Hwange Colliery Company Ltd (HCCL) administrator, Munashe Shava, has been accused of entering into controversial deals that could potentially prejudice the coal firm, it has been learnt.
The deals relate to mining contracts to third parties, acquisitions of equipment and the rehabilitation of the coke oven battery, multiple sources told Business Weekly.
The Government, which owns about 52 percent of HCCL, placed the company under reconstruction for the second time in October 2022, having done the same in 2018.
The previous attempt was blocked by the High Court and an appeal was dismissed by the Supreme Court, which ruled that using the Reconstruction of State-Indebted Insolvent Companies Act to place HCCL under administration was legally ineffective.
Shava was appointed the administrator of HCCL while Mutsa Remba, a partner at Dube, Hwacha, Manikai legal practitioners was appointed the assistant.
The Reconstruction of State-Indebted Insolvent Companies Act (Chapter 24:27) of Zimbabwe was enacted in 2004 to provide a mechanism for the restructuring of state-indebted insolvent companies. It allows the Minister of Justice, Legal and Parliamentary Affairs to appoint an administrator to take control of a company deemed eligible for reconstruction.
The administrator is responsible for developing a plan to restructure the company and transform it into a profitable entity.
Sources familiar with the situation expressed concern about Shava’s unilateral decisions to contract a firm to rehabilitate the coke oven battery and another one to acquire mining equipment. He is also accused of contracting a company to recover the coal pillars through underground mining at a revenue-sharing ratio of 68 percent to the contractor and 22 percent to HCCL.
Despite the contractor using a less costly open-cast mining method, the administrator refused to revise the sharing ratio.
Shava was not immediately available for comment. Managing director Blacke Mhatiwa said he was not in a position to comment with no authority from the administrator.
Shava is alleged to have brought a Chinese company he contracted to rebuild the coke oven battery at a cost of as much as US$8 million. According to our sources, an emergency meeting was convened to introduce the contractor, who then made a presentation to the management.
There was no physical due diligence on the contractor’s previous work. After the presentation, management was ordered to immediately pay US$800 000 to the contractor. An additional US$1,2 million is needed as a deposit to allow the contract to start the rehabilitation.
Ironically, several attempts to repair the coke oven battery by previous management were unsuccessful and recommendations were made to decommission it.
“Basically, the contract was imposed on the management; there was no technical due diligence to ascertain the competency of the company. It was a mere PowerPoint presentation that was followed by an order to make a down payment of US$800 000. Still, management is under pressure to pay another US$1,2 million so that the work can begin,” said one source who declined to be identified.
“Around 2014/15, management tried to repair the battery, but recommendations were made to decommission it, as it had outlived its lifespan,” the source added.
A coke oven battery is a structure of individual coke ovens used to produce coke from coal.
Coke is a type of coal that has been heated in the absence of air to remove impurities. It is a hard, porous material that is used in blast furnaces to make iron and steel.
The sources also expressed concern about the timing of the coke oven battery rehabilitation given the depressed international coke prices. Some oven operators are reportedly stuck with more than 50 000 tonnes of coke due to weak demand.
“The money can be deployed elsewhere where we can immediately get value,” said sources.
Further, sources also allege that no due process was followed to inspect machines from China to assess their suitability. Ordinarily, when new equipment is imported, a technical team is sent to familiarize themselves with the machines and to learn how they work.
“This process was not followed. No technical team was sent to China. In fact, the trip was canceled at the last minute when all the visas had been obtained because the administrator said there was no reason to go there. Where on earth can such a thing happen? Now we are stuck with idle equipment as it is not suitable.”
With regard to the contract to recover the coal pillars, the revenue-sharing ratio was based on the assumption that the contractor would be using underground mining methods. However, the contractor used the less expensive open-cast mining method. This should have resulted in a revision of the revenue-sharing ratio, the source said.
“Management tried to push for a revision of the ratios, but the administrator resisted.
“His actions are worrying, as he seems to be working with a Chinese national (name supplied) who is dictating everything happening within the company,” the source said.
Shava has also engaged a consultant (William Gambiza) who appears to have overstepped his mandate and is heavily involved in the day-to-day business of the company.”
Gambiza could not be reached for comment.
Some workers who spoke to this publication said the reconstruction has outlived its usefulness and urged the government to return the company to the board.
Keeping the company under reconstruction could have devastating effects, as happened to Shabanie and Mashava mines, which have been under reconstruction since 2004.
“It is time for the Government to immediately remove the company from the reconstruction and return it to the board, with management taking full charge,” said one worker.
HCCL is a major player in the Zimbabwean economy and its operations have a significant impact on the lives of thousands of people. In recent years, HCCL has faced a number of challenges, including aging infrastructure and financial difficulties.