THE much-touted US$4 billion platinum mining deal signed by Zimbabwe and Russia in September last year amid a blaze of publicity, which the authorities said would significantly boost production and create thousands of jobs, is hamstrung by financial constraints particularly as the Russian partners feel the pinch of Western sanctions and falling commodity prices, sources close to the deal have said
This comes as a severe blow to Zimbabwe which is in dire need of foreign direct investment to rescue its sinking economy which has been in crisis for well over a decade. Similar “mega deals” in mining, construction and infrastructure development reportedly worth billions of dollars signed with China last year are yet to see the light of day amid reports Chinese experts must first come into the country and conduct feasibility studies.
The deal is among several trade and investment agreements signed between the two countries, both currently under Western sanctions, during the visit of senior Russian government officials who included Foreign Affairs minister Sergei Lavrov. It is expected to culminate in a 6 500-hectare Darwendale Platinum mine producing 80 000 ounces of platinum, pushing Zimbabwe’s output to over one million ounces, creating 8 000 jobs in the process.
The platinum deal involves a consortium of Zimbabwean investors operating under the name Pen East and Russian investors that include VI Holdings, Rostec and Vnesheconombank.
There appears to be little progress at the mine with sources telling the Zimbabwe Independent that “nothing beyond exploratory work is happening at the moment”.
This was confirmed on Tuesday by Mines minister Walter Chidhakwa who said in a telephone interview that “they have started explorations”, adding, “I do not have their full programme to be able to say when they will start mining”.
Attempts to get comment from the Russians were futile all week as the embassy had failed to make good on its promise to organise an interview with the Russian ambassador, Sergey Bakharov, by the time of going to print.
However, indications are that progress is being hampered by various factors, chief among them being sanctions that have been slapped by the European Union (EU) and the United States on Russia over its involvement in the Ukraine disturbances.
Zimbabwe is under Western sanctions and the measures placed on Russia and recent turbulence in its economy is making it harder for the Russians to raise the funds, let alone transfer them to Zimbabwe to implement the project.
The EU introduced sanctions against five Russian banks including Vnesheconombank, which is one of the platinum project partners, last year on July 31 over what it described as “Russia’s actions destabilising the situation in Ukraine”.
Vnesheconombank is a state-owned bank which describes itself as the “bank for development and foreign economic affairs”.
As a result, the Russian financial institution was banned access to raising finance, in any form, on the European market.
The sanctions are valid for a year and even though the EU had the option of setting them aside last October, it chose to maintain them — a clear indication of the European body’s intention of piling the pressure on Russia. Consequently, Russia’s state-owned banks, including Vnesheconombank, have been banned from raising funds on Wall Street in the US, the City of London and other Western capital markets.
Already, the Royal Bank of Scotland has restricted lending to Russian companies across the board, while Dutch bank ING is also looking to reduce its Russian loan book.
Russian banks’ external liabilities are reportedly greater than their external assets. In the event of tougher sanctions by the West, the government may have to use its US$490 billion foreign exchange reserves to bail out banks and corporates that are shut out of global capital markets.
Feeling the pinch, Vnesheconombank appealed to the Court of the European Union (EU) in October requesting the lifting of the sanctions.
Russian officials accept that there will be no quick decision as such hearings may take long.
According to top Russian law firm Pleshakov, Ushkalov and Partners’ managing partner Vladimir Pleshakov, “hearings like these last at least six months at best”.
On Wednesday, Russian news agency Itar-Tass reported that the EU would not be making any decision on the sanctions issue when EU foreign ministers meet next Monday at this year’s first EU Council session in Brussels.
Apart from the sanctions issue, the situation has been aggravated by falling platinum and oil prices. Oil exports constitute a significant part of Russian’s earnings which in turn enable it to fund investment projects.
According to Zimbabwean economist John Robertson in an interview on Wednesday: “There are two main problems currently. The first has to do with the fall in oil prices which has resulted in Russia losing billions of dollars they were supposed to realise through oil exports.
“Secondly, platinum prices have also been falling in the past few months and this may well slow or delay the implementation of the deal.”
This was corroborated by another local economist who spoke on condition of anonymity saying even without the sanctions, it is difficult to see how Russia would have been able to raise the funds, given the continued fall in oil prices on which economy heavily depends on.
The price of oil has fallen in the space of a year from a peak of around US$115 a barrel last summer to less than US$47 this week.