‘Evraz milked Highveld Steel, then sank it’
Kickbacks, membership of Brics sealed fate of steel and vanadium company bought from Anglo
GIDEON du Plessis, general secretary of Solidarity trade union, believes the recent closure of Evraz Highveld Steel and Vanadium was driven by the politics of greed as much as economic forces.
Almost 2 000 workers have been retrenched without retrenchment packages or, so far, pensions from the Unemployment Insurance Fund to which they have been contributing all their working lives. They and their families are dependent on food parcels.
Du Plessis says the closure should be seen in the context of a preference the government or government officials have for deals that include a middleman and a fat settlement fee.
A reliable source from the UK informed him that according to his information, Transnet visited Evraz in Russia recently to negotiate a deal for new infrastructure and railway links in South Africa.
Evraz is the Russian steelmaker that bought Highveld Steel from Anglo American in 2006.
The negotiations were mostly about the supply of railway tracks.
Du Plessis finds it “mind-boggling” that they did not take place when Highveld Steel was still running and the only company in South Africa with the facility to manufacture the required rail tracks to the highest international standards. This facility is its structural mill, which he says is the only one of its kind in South Africa.
“This tells me two things. There are Transnet and/or gov- ernment officials involved in an international deal where there is an opportunity for a settlement fee.”
Second, he suspects it is related to South Africa’s membership of Brics.
“This is how the whole Brics relationship is an anti-South Africa initiative because, yet again, there is a Brics partner [in this case, Russia] that will benefit and South Africa that will be on the receiving end.”
He believes Evraz was never interested in investing in plant or maintenance at Highveld Steel but only in “milking” it for maximum profits, which it could take out of South Africa.
But why would any company invest in a business rapidly going down the tubes because of dire global economic circumstances?
That might have been an argument had the refusal of Evraz to invest been a recent phenomenon, he says.
But it characterised the company’s attitude long before the global slump in demand and prices began to hit profits.
Du Plessis says Evraz was always more interested in the vanadium side of the business than the steel side.
“The only value for them was its vanadium production. But then they still sit with this big elephant that they have to maintain. When they let the business go belly-up, the one advantage they had was a bigger market share for them internationally providing vanadium.
“They basically sank their own company to further their interests in vanadium,” he says.
He believes this is why Evraz opposed business rescue in favour of liquidation.
“The plant is worth approximately R3-billion if it’s fully operational, but if it is sold for scrap metal it is worth around R500million. That is obviously an easier way out for them, but then obviously you kill 2 000 jobs.”
Du Plessis says he was warned not to criticise Evraz “in any way, because, I was told, these guys are worse than the mafia. They have strong political links with South African politicians. They are ruthless people.”
Although there may or may not be elements of truth in his version of what contributed to the fate of Highveld Steel, a more brutal, if less conspiratorial, reality is likely to be the economic one.
Steel companies around the world — most recently in the UK — are being sold at knockdown prices or closed down. Du Plessis doesn’t buy this. Before commodity prices collapsed, the government handed a lucrative contract to provide structural steel for Eskom’s Kusile power station to a Chinese company rather than to Highveld Steel, which is right next door.
“Highveld Steel is the only company in South Africa which has a structural mill which could have provided the structural steel to Kusile, which is literally 2km away,” he says.
Even if the Chinese steel — the below-cost production of which is heavily subsidised by the Chinese government — is cheaper than local steel, the South African government has an obligation to favour South African companies rather than let them shut down, causing thousands of job losses, he says.
“Everything has been in favour of Chinese imports — to the detriment of a South African company and a whole community.”
The closure of Highveld Steel will affect 13 000 people if dependants and suppliers are taken into account.
What about the role of labour? Two years ago, Evraz warned that labour instability and low productivity were threatening the continued operation of High- veld Steel. The response of the National Union of Metalworkers of South Africa was to embark on a one-month strike for higher wages.
“That has definitely been a factor all along,” Du Plessis concedes. “But now reality has set in and Numsa has been so involved in trying to save the company, so involved in all the negotiations with the Industrial Development Corporation, the PIC [Public Investment Corporation] and the Department of Labour.” Did reality set in a bit too late? “That is correct. But at the time there was a very fragile relationship with the Russian shareholders. There was animosity and power play because their whole approach was aggressive and rude.
“It was a really foreign experience to have union dealings and negotiations with the Russian stakeholders. They had no real understanding of South African cultural diversity and sensitivities.”
In other words, they were hard-headed business people who didn’t see the company in developmental terms?
“Absolutely. Obviously for them it was pure business. But we felt that the general management style was very authoritarian, which was foreign to us.”
This affected managers and workers.
“There was grave unhappiness within the ranks of the Highveld Steel management. There was at one stage a mass exodus of good, highly skilled people because working conditions became unbearable. There was no empathy for the plight of the workers.”
Numsa may have been partly to blame, but not anymore.
“Numsa has been taught a valuable lesson in how business works and who actually runs a business. So, first, you can take that industrial relations risk out of the equation. And, second, there is a company to be saved.” What are the chances? The only part that is still attractive for somebody to buy is the structural mill that can provide at least 500 jobs, he says. Which brings us back to the conspiracy theory.
Just before a deal was signed with Hong Kong-based International Resources to buy Highveld Steel and keep the mill going, the government’s environmental police, the Green Scorpions, pounced with a bill of almost R1-billion that the buyers would have to pay to meet environmental compliance laws. Du Plessis says this contributed to International Resources deciding not to buy, and sealed the fate of the company.
But now International Resources is suddenly back in the picture, in talks with the IDC and a representative from Highveld Steel’s main competitor, Arcelor Mittal South Africa, which does not have a steel mill like this.
“So you have Arcelor Mittal and International Resources suddenly showing a joint interest. One thing Arcelor is lacking is a structural steel plant.”
This is a specific structural steel mill, the only one in the country capable of producing the railway tracks Transnet needs. If Arcelor Mittal acquires it with the assistance of the IDC, it will be able to provide the tracks and take over the market share that Highveld Steel used to have — to the great benefit of politically connected Likamva Resources, which Arcelor has announced as a potential BEE partner.
The funny thing is that when Highveld Steel’s business rescue practitioners applied to the IDC for R150-million to keep the mill going, and submitted a comprehensive business plan, the IDC responded with a raft of “high level, in-depth questions regarding the plan and operational, practical issues”. But no cash.
After Highveld Steel presented a comprehensive response to the questions, the IDC “pulled the plug on the deal”, says Du Plessis.
Now, armed presumably with Highveld’s business plan and an analysis of how it can work, it seems likely to do a deal with Arcelor instead.
The fact that a director of Arcelor’s mooted BEE partner is also a board member of the Jacob Zuma Foundation may, of course, be entirely coincidental.
Everything has favoured Chinese imports — to the detriment of a local company and community Numsa has been taught a valuable lesson in how business works and who actually runs a business