27 January 2013

Ethiopia: Preferred Supplier Defaults On Welfare Wheat Imports

A foreign trading house contracted to supply a substantial volume of wheat imports, destined to stabilise domestic grain prices and provide shelter to low-fixed income earners from inflationary pressures, has defaulted on its commitment.

Agrimpex Ltd, the preferred supplier of several federal agencies, has failed to fulfil its contractual commitment of supplying 200,000tn of wheat, which it had agreed to back in August 2011, sources disclosed to Fortune. Owned by Philippas G. Philippas, a Cyprus native, and his family, the company had won a bid, back in 2011, to supply 300,000tn of wheat to the federal government at a value of 94 million dollars.

A total of five companies had placed bids after the Government Procurement & Property Disposal Services (GPPDS) issued a tender online. Agrimpex was awarded the contract, bidding against Comi Trade, Mid Gulf Services Ltd, and Louise Deryfus, offering 313.65 dollars per tonne.

Agrimpex Ltd, a company registered in London, in December 1990, has been a major supplier of commodities to the Ethiopian government, including a large portion of the one million tonne of wheat bought by the government since 2008. Valued at over six billion Birr, the trading house has, on at least three occasions, supplied wheat, with many of the deals coming without any and many of them without competitive bidding.

Philippas has also been supplying fertiliser, coal, sugar and edible oil, entering into bid through Agrimpex and Hyton companies.

The contract to supply wheat was meant to enhance the nation's food reserve, which was fast depleting a year and half ago, to 81,535tn in July 2011, down from 410,584tn in full capacity. The reserve administered by the emergency food reserve agency was used to provide wheat on subsidised prices in a bid to offset high food prices in the market, since 2008.

The procurement was also designed to help low income earners fend off inflation, buying grain at a subsidised price. The price of wheat at the international market at the time when the contract was awarded was at 322 dollars per tonne, while local prices had a quintal of wheat at 1,100 Br, exhibiting a 57pc increase.

It was a period when the year-on-year inflation index had showed a 39.2pc increase, in July 2011.

Inflation has subsided since then, year-on-year headline inflation dropping sharply to 12.9pc in December 2012, while food inflation further declined to 11.8pc, according to the Central Statistics Agency (CSA). The United Nations agency monitoring emergency food assistance needs in Ethiopia, Office for the Coordination of Humanitarian Affairs (OCHA), attributed this decline largely to a good harvest reaching the market this time of the year.

There appears to be little panic among federal authorities responsible for macroeconomic policymaking, as a result of Agrimpex's default.

"We would have been in a lot more trouble had it not been for the harvest coming to the market in good ways," says a government official with knowledge on the issue.

The prospect for grain productivity is positive with harvest between October to December reportedly, "near-to slightly above average," according to OCHA's report released in mid January, 2013.

"The good harvest should have a positive impact on market supply and stable food prices during first quarter of 2013, with cereal prices already trending toward stability or slight declines," says OCHA.

Now that federal government officials feel the procurement needless, a letter of credit opened with the state owned Commercial Bank of Ethiopia (CBE) worth 63 million dollars, to be transferred to Agrimpex's bank in Geneva, UBS, was cancelled last week, according to sources at the CBE. The letter of credit was opened on behalf of the Ethiopian Grain Trade Enterprise (EGTE), the procurement entity, whose senior managers were not available for comment.

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