23 March 2019

Ethiopia: Metec to Sell Non-Performing Assets

The management of the state-owned military-industrial conglomerate Metals & Engineering Corporation (MetEC) is planning to auction off five hotels and guesthouses hoping to generate revenues.

The management of the state-owned military-industrial conglomerate Metals & Engineering Corporation (MetEC) is planning to auction off five hotels and guesthouses hoping to generate revenues.

Four properties are located in Addis Abeba, while one is in Bishoftu (Debre Zeit), Oromia Regional State. The properties are expected to fetch over one billionBirr for the Corporation, which isin financial distress, according to sources close to the case.

One of the hotels to be put on the auction block is the Riviera in Nifas Silk, Lafto district close to Haile Garment factory. The four-storey hotel was acquired from Alemgenet Trade & Industry Plc for 128 million Br in June 2012 along with a PVC plastics manufacturing plant that was also owned by Alemgenet Trade & Industry.

Two months ago, federal prosecutors charged Alem Fitsum, managing director of Alemgenet Trade & Industry, and high ranking officials of MetEC including Kinfe Dagnew (Maj. Gen), former CEO of the Corporation, with high corruption charges in the Riviera procurement process. The prosecutors claim that Alem and officials of MetEC conducted illegal procurement procedures in the acquisition of the hotel and factory. The case is pending at the Federal High Court, Lideta Division.

Two more buildings - a six-storey and a four-storey building - located around CMC and a three-storey guesthouse in Megenagna are among the other assets up for sale. A traditional restaurant, located in Bishoftu, is awaiting the approval of the management and Corporation board before it is auctioned.

The properties are among 11 hotels, guest houses and buildings MetEC had procured in order to transform them into guesthouses for non-national visitors who come to the country for projects the Corporation undertakes like workshops, trainings and knowledge transfer seminars.

Recently, the management of the Corporation identified these properties as non-revenue generating assets, according to sources close to the case. The management has formed a committee that identifies properties that do not bring in revenue and are suited to being sold.

The committee, which is chaired by Taye Ferede (Lut. Col), was formed by the former director general of the Corporation Bekele Bulado (PhD) last year. Since then the committee has been identifying properties that do not generate income for the company and need to be transferred to private ownership. The five properties are the first recommendation by the committee, which meets every two weeks.

"Once the management approves the recommendation, the Corporation will announce a tender," said a source close to the case.

Since last April, when Prime Minister Abiy Ahmed (PhD) came to power, the Corporation has been in hot water. The turmoil started when founding CEO Kinfe resigned followed by terminations of mega projects that were awarded to MetEC including the construction of three sugar factories, the Grand Ethiopian Renaissance Dam and a fertiliser factory.

Following the order from the Prime Minister, the Corporation is also undergoing a split into two, a commercial and a defence unit. The proposal to split the company is pending approval at the Council of Ministers. The proposal will restructure the Corporation as the National Industrial Engineering Corporation, limiting its activities to manufacturing commercial material.

Other MetEC companies and industries involved in manufacturing defence equipment have already been transferred to the Defence Ministry.

Established at the initiation of the late Prime Minister Meles Zenawi as a major tool for industrialisation and transformation of the country to middle-income status, the Corporation had been operating over 90 companies in 15 industries. Close to two dozen of its senior officials are now charged with high corruption and are litigating their cases in court.

With a tarnished image and turmoil in its headquarters, the Corporation had been mired in financial difficulties. It was forced to terminate half of its 19,500 employees and cut its expenses.

The Corporation is in debt to the tune of 40 billion Br to government, the private sector and institutions for undelivered orders, for which it has received payments, according to sources close to the case.

As a way out of these financial difficulties, the Corporation has been searching for ways to generate revenue from non-performing assets it owns. The recent audit conducted on the Corporation has found that there are scrap metal and damaged properties owned by MetEC that can generate up 14 billion Br.

"The next step will be auctioning off the scrap material," said the same source.

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