29 July 2012

Ethiopia: Danieli SpA Melts Competition for Erection of Largest Steel Plant

Photo: Brian Sokol/UN
Grinding steel (file photo): The mill is expected to play a vital role in solving problems related to steel shortage, helping to achieve the nation's development goal.

The Italian steel mill engineering giant, Danieli SpA, has bagged a half billion-dollar turnkey project to erect a steel mill plant in a rural outpost 376km north of Addis Abeba, near Kombolcha Town, Amhara Regional State.

Bearing the name of the outpost, Toussa Steel Mill is an offshoot of MIDROC Ethiopia, largely owned by Mohammed Hussein Ali Al-Amoudi (Sheikh). It is slated to become the biggest steel mill in the country, with a planned annual production capacity of 1.3 million tonnes.

The new venture got its investment license from the Ethiopian Investment Agency (EIA) in July 2011 and plans to produce steel products ranging from billets, reinforcement bars, and hollow sections, to steel for railway tracks in its second phase.

The company, managed by CEO Haile Assegdie, former minister in the administration of Prime Minister Meles Zenawi, later hired by Al-Amoudi to build Derba MIDROC Cement Factory, had put out an international tender for the engineering, procurement, construction, and commissioning of the plant.

Nine international companies hailing from China, France, Germany, Italy, and South Korea had initially shown interest in the turnkey project in December 2011. Two Chinese firms and the Italian Danieli SpA had been shortlisted in June 2012.

Although the names of the two Chinese companies shortlisted have remained undisclosed, Fortune has established that three state-owned companies had initially shown interest in bidding for the project, including Maanshan Iron & Steel Co Ltd, the third largest steel producer in China. China National Building Materials (CNBM) Group Corporation, which is the largest cement and gypsum board producer in China and Asia, along with Sino Steel Corporation, which is engaged in developing and processing metallurgical mineral resources, had also shown interest.

The project office of Tossa Steel, run by Shimeles Eshete (Eng), former deputy general manager of MIDROC Construction, evaluated the financial and technical proposals of the one Italian and two Chinese companies. The Italian Danieli SpA was selected, whose managers came to Addis Abeba to sign an agreement three weeks ago.

Danieli SpA is Italy's biggest steel plant manufacturer. It is known for producing rolling mills for long products and steel melting and refining processors for steel production. It had supplied 90 turnkey plants across the world since 1967, according to the company's website.

But, how much the Italian company required before signing onto the turnkey project for Toussa remains confidential.

Haile declined to comment.

Nevertheless, the project is estimated to cost half a billion dollars to complete.

The company will be an addition to the 14 long and flat steel manufacturers already in operation in Ethiopia, with a combined production capacity exceeding one million tonnes in 2009/10.

Nonetheless, they only produced 372,559tn that year, according to a survey conducted on basic metal and engineering industries, by Japan International Cooperation Agency (JICA), in 2010. Despite the number of base metal industries in the market, it is Yesu Plc and Abyssinia Integrated Steel - both located in close proximity to the Addis Abeba to Adama Highway - which claimed almost two-thirds of this production, the first taking 100,000tn.

Yet, with a boom in construction activities in the country, financed largely by public investment, the country's per capita steel consumption is projected to grow from 12.1kg in 2010 to 34.7kg in 2015, according to the same study. This is projected to increase the country's steel consumption by 28pc to three million tonnes, by 2014/15.

Toussa is designed to fill this projected gap, when it is completed in three years, according to company sources.

However, the selection of the location of Toussa for erecting the plant raises questions among industry observers, for it is far from the Bikilal Iron Ore Deposits in Western Ethiopia. This area is believed to have an estimated deposit of 22 million tonnes. Company representatives, on the other hand, claim that Toussa was selected for being located near to the birthplace of Al-Amoudi, while it is also closer to the Port of Djibouti.

"As long as they do not intend to mine ore and manufacture steel from beginning to end, the location of the plant should not necessarily be where the iron deposits are," said a mechanical engineer from the Ethiopian Mechanical Engineers Association (EMEA) who requested anonymity. "They can import raw materials from outside."

Haile agreed with this view.

"Yes, Bikilal has a potential for iron ore [production]," he told Fortune. "However, it requires a large amount of energy to extract. Toussa can use scrap as raw material, for now."

But, he disclosed that the project eyes mining ore for steel production in its second phase.

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