Habesha Cement (HC) SC awarded the engineering, procurement, and construction (EPC) tender for its cement factory to Northern Heavy Machinery Industries Shenyang Co Ltd (NHI), a Chinese engineering company, on Wednesday, September 1, 2010.

After a weeklong negotiation between the management team of HC and NHI, Changdu Design and Research Institute for Building Materials Co Ltd (CDI), and Hefei Cement Research and Design Institute (HCRDI), the three companies made their revised financial offers on August 26. However, HC was not happy with the offers it received and asked the companies to make another offer before Wednesday, September 1, at 4:00pm.

"Their first revised versions did not meet our expectations," Mesfin Abi, general manager of HC, told Fortune. "We sent them a letter on the same day they made their revised offers to meet the price that we considered appropriate, which was 80 million dollars to 85 million dollars."

NHI made a 79 million dollar offer, which was 20 million dollars less than their revised offer of the previous week of 99.9 million dollars; CDI came down to 87.6 million dollars from its revised offer of 94.8 million dollars; and HCRDI made a new offer of 94.9 million dollars from its last offer of 120.5 million dollars.

When the financial evaluation first opened on July 10, 2010, NHI, CDI, and HCRDI made initial offers of 141.7 million dollars, 144.9 million dollars, and 142.6 million dollars, respectively. NHI and CDI offered to provide both European and Chinese equipment while HCRDI offered only Chinese equipment.

The offered prices excluded the transportation and input costs for the civil construction, which HC is to cover, according to their agreement. This is projected to cost around 21 million dollars.

"We have been able to decrease our expenses by around 42 million dollars as a result of our negotiations," Mesfin told Fortune.

Some of the factors that were taken into consideration to determine the winner were the price and completion time offered by the companies. NHI offered to complete the EPC of the factory within 20 months, while CDI and HCRDI proposed to finish it in 22 and 23 months, respectively.

The other criteria used to decide the winner was the terms of payment. NHI and HCRDI both offered 10pc of the contract value to be paid in advance, which was more to the liking of HC than that of CDI, which demanded 15pc.

"Evaluated on these factors, NHI got the highest score, followed by CDI and HCRDI," Mesfin said.

"NHI sees this as a good opportunity to enhance its presence in Africa," Mekonnen Legesse, local agent for NHI, which has already undertaken a similar project with the National Cement Factory (NCF), told Fortune.

The other two Chinese companies, CDI and HCRDI, have undertaken expansion projects for Mugher and Messebo cement factories for around 126 million dollars and 121 million dollars, respectively.

A letter of intent was sent to NHI on Wednesday, September 1, 2010, for further negotiation of the contract. Specific matters that were addressed in the tender document, like the remedy in case of delay of the completion of the work, are now to be included in the contract.

"Now we are in the process of preparing the draft for the contract to be signed and we expect to send it to NHI within a week," Mesfin, who expects to have the contract signed at the end of the month, told Fortune.

HC expects to take a loan, to the amount of 70pc of the whole project, from the Development Bank of Ethiopia (DBE) and cover the remaining 30pc itself.

"Since this [cement production] is one of the areas of priority of the government, we expect the loan figure to increase to 90pc," Mesfin said.

HC already has 260 million Br paid-up capital, which was collected from the public through the sale of shares. Currently, the domestic production of cement is around 2.7 million tonnes. The government intends to increase this to 27 million tonnes by the end of the new five-year plan. HC is expected to inject 1.2 million tonnes of cement into the market once it starts operation.

As a major financier, DBE has to approve the advance payment to NHI, for the contract to become effective.

"Soon, we will start hiring new staff members in the fields of surveying, drafting, electric works, mechanical and civil engineering, and geology, to strengthen our human resources," Mesfin said.

The headquarters of HC will be transferred to the construction site in Holeta, 35km from Addis Abeba in the Oromia Regional State, he said. the move will start from the end of October, with a branch office in Addis Abeba as a base for contact with shareholders.

Tata Consulting Firm, an Indian company, had previously won the bid to provide consultancy services to the project, and will be engaged soon, according to Mesfin.

The whole project for the construction of Habesha Cement Factory was expected to cost around 120 million dollars, which the management team was able to decrease to around 100 million dollars.