Zimbabwe demands refund for Hwange malfunctioning equipment from Indian suppliers

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GOVERNMENT is incensed by the downtime resulting from the frequent breakdowns of the new equipment at Hwange Colliery Company Limited and is now actively seeking either financial compensation or the replacement of the malfunctioning equipment from Indian suppliers Bharat Earth Movers Limited.
Government holds a controlling 37 percent stake in HCCL, followed by business magnate Mr Nicholas van Hoogstraten who has a 30 percent share.
It is believed that a lot of production time has been lost due to the defects of the equipment supplied by the Indian firm that is based in Bengaluru.
The equipment, financed through a vendor financing scheme secured from India Exim Export Bank, were part of the $31,2 million equipment that was launched by Vice President Phelekezela Mphoko on June 19, 2015 and include excavators, dumpers and various other “state-of-the-art” equipment.
But as soon as the machinery was put to use, the defects cropped up. Hydraulic leaks are some of the multiple defects affecting the equipment.
By July, there were reports that five machines had been grounded by the same problem. Though there were suspicions by HCCL engineers that the equipment delivered was not what they had inspected in India, management did not act swiftly to address the situation.
In fact, BEML undertook to repair the machines under warranty. But frequent and continued breakdowns have forced Government to engage the Indian embassy and Indian suppliers.
BEML, which is considered as Asia’s second-largest manufacturer of earth moving equipment, is 54 percent owned by the Indian government.
The Sunday Mail Business has established that Deputy Minister of Mines and Mining Development, Engineer Fred Moyo has already engaged India’s Ambassador to Zimbabwe, Mr Surinder Datta over the matter.
However, details of their deliberations were unclear by last week. It has also been established that Government has since written a letter to the company.
Last week, the Minister of Mines and Mining Development, Mr Walter Chidhakwa said, “at the core of HCCL’s problems is the equipment sourced from India that has not been working as well as we had wanted it to operate”.
“I have asked our Deputy Minister to meet with the Indian Ambassador so that they could discuss (the issue).
“We have (also) written to the company that supplied us with the equipment, the excavators, and we said the equipment is not operating as expected therefore we will seek compensation for the production time lost. They have not been able to come in to respond to the current problems on matters that are on warranty.
“Therefore, we have written to them to say we expect them to sort out the equipment. In fact, our first option is to have the equipment replaced; that is if they are not able to sort it out,” said Minister Chidhakwa.
When it was first unearthed that the coal miner had been duped into taking delivery of defective equipment, BEML and HCCL issued a joint statement describing the allegations as “baseless and defamatory”.
At the time, HCCL managing director, Mr Thomas Makore said, “Problems of this nature normally occur during any new equipment commissioning phase.”
When contacted for comment last week, Mr Makore said, “. . . we are in a close trading period in line with the Zimbabwe Stock Exchange rules.”
The new open cast mining equipment was widely expected to increase the coal miner’s output to about 500 000 tonnes from 300 000 tonnes. However, it is not the imported equipment only that is affecting output as the malfunctioning continuous miner allegedly broke down due to inadequate servicing, thereby weighing down production.
A continuous miner normally accounts for 45 percent of underground coal production and when working optimally, it cuts about five tonnes of coal per minute, a feat that markedly increases throughput.
Said Minister Chidhakwa: “The second problem is that Hwange Colliery has not been able to do underground mining because what is known as the continuous miner is not operational.
“The underground mining is what gives you the best coal because it has a combination of thermal coal as well as coking coal, that is what earns Hwange Colliery the biggest amount of money.”
Government is trying to assist HCCL to secure funds to repair the continuous miner.
Meanwhile, Government is set to appoint four more board members that have engineering and geology expertise.
The new board members are expected to have the capacity “to put together financial resources” to rescue the company from its current challenges.
This week, Minister Chidhakwa is scheduled to visit HCCL on a fact-finding mission to establish the extent of the coal miner’s challenges.
During the tour, the minister is expected to engage management, the board and employees who are understood to have gone for 28 months without pay.
Last year, Government gave management three months, which expires on January 31, 2016; to put the coal miner on a growth path.
“Before month end, I will go there and get a full report on the ground, including one from the workers. When you are not on the ground, you get all sorts of things, you can only verify them on the ground, you can’t take them as facts before you verify them,” explained Minister Chidhakwa.
The HCCL Short-Term Way Forward Due Diligence Report dated November 19, 2015; which was compiled by a consultant hired by the coal miner, proposed that the company should sell employee houses to arrest spiralling costs. According to the report, which remains a proposal until the Board adopts it in part or in full, HCCL incurs electricity bills averaging $750 000 per month.
It is expected that selling the employee houses will save about $450 000 per month.
Minister Chidhakwa acknowledged the existence of the report but said he will “wait for the report to come” before considering adopting any of the recommendations.
HCCL largely sells thermal coal — also known as steam coal — to the Zimbabwe Power Company (ZPC) to power its four thermal power stations based in Hwange, Harare, Munyati and Harare.
Other institutions such as hospitals and some boarding schools require thermal coal for cooking. Last year, HCCL had plans to supply about 50 000 tonnes of coal to South Africa’s state-run power utility – Eskom. However, the plans were not followed through. HCCL also signed a contract to supply 9 000 tonnes of coke to Glencore Plc in March last year. However, it could not be established if any deliveries were ever made.
Similarly, there were talks between HCCL and ArcelorMittal South Africa which could have seen the latter selling coke to the former. Again, nothing materialised from these plans. HCCL also sells coking coal and coke products to Zambia and the DRC.
Part of the company’s ambitious plans include moving into coal liquids, diesel and ammonium nitrate.
Production at HCCL has declined from 3,2 million tonnes in 2011 to 1,2 million tonnes in 2014 due to aging equipment and constant breakdowns.
The coal miner has market potential of 740 000 tonnes per month but its design capacity means it can only produce 450 000 tonnes of coal per month.
In order to meet demand, Hwange has since roped in a contract miner – Mota Engil – to produce 200 000 tonnes of coal per month.-Sundaymail