battery as it was foreseen that the battery life was coming to an end but we created another problem in terms of the structure and burden.
“Put together I think the company was severely prejudiced of more than $100 million on that Hwange Coal Gasification project. I think it was one of the stupid things we have ever done as Hwange Colliery but anyway we are trying to mitigate that loss,” he said.
Mr Makore said the company was also making efforts to resuscitate or replace its own coke oven battery.
“Our coke oven battery reached the end of its economic life and underwent a controlled shutdown in 2014. The options available to the company is a complete refurbishment or replacement. This is a major project that will require a thorough feasibility study and detailed specifications of the systems and components. In due course, a team will be appointed to execute this important project,” he said.
Coking coal and coke are the company’s high margin products thus the reason the company was making concerted efforts to resuscitate its coke oven battery to operate at optimum capacity. HCCL’s coke sales volume decreased from 7 584 tonnes achieved in the first half of 2015 to 1 040 tonnes for the period under review (30 June 2016). This was attributed to the cancellation of toll coking arrangements.
Mr Makore said the Environmental Impact Assessment of its two new concessions was nearing completion of Lubimbi West and East. The new concessions hold deposits in excess of a billion tonnes of coal consisting of both coking coal and thermal coal at Western areas and Lubimbi West while Lubimbi East has prevalence of coal-bed methane gas, giving HCCL an additional estimated life of mine of above 70 years.
“We are implementing the last phases of completion of the environmental impact assessment for the Western Areas and Lubimbi West concessions. At the same time, appointment of a contractor to do the exploration is being finalised,” said Eng Makore.
The company states that it expects to pay retrenchment packages for its retrenched workforce in accordance with the Scheme of Arrangement. HCCL is consummating a scheme of arrangement with its creditors in order to present a structured plan of liquidating amounts owed to creditors.
“As part of our turnaround strategy, we have to reduce our costs in order to be competitive and profitable. The voluntary retrenchment process currently underway is part of this initiative, ideally we will start to re-employ when we commence mine development of the new concessions. The staff that will take up voluntary retrenchment will be paid in accordance with the Scheme of Arrangement. The issue is not the number of staff that are being targeted but rather the reduction in our production cost per tonne so that we are viable,” said Eng Makore.