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The largest and most expensive steel manufacturing center Ethiopia has ever seen will soon become a reality thanks to an agreement between an Italian company and the nation’s most famous billionaire.
Toussa Steel Factory (TSF) is expected to cost a staggering USD 800 million when everything is completed.
Sheik Mohammed Hussein Ali Al Amoudi’s umbrella company, Derba Group (DG), which oversees three companies and dozens of his investments, signed an agreement with Italian Danieli SPA, one of the world’s largest steel plant manufacturers to build the factory from start to finish for USD 600 million.
Derba’s CEO says he is excited.
“There were many ups and downs. From developing the concept, to lengthy negotiations to attracting the interest of consultants and suppliers but now we have a deal with one of the largest steel plant manufacturers in the world,” said Haile Asegidie, CEO of Derba Group.
The Italian metal engineering company beat competitors from Germany, Brazil and China in a bidding launched on January 18, which means that the process from bidding to signing took almost nine months.
At Tuesday’s signing ceremony at the Sheraton Addis, the agreement was praised as a milestone proving that Sheik Mohammed Hussein Ali- Al Amoudi had delivered on his promises to help industrialize Ethiopia.
The factory which is expected to begin operating in three years will create 2,000 temporary jobs during the construction and 700 permanent jobs when it starts production. Around 100 engineers will be needed to work on the project.
“The contract we have signed is being initiated at a very exciting time in the history of Ethiopia’s economic success. Having achieved double digit economic performance in the last seven years, the country certainly needs to build on the success achieved so far and take this remarkable performance to new levels in the years to come. The factory will produce material that is critical for the nation to continue developing; like steel bars, sections and billets, that will enhance the performance of the construction industry, metal engineering and other related industry,” added the CEO.
However, the Sheik says he is not done yet.
“I will sign a deal with a UK company to produce edible oil in Bahidar after 10 days. Don’t panic, be ready to hear more from me,” he said.
He also has plans in the works for a new electric cable factory and jeans factory.
Ethiopia currently consumes 7Kg of steel per person per year. By the end of the Growth and Transformation Plan in 2015 they hope to increase consumption almost five fold to 34.7Kg per person.
The new steel factory by itself is expected to increase the current per capita consumption to 15Kg during its first phase of production.
“The construction of TSF will play an important role in achieving the goals and objectives of the metal and engineering industry stipulated in the GTP. The completion of TSF will change the game of Ethiopian steel manufacturing like the erection and operation of Derba Midroc Cement has been for the cement industry,” argued Haile.
When completed TSF will produce 1.3 million ton of steel per annum. The new steel plant with a melting shop and three rolling mills will produce steel products known as re-bars (800,000 tons), wire rods (150,000 tons), light sections (400,000 tons), medium sections (300,000 tons) and R 60 rails, according to experts in the industry. In order to produce the above products, the factory will import 1.5 million tons of scrap metals from abroad annually.
Though the international market price for steel declined following the 2008 economic crisis, the domestic price has gone up due to the imbalance between demand and supply fueled by the country’s booming construction industry. Ethiopia consumes close to 900,000 tons of metal products per year. It imports more than 700,000 tons of it while close to 150,000 tons are produced domestically.
Sunrise Engineering, a Turkish Company, did the initial Techno- Economic Feasibility Study of the TSF project.
DG has awarded an Austrian consulting company consultancy services aimed at establishing TSF. The consultancy contract agreement was signed on Tuesday, February 21, 2012. The group has floated an international consultancy service bid last year. HWC Swiss AG won the bid for the consultancy service for establishing TSF at a cost of about 80 million birr. HWC Swiss AG oversees contractors’ proposal, contract preparation, project management and engineering supervision of the newly to be built factory.
The factory will be built in the vicinity of Kombolcha town in the Amhara regional state, 376Km north east of Addis Ababa, on 324hct of land. The factory needs 260 MW of electric power, more than five times the electric power consumption of Derba Midroc Cement.
The mega hydro electric power and railway construction projects currently underway in different part of the country are considered a blessing for the success of TFS in addition to the thriving financial sector of the country.
“I would like to draw your attention to three issues that are pertinent or affect the timely implementation of this project; Finance, 260 MW of power and a railway link between the port of Djibouti and Kombolcha town. While availing the risk capital and finance is the responsibility of the owner, providing the electric power and railway link are in the hands of two public companies; the Ethiopian Electric Power Corporation and the Ethiopian Railway Corporation. These two services are critical and important inputs to the successful implementation of the project. I earnestly solicit to get assurance that the later two services are available on time,” said Haile in his remark at the signing ceremony.
Sheik Al Amoudi also seemed to laud the government’s commitment in infrastructure as he spoke in a tongue and cheek manner.
“Leave the trade to us and focus your effort on building social and economic infrastructure, ensuring peace and security. That would be nice,” said the billionaire.
“We, business people, are dishonest. It is not something peculiar to Ethiopia, it is a behavior portrayed internationally. Sometimes the government needs to close its eyes to such practices,” he added lightheartedly to several of Ethiopian People Revolutionary Front’s veterans and Demeke Mekonen, Deputy Prime Minister and Minister of Education, who were attending the lavish signing ceremony for hundreds of invited guests at the Sheraton.
Forty five percent of the finance will come from the pocket of the owner while the remaining balance is already secured from domestic and international financers, according to reliable Capital sources in DG. However, financers who were approached by Capital off the record said that they were not officially approached yet.
Danieli SPA originated when two brothers, Mario and Timo Danieli, founded the Angelini Steelworks in Brescia, Italy in 1914. This was one of the first Italian companies to use Electric Arc Furnaces in steelmaking. Part of the Angelini Steelworks was transferred to Buttrio, Italy, in 1929. In those days the company manufactured tools for forging plants and auxiliary machines for rolling mills. The first large turnkey order was placed with Danieli for a complete steel mill from the former East Germany in 1977. The company’s turnover was 25 million Euros with 1,700 people by then. Numerous plants were supplied by Danieli on a turnkey basis in the USA, the Far East, the former Soviet Union and North Africa, considerably increasing the Group’s turnover in the year from 1981 to 1985. The large-scale investments conducted on research and development over the years enabled the company to achieve a leading position worldwide employing more than 10 thousand people.
The company’s annual sales turnover has reached over three billion euro while its research and development outlay is 30 million euro per years according to Franco Alzetta, Chief Operating Officer and Member of Board of the steel art company.
The establishment of Derba Group of Companies (DG) with a total investment cost of more than 71 billion birr was made public in January. Though the Ethiopian Commercial Code has no room for the establishment of a holding company, the promoters of the umbrella company are hopeful that the code will be amended.
DG assumes a supervisory role and management of long-term strategic investments by the international business tycoon both technically and operationally for investments that are already made and those that are planned. The investments under the umbrella company include steel, mining, cement, agriculture, transport, hospitality, and real estate.
DG has already made a substantial investment in the construction materials manufacturing and transport sector. This includes Derba Midroc Cement (DMC), Dashen Cement (DC), Derba Transport (DT), and Maya PP Bag which altogether consumed more than half a billion dollar.
The group has already engaged in the expansion of Dashen Cement, a cement mill installed for producing cement for the construction of Derba Midroc Cement. Though the mill is currently producing about 250,000 tons of cement annually, it has an installed capacity of producing 600,000 tons. Its production capacity has been hampered due to inadequate power supply, say the management. Its expansion project is aimed at producing 4,000 tons of cement per day. This is half of the daily production capacity of the recently inaugurated cement factory by the group, Derba Midroc Cement.
The group has also made an investment in agricultural development. Saudi Star Agricultural Development (SSAD), one of the largest agricultural investments in Ethiopia is incorporated under the group. It has a plan to grow crops like rice, sugar beet, wheat, barley, and maize.
The total investment cost of seven independently operating factories and projects under the group namely DMC, DT, Maya, Derba Lime and Chemicals, TSF, SSAD and DC are estimated to be around 71 billion birr. Their annual sale turnover is assumed to exceed 41 billion birr while government revenue from value added tax alone would be over six billion birr per annum. The annual corporate income tax the government would rake in is estimated at one billion birr.
In relation to employment opportunities, the seven companies are expected to create more than 370 thousand jobs both permanently and temporarily when they become fully operational. Collectively, DG will represent much more than the seven mentioned establishments can create in terms of sales turn over, corporate income tax and employment opportunity