10 June 2012

Ethiopia: Last Auction for Year Sees Six Enterprises Up for Grabs

The Privatisation & Public Enterprises Supervising Agency (PPESA) will put six enterprises up for auction, including Ghion Hotel and Awash Winery, as it prepares to conclude the current fiscal year in a couple of weeks' time.

Although nothing has been disclosed officially, the indicative price for Ghion Hotel is to be between 100 million dollars and 150 million dollars, whereas the price for Awash Winery is to be set at 438 million Br, a source close to the matter but not authorised to speak told Fortune. Wondafrash Assefa, director of corporate communications of the Agency would not confirm this.

Each of the six farms and one office of Limu Coffee Plantation Development Enterprise, Construction Works & Coffee Technology Development and Engineering Enterprise, Batu Construction SC, and a villa house under it, are also included in the tender.

The tender to be issued will be the third one for the current fiscal year, in which the Agency has planned to privatise 23 enterprises, five of them partially as joint ventures and the rest through direct sale for the 2011/12 fiscal year.

Although 14 companies had been put up for privatisation in the two previous tenders that the Agency floated, offers were approved for only nine because the rest had either failed to attract bidders or had brought in offers below their indicative prices. None of the joint venture efforts worked out.

The current tender tries to find offers for some of these companies, to help get the Agency nearer to this year's target. However, the bid opening date, set for August 8, 2012, would push the transfer of the companies, if offers are approved, into the next fiscal year.

"We had planned two additional tenders before the close of the current fiscal year, but because of time constraints we were able to float just one," Wondafrash said.

Only Construction Works & Coffee Technology Development and Engineering Enterprise and Limu Coffee Plantation Development Enterprise are new offers made by the Agency, the rest having been put up for auction or set up for joint venture, previously.

Even though a memorandum of understanding (MoU) had been signed for the management of Ghion Hotel with a company named Dnknesh Vermogenveravltung Gmbh (DV), the deal fell through because its representative failed to appear for the signing of the contract, worth 8.3 billion Br, on November 12, 2012.

DV's representative, Aklileberhan Mekonen, was expected to make a 3.5 billion Br down payment.

The Hotel, established in 1951, is the last of the 11 Ghion Hotel branches still in government possession. It has 801 employees.

The Agency prefers full transfer through auction over joint venture for the Hotel, according to Wondafrash.

For Awash Winery, which the Agency had tried to transfer twice through auctions and twice through negotiations, privatisation proved difficult because offers that came were below the indicative price.

The last time that Awash Winery was put up for auction, in January 2012, two individuals, Mulugeta Tesfakiros and Tigist Deneke, had offered to pay 202 million Br, even though the asking price was set at 397.4 million Br.

This time, the Agency is trying to make the Winery more attractive by also including the farm operated by Upper Awash Agro Industry, which the winery uses to grow grapes, raising the indicative price by 41 million Br, according to the source.

Awash remains the sole local winery, and produces five different brands including Axumite, Guder, and Awash since 1943 although Castel Winery is looking to enter the market in the coming months.

Although unsuccessful in the number of companies actually transferred this year, the PPESA had surpassed its target in terms of the amount of money to be collected from privatised companies.

The Agency had managed to collect 3.8 billion Br from Meta Beer's sale to Diageo, the 1.9 billion Br leftover from Heineken's purchase of Harar and Bedele breweries, and 46 million Br as a down payment from Ayat Real Estate after their acquisition of Addis Ras Hotel, the last of the Ras Hotel branches.

Even though this figure surpassed the one billion Br target that the Agency had planned to collect from privatised companies, it could still be more as the PPESA is still waiting for down payments from five key state-owned enterprises in the mining and agriculture sector, which drew offers totalling 1.3 billion Br from companies under the umbrella of MIDROC Ethiopia, owned by Saudi Tycoon Mohammad Hussein Ali Al-Amoudi.

"They have said that they will complete payments by the end of June, so we are waiting patiently," Wondafrash told Fortune.

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