Steel bar quandary leads to housing delay

Controversy has erupted since the City Government of Addis Ababa Saving Houses Development Enterprise delayed the delivery of billions of birr worth of large reinforcement bars that were purchased in bulk from local manufacturers for the 40/60 housing scheme.

The Ethiopian Association of Basic Metals and Engineering Industries (EABMEI) filed a claim to Prime Minister Hailemariam Desalegn and other relevant government offices.

Sources told Capital that this was the major topic of discussion at a meeting held on Friday December 23 at the Ethiopian Metal Industries Development Institute (EMIDI).

In the bid held early this fiscal year the city’s Saving Houses Development Enterprise (SHDE) agreed with three local manufacturers to supply 212,000 metric tons of different sized steel for housing projects that will be carried out in the year.

In the bid that exclusively included the local manufacturers via the order of the Prime Minister’s Office three local steel manufacturers: C & E Brother, East Steel and Steely RMI agreed in early July to deliver the product within five months.

Since that time in accordance with the agreement, companies began partially supplying the product while others kept items in factory stock.

The companies claimed that since they agreed with the enterprise they have produced a huge volume of reinforcement bar that meets quality standards, exclusively ordered by the enterprise.

“We have already imported a large amount of billet or raw material as per the specification of the bid with a great deal of hard currency,” sources at the three companies told Capital.

The companies claimed that they are experiencing a financial crunch because the enterprise did not collect the product on time.

On November 21 SHDE wrote a letter to the three companies saying it would not be able to collect the product by the agreed upon date of December 4.

The letter signed by Teklu Beyamo, deputy head of the Enterprise indicated that due to changes in the original plan the expected housing projects have not been started so the deadline would be postponed  for one year.

The letter added that there is a new direction in terms of budgetary issues since the enterprise started a new arrangement with Commercial Bank of Ethiopia that is working jointly on the financial issue of the housing scheme. However EABMEI said the enterprise’s excuse was not valid.

The association and the companies argued that the enterprise is a huge government organization that has a clear program and budget. “They have to know whether they have a budget or not before they make an agreement with the companies,” they said.

They said that they concluded the deal five days before the beginning of the current budget year.

The association letter indicated that the companies have opened 2.5 billion birr worth of a letter of credit (LC) and imported the raw material. “They are producing the steel as per the order and waiting on the enterprise for delivery,” the letter that Capital obtained explained. It claimed that the enterprise has changed the legal agreement separately. The letter also expressed suspicion that the enterprise’s decision is related to the importer’s sabotage. It stressed that the issue should be investigated.

It also stated its concern that the situation will affect the other construction sub sectors besides the steel market and the country’s macro economy in general.

Solomon Mulugeta, General Manager of EABMEI, said that this is a big obstacle for the sector. He recalled that there was a lot of pressure from importers on the local manufacturers, which the government identified and then took steps to protect the sector.

“We are confused about the latest decision of the enterprise and we afraid it is related with the invisible hands,” he told Capital.

“Since the government passed a protection policy the frustrated sector was in good condition but now the sector faces on another serious disaster,” he added

The letter written a week ago and signed by Assegid Mamo, president of the association, clearly discussed the unnamed importers issue.

“They told us that they don’t have budget but we have already imported a huge amount of raw material with a large investment,” sources at the Chinese company, East Steel told Capital.

“We have started the delivery but suddenly they told us they postponed the receiving period. However, we have already invested money in the production and raw materials,” sources at the company said.

So far the enterprise has collected only 10 percent of the total volume that it ordered from the three companies.

According to the information from East Steel, it has delivered 2,000 tons of reinforcement bars worth 35 million birr, while the actual contract was 700 million birr worth for the supply of 44,000 metric tones of 8mm and 10mm reinforcement bars.

The biggest steel factory in the country C & E Brother, who won the major share of the bid and agreed to supply four bar sizes – 12mm, 14mm, 16mm and 20mm, has also delivered 12,822 tons of steel worth 223 million birr.

People at the company told Capital that an additional 50,000 tones of product has already been produced and stacked at the factory compound.

Sources at C & E said that the company has already imported 110,000 metric tons of billet for the specific production of the enterprise for LC’s share of material which is worth 2.2 billion birr. The company was expected to deliver 126,000 metric tons of different sizes of reinforcement bars.

Sources at Steely also said that the company has already submitted 5,000 metric tons of steel worth 103 million birr. “Additional 8,000 metric tons of steel worth 150 million birr of steel is being stored at the company,” sources at steely claimed.

Steely was expected to deliver 44,000 metric tons of 24mm sized  steel .

“We have frequently asked the enterprise via letter to collect stock loaded in the companies’ compound, but finally they told us about the reschedule,” sources at the companies complained.

“Our working capital has been seriously affected,” they told Capital.

They said that the situation has affected companies’ capacity that have already received huge amount of loans from banks to import the input.

“The bank interest will continue and our working capital is also frozen in the stock and the imported raw material,” the companies claimed.

Experts said that the product would not be delivered to others because it is produced as per the specification of the enterprise.

The government is the biggest buyer in the country with over 75 percent share and the current product that produced with specific standards will not have a market interest locally.

“They were not doing it for importers or international suppliers as what they did for local companies because they have to pay at least 90 percent of the amount to open the Letter of Credit,” the association letter also added.

Sources who attended the meeting called by EMIDI told Capital that it   was chaired by Workineh Desalegn, head of the institute and agreements were made to have the government provide a solution.

“He promised that he will bring the issue to the PM via Ahmed Abetew, Minister of Industry,” sources said.

It was disclosed that the National Export Coordination Committee chaired by Prime Minister Hailemariam Desalegn found that steel traders have organized to pressure local steel manufacturers

The local steel industry points to headwinds outside their control affecting production, making it difficult for them to compete on the local market.

After the committee meeting the Ministry of Industry (MoI) issued a letter outlining a strategy for government bodies to follow in the future. The committee has agreed that the local metal industry needs to be protected from imports immediately. The committee also stated that it believes steel traders are pressuring local manufacturers in an organized manner.

Capital’s effort to meet Teklu and Workineh was unfruitful.