Negotiate costs, plant arrangement, completion time with three remaining companies

At the request of the Habesha Cement SC three Chinese companies made their revised financial offers on the engineering, procurement, and construction (EPC) tender of the company's factory on Thursday, August 26, 2010.

The EPC tender was floated on November 22, 2009, and closed on February 15, 2010. Six international companies responded to the request for expression of interest by the deadline.

Of the six, two companies failed to qualify: a Chinese company, Xinjiang Zhonghao Building Material Group, fell short of presenting the required bid bond of 500,000 dollars, while an Indian firm, Walchandnagar Heavy Industries, dropped out at the technical evaluation stage.

Only four Chinese companies made it to the financial evaluation that was opened on July 10, 2010.

Sinoma International and Changdu Design and Research Institute for Building Materials (CDI), are involved in the installation of machinery for the expansion project of the Mugher Cement Factory. The other two, Hefei Cement Research and Design Institute (HCRDI) and Northern Heavy Industries (NHI), are undertaking similar projects for the Messebo and National cement factories, respectively.

Having passed the technical evaluation, the bidders made alternative offers based on the make of the equipment they proposed to use in their original price quotation.

The original offers included a high of 159 million dollars for a mix of European and Chinese equipment and a low of 143 million dollars for Chinese equipment by NHI; 144.6 million dollars by CDI and 157.6 million dollars by Sinoma for a mixture of European and Chinese equipment; and 143.7 million dollars for Chinese equipment by HCRDI.

HC was unhappy with the original price quotations and invited all four companies for negotiations on their offers, from August 19 to 25, 2010. However, Sinoma International was finally not included in the negotiations after both sides failed to come to terms on the joint venture (JV) it had offered.

"Habesha Cement's memorandum of association allows only up to 40pc of its total shares to be bought by a third party for a JV but Sinoma asked for 51pc, which would have made it a majority shareholder in addition to their bid," Mesfin Abi, general manager of the company, told Fortune. "The offer was finally denied, but Sinoma is still indirectly involved in the bidding as CDI is its daughter company."

Some of the offers incorporated different factory grinding setups: including two ball mill, a vertical roller mill (VRM), and hybrid cement. HC only considered the last for its plant.

Transportation costs, civil construction, and plant arrangement and completion time, were some of the areas Habesha negotiated with the three remaining companies.

"The transportation costs of the goods to be imported from the port of loading to project sites were previously to be undertaken by the bidder," Tesfaye Adane, project manager at Habesha Cement, told Fortune. "However, all the bidders and Habesha agreed that the latter take this responsibility, including marine and inland insurance coverage."

Habesha Cement is to be responsible for providing the inputs of construction (including gravel, sand, cement, and reinforcement bars) while the bidders will provide the labour, tools, and machinery, the parties agreed during negotiations.

The timeframe for the completion of the project was negotiated down from the original offer of 22 to 27 months to 20 to 23 months, Tesfaye told Fortune.

As a result of the negotiations, the three companies submitted revised offers on August 26, 2010.

"We have saved around 20 to 25 million dollars as a result of our negotiations," Mesfin told Fortune. "The supply of the civil construction will cost around 18 million dollars and the transport around three million dollars which makes the total cost to be undertaken by HC around 21 million dollars."

A high of 114.7 million dollars for a mix of European and Chinese equipment

and a low of 99.9 million dollars for European equipment were offered by NHI; a high of 101.1 million dollars for a mix of European and Chinese equipment and a low of 94.7 million dollars for Chinese equipment by CDI; and a fixed price of 120.5 million dollars for Chinese equipment by HCRDI in the revised proposals.

The tender is expected to be awarded to one of these companies in the first week of September, based on the revised price offer, the terms and conditions of payment, completion period, and the revised technical evaluation, according to Habesha.

Further negotiations will be made on the contractual elements before an agreement is reached, according to Mesfin, who expects more discounts on some elements before a final agreement is reached.

Habesha Cement, which was incorporated on September 18, 2008, by 30 individuals with 600 shares, each valued at 1,000 Br, appointed Tata Consulting Firm, a subsidiary of the Tata Group, to do consultation work, including design approval and supervision of the daily activities of the winner of the tender, Tesfaye, who expects to sign the contract with Tata at the same time, told Fortune.

Initially, the consultancy firm offered 2.6 million dollars to do the job which was negotiated down to 1.85 million dollars, he said.

Habesha has raised 250 million Br in equity from the public and expects to inject 1.2 million tonnes of cement into the market annually once it starts operation. The whole project is expected to cost around 120 million dollars.

Currently, the domestic production of cement is handled by Mugher, Messobo, MIDROC Derba, Abyssinia, Jema, and National cement factories, which collectively produce about two million tonnes, annually.