27 May 2012

Ethiopia: Bidders Justify Low Bids At Latest Privatisation Tender

There was low turnout at the Privatisation & Public Enterprises Supervising Agency (PPESA) on Monday, May 21, 2012, when less than stellar offers were opened for only half of the six enterprises put on the auction block 17 days earlier.

Although an aggregate offer of around 49.1 million Br was made for the Commercial Printing Enterprise, Caustic Soda SC, and warehouses of FAFFA Food SC, each only managed to draw lone offers, which were either much less or barely above the asking price set by the Agency.

In addition, Batu Construction SC and Hamaressa Edible Oil SC failed to attract offers, whereas bids for the warehouses of the Ethiopian Fibre Products Factory remained unopened due to a stay of execution issued by the Federal High Court.

Four and a half months ago, the PPESA had obtained a total offer of 1.3 billion Br for five of the eight companies that it had put up for sale at that time. The offers were made by MIDROC Ethiopia and its affiliates.

The highest offer of 860 million Br was made for Upper Awash Agro Industry Enterprise. The Agency approved all of MIDROC's offers.

During the current bid opening, the highest offer was 27 million Br made by Suha Plc for the Commercial Printing Enterprise. This was far below the indicative price of 58.7 million Br that the Agency had set for the 64 year-old company.

Established by an Armenian investor with a capital of 12,000 Br and five employees, the printing press currently has an annual turnover of 19 million Br.

Suha, which has a capital of 18 million Br, offered to pay half of the amount now and the rest during a five-year period in equal amounts. Suha is a general trading company, involved in manufacturing, farming, and export, according to one of the three owners, Nesru Awol Juhar. It has an orange farm in Errer Gota 571km from the capital, according to Nesru.

Suha's offer was below the indicative price because the company had attracted no bidders the last time it was offered for sale in 2010, Nesru said. The printing business was not currently profitable, he also said.

The second highest offer, amounting to 14.8 million Br, was made by MCC Imports Plc for Caustic Soda SC.

Caustic Soda SC was established in 1994/95 and is the only caustic soda manufacturer in Ethiopia. The company is located in Zeway, 160km from Addis Abeba.

It added quicklime to its product line in 2002/03, and is also manufacturing magnesium oxide. It currently has 231 employees, according to Eneyesh Gebre, commercial manager.

Caustic soda is one of the chemicals that MCC imports, which it now hopes to manufacture locally, according to Vinay Aiappa, general manager of the Company.

MCC, founded by four individuals in 2010 with a capital of 100,000 Br, imports chemical supplies for the soap and paint industries.

"We plan to import machinery and other technology from abroad in order to increase the company's production capacity and meet the demand from our customers through locally produced caustic soda," Aiappa said, speaking of the possibility of buying the company.

The only individual person to submit an offer at the bid opening was Ethiopian-born Canadian, Nejib Abba Biya, who is engaged in the mining and hospitality industries locally. He currently serves as the senior vice president of business development for Ethiopia at Allana Potash Corporation, which has four potash concessions in Ethiopia's Danakil depression, totalling 160sqkm, with an estimated 596 million tonnes of mineral concessions, according to the company's website.

Nejib is a shareholder and one of the promoters of this company. He is also involved in Avion Gold Corporation, which is exploring for gold in Ethiopia on 5,700sqkm of land.

He made on offer of 414,100 dollars (7.2 million Br) for the warehouses of FAFFA Food through his local representatives. This barely surpassed the indicative price of the agency, which was about seven million Br.

The six warehouses, located in Addis Abeba, Nekemt, Gondar, Shashemene, and Dessie, occupy a total area of 27,600sqm.

These warehouses were not considered as part of the core assets of FAFFA and, thus, were not part of the transfer process when the infant and family food product factory was acquired by one of the most prominent importing and distributing companies, Petram, in 2009, for 60 million Br.

A relative of Nejib, representing him in Ethiopia, declined to comment on future plans for the warehouses, if their offer is accepted by the PPESA.

Unlike FAFFA's warehouses, the bidding process for the single warehouse of the Ethiopian Fibre Products Factory did not go as smoothly.

The only offer, made by G Seven Trading & Industry Plc, which bought the factory from the PPESA in 2008, was not opened because of a suit that Hawassa Textiles filed against the Agency.

G Seven Trading & Industry was established in May 2005 with an initial registered capital of 7.2 million Br. It has bought Meher Fibre Products factory in July 2006 from PPESA. It produces jute sacks, twine and ropes from natural fibre.

The warehouse, located around Saris, occupies 650.25sqm. It lies on a plot of 2,550sqm, which also has office buildings. The warehouse was not part of the transfer when G Seven acquired Ethiopian Fibre Products.

"We were told by the Privatisation Agency that the warehouses were being used by then-state owned Hawassa Textiles and could not be acquired until the textile factory was put up for privatisation," a management staff at the company told Fortune.

The textile factory was acquired by Dukem Textiles Plc around a year ago for 37 million Br.

"We wrote letters repeatedly in order to acquire the warehouse," the manager of G Seven said. "Finally, when it was up for privatisation, we decided to bid on it."

The warehouse, which Hawassa Textiles started using when it was a public enterprise, was still used by it after it was sold to Dukem Textiles. Hawassa has used the warehouse for a total of 20 years, according to Eyasu Atnafu, general manager of Dukem Textiles. It has been paying rent to the Agency, as well, Eyasu said.

"We wrote letters two months ago to acquire the warehouse, but the Agency put the warehouse up for auction instead of dealing with us," Eyasu said.

Dukem went to court in mid-May, when it learned that the PPESA had floated a tender to sell the warehouse, which, had been promised to it for an additional payment it claimed.

"We will proceed with the auction after the case is settled," Wondafrash Assefa, public relations head officer at the PPESA, told Fortune.

Batu Construction and Hamaressa, the latter for the fourth time, proved unlucky during the tender process.

The construction company was established in 1983 by proclamation, using the resources of Ethiopian Building Road Construction (EBRC), a company established by three foreign investors in 1960 with a capital of 60,000 Br. Currently, the Enterprise, which is mainly involved in road construction, has an authorised capital of 45.2 million Br, of which 33.9 million Br is paid-up.

Hamaressa edible oil factory was established in 1998, and it is the second-largest edible oil factory in the country, lying on 480,000sqm in eastern Ethiopia. It produces peanut oil, cottonseed oil, and rapeseed oil. It currently has a price tag of 81.4 million Br.

"The Agency will decide how to proceed with these companies," Wondafrash informed Fortune.

Aware of the low turnout, the officials confirmed during the bidding process that results would be announced soon.

"We do not have to process a lot of files, so the bid committee will make decisions quickly and pass them onto the board," Berhane Gebremadihin, bid committee chairman and Privatisation Directorate director at the PPESA, said at the end of the bid opening.

The Agency plans to privatise 23 enterprises in 2012/13.

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