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Summary of the evidence given by Hon. Chinamasa to the Mines and Energy Portfolio Committee
Southern African Parliamentary Support Trust
January 10, 2011

The Minister of Justice and Legal Affairs, Hon. Patrick Chinamasa finally appeared before the Mines and Energy Portfolio Committee today, Monday 10 January 2011, after two failed attempts by the committee to have him appear before it in December last year. He apologized to the committee and said his failure was due to communication breakdown as he was out of the country when the committee first invited him. He further said there was no way he could snub the committee as he wanted his side of the story to be heard, especially after Mutumwa Mawere’s presentation to the committee in November 2010.

Background to Mawere’s SMM Empire

Hon. Chinamasa informed the Committee that government assisted Mawere in his bid to acquire Shabanie and Mashava Mines (SMM) in 1996 within the context of indigenization. In this regard, Mawere was assisted with state loans and guarantees. The Minister said government regarded Mawere as a forerunner of indigenization and hence the kind of favourable assistance he got from government. For example, government even granted him a dispensation to export outside the parameters of the Minerals Marketing Corporation of Zimbabwe (MMCZ) in order to maximize exports and thus expedite the payment of the purchase price.

The Minister further revealed to the committee that Mawere never owned SMM as widely reported in the press. He said the arrangement between Mawere and the British company (T & N) that owned SMM was only to transfer management rights of SMM to Mawere until such a time when he had settled US$60 million towards the purchase of the company. Only then was SMM to be transferred to his ownership. Mawere was to use profits or dividends towards the purchase of SMM.

Hon. Chinamasa further claimed that instead of using profits or dividends towards the purchase of the company, Mawere took US$43 million from the company’s revenue (export receipts) as payments to T&N. The Minister said this was in contravention of section 58 of the Companies Act. Hon. Chinamasa further alleged that Mawere was siphoning SMM funds to establish new companies under his name in South Africa instead of investing in SMM. As a result, SMM began to experience cash-flow problems which led to management approaching government for bail-out.

The committee was also informed that Mawere was supposed to settle the US$60 million purchase money within 12 months of the agreement (1997) but he defaulted on payment. The Minister told the committee that government only discussed that T&N had already cancelled the agreement of sell long before the company was put under reconstruction.

Placing the Company under Reconstruction

Minister Chinamasa informed the committee that government’s motivation to put SMM under reconstruction was to save the company from further collapse and thus protect 6 500 jobs and about 60 000 people in Zvishavane mining town whose livelihoods dependent on the mining activities of SMM one way or the other. He said government tasked him with this responsibility since he had handled a similar case (ZISCO STEEL) before when he was the Attorney General. To this end, he appointed Gwaradzimba as the administrator and two other assistants to reconstruct the company.

The idea was to convert loans and guarantees that government advanced to SMM into equity since it was clear that the company had become insolvent and thus in no position to pay back what it owed to government. This the government did under the reconstruction Act and thus acquired 76% shareholding. Government went further and negotiated with T&N for the remainder of shares (24%) and thus government became the sole owner of SMM.

Externalization of Proceeds

Hon. Chinamasa said before Mawere entered into agreement with T&N, SMM used to export directly to its customers. However when Mawere took over management of the company, he created a handling company (Southern Asbestos Sales or SAS in short) based in South Africa. He wholly owned this company and the arrangement was that this company would retain two and half percent of proceeds. The Minister told the committee that Mawere, through SAS did not remit export receipts as required by the law. Hence the government was prejudiced of US$18 million, R4 million and some other amount in Canadian dollars.

Further to this Hon. Chinamasa accused Mawere of fabricating fraudulent documents in order to circumvent remittance of export receipts.

All the above-mentioned led to him and SMM being specified in 2004 under the Prevention of Corruption Act. Chinamasa said at the time, the administration of the Prevention of Corruption Act was under his administration and that was how he came to be involved in the specification of Mawere and SMM. However, he informed the Committee that the administration of the Act has since been transferred to the ministry of Home Affairs. As a result, he said he was not furnished with the circumstances leading to the despecification of Mawere and SMM.

New Investor

The Minister told the Committee that although SMM was now wholly owned by government, government did not have money to resuscitate the company and was in the hunt for an investor. He confirmed to the committee that government had instructed him to only consider Chinese investors. Members wanted to know if government would insist on this instruction given that it has taken too long to court Chinese investors. He said government was prepared to review this instruction on the recommendation of the SMM Administrator.

Hon. Chinamasa put the estimated cost for the resuscitation of SMM at US$150 million.

On the plight of workers, who have gone for more than years without pay, Hon. Chinamasa said at the moment government did not have money to assist. These could only be addressed once the litigation process has been finalized and a new investor found.

Resumption of Committee Business

Committees will resume business during the week of 31 January 2011. The Mines and Energy Committee on Monday 10 January 2011 was arranged in order to accommodate the Minister’s schedule.

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