28 October 2012

Ethiopia: Petroleum Enterprise May Take Derba, the New Entrant to Court

The warehouse that Derba cement stores the coal that it bought from the enterprise.

The Ethiopian Petroleum Enterprise (EPE) is threatening to sue Derba MIDROC cement factory, a new entrant into the industry alleging that it has not paid around 200 million Br after acquiring around 80,000tns of coal it had imported, sources disclosed to Fortune .

The enterprise, which also imports petroleum for nation, claims that its working capital is tied up and hence is eying the court as an alternative means of getting its money back.

The enterprise has been delegated by the Ethiopian government to import coal since December 2011 when the government, decided to replace the Heavy Furnace Oil (HFO), a source of energy that cement factories use to burn the clinker to coal aiming at reducing their production cost and hence make them competitive.

The enterprise thus made a deal with the large-scale factories such as Mossobo, Derba and National Cement factories owned respectively by the Endowment Fund for the Rehabilitation of Tigray (EFFORT), Mohammed Hussien Ali-Al-Amoudi(sheikh) and East Africa Industrial Group as a major shareholder.

Accordingly, based on their reported demand, the EPE inked multimillion dollars contract with Hyton Inc, an international coal supplier company for the supply of 600,000tns of steam coal for these factories in December 2011.

Out of these, Derba which has the capacity to producing 2.5 million tonnes of cement on annual basis has the highest demand and takes the largest share, which is estimated at 50,000tns on a monthly basis.

The EPE so far has imported and distributed 144,000tns of coal to the three factories. However, all did not pay on time. Mossobo and National Cement also owe the enterprise 52 million Br and 30 million Br, respectively, according to sources at the Ministry of Industry (MoI).

Nonetheless, Derba did not effect any payment so far while it has been taking the coal from the enterprise that made it eying the court as alternative to get its money back, according to these sources.

This had drawn the attention of the MoI, which called three cement factories, and the enterprise for a meeting led by Tadesse Haile, state minister for MOI, last week.

Tadesse told Fortune that a consensus has been reached between the factories and the enterprise. “Since the coal is imported to reduce the costs of the factories, they should share a loss in case there is any.”

Baso Assefa, CEO of National Cement told Fortune that the company will pay its debts in instalments negotiating with the enterprise.

Haile Assegdie, CEO of Derba also claims that the company is doing its best to pay back its debts.

Derba, which enters into the market with the lowest ever price of 170Br for a bag of cement is to come up with additional cuts in its price next week, according to Haile.

The factory will also make the cement available for those who can buy 200ql reducing its requirement from 400ql that it currently is selling at.

“This all is to raise the demand,” Haile said. We see no other way than this to sell our cement that we are producing and hence pay our debt.

The demand for cement indeed has dropped a year ago and never rise up for unexplained reasons, which left many in the industry wonder.

“We all are operating under capacity as the demand is low and adding to the pain we are not able to sale the small amount that we produced,” Haile said.

However, State Minister Tadesse still hopes that the demand will be improved starting from January 2013 when large government projects kicks off.

“We might even talk about shortage after a little while,” Tadesse told Fortune.

Cement factories on the other hand argue that the government is the one who aggravates the problem by importing the cement from abroad while there is surplus cement locally.

The government is still shipping the 400,000tns of cement that the Public Procurement & Disposal Agency (PPDA) had bought for 34.6 million dollars in August 2011 for housing projects that the government is undertaking.

Even though the said large projects got started, the government will not buy cement from us while it has stock and hence will not bring that much of a change, according to the anonymous managers of cement factory.

Although the enterprise’s deal with Hyton was to get the delivery of the entire order in monthly instalments until December 2012, it has only imported 144,000tns so far as the factories are backing out of the deal. It is also expecting a shipment of around 100,000tns of coal until the coming November.

As a solution the ministry and the enterprise agreed last week to hold the coal import until March 2013 so that the factories utilize the already imported coal effectively.

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