A three billion Birr steel purchase by Addis Abeba Saving House Development Enterprise has been discontinued after the financial opening that took place a month ago. The cancellation, which came after local companies had submitted their financial offers earlier in April, was justified by the decline in the price of steel on the international market.
“We decided to optimize this price fall,” said Teklu Beyamo, deputy head of the Enterprise.
For the same reason, the Enterprise has also revised the quantity of steel to be purchased to 220,000tn, adding 70,000 more tonnes.
Steel lost 205 dollars per tonne or 69.49pc during the last 12 months from 295 dollars per tonne in May 2015. Historically, steel reached an all-time high of 1,265 dollars per tonne in June 2008 and a record low of 90 dollars per tonne in March of 2016, according to Trading Economics, a company that provides global economic data.
Six companies responded to the invitation sent to nine local manufacturers, which was restricted to local manufacturers of steel. The restriction was in accordance with a directive from the Prime Minister’s Office to incentivise the steel manufacturing industry, which has fewer than 10 companies in Ethiopia.
Addis’ procurement law, however, prescribes that any purchase involving more than three million Birr be floated at the international level.
Even during the first round in April, there was a difference between the offers by local contenders and prices on the international market. Data from MEPS International Ltd, an independent supplier of steel market information, indicates that the average price of steel is much lower than what the local companies offered. Indeed, the MEPS index shows that the average price of steel, in general, is close to 10 Br a kilo.
It was East Steel Plc that grabbed the biggest chunk of the tendered lots.
Close to 2.4 billion Br was the price indicated for 124 million kilograms of steel with sizes ranging from 10mm to 24mm.
C & E Brothers Steel Factory Plc and Abyssnia Integrated Steel Plc had their share in offering the lowest prices of 371 million Br and 98 million Br, respectively, for the purchase of different sizes amounting to almost 25 million kilograms.
Abyssinia Integrated Steel, a private joint venture founded in 2011, is a producer and supplier of reinforcement bars in the country.
These three companies have been in the industry for less than a decade. In comparison, East Steel stands with the highest production capacity with 25,000tn a month.
“It was a huge disappointment to learn about the cancellation,” East Steel’s mid-level manager in marketing told Fortune. “This was the best we could offer to stay in the business.”
The Company was hit by surprise as everything seemed to have been going steel on May 6, submitted a 120-day delivery guarantee as requested by the Enterprise.
The letter of cancellation written on May 17, 2016, simply refers to a general price decrease on the international market, without specifically referring to which price index it was benchmarking, he added.
A letter of complaint from East Steel, objecting to the decision on the basis of lack of clarity, was sent out to different offices including the Mayor’s Office, with a copy sent to the Enterprise and to the Federal Public Procurement & Property Administration Agency.
This purchase is being made for 38,790 houses that are under construction as well as for new housing projects to be built on 57ha of land in Bole-Ayat.
“Price is really critical at this point as the demand is so huge,” said Yohannes Abaynhe, communication head of the Enterprise.
A recent price revision announced by the Ethiopian Shipping & Logistics Services Enterprise indicated that its prices are almost 27pc lower than they were a month ago. This too can impact the new bid to be announced.
The stall in this purchase is not unusual as steel purchases are known to involve back and forth negotiations, particularly with fluctuations in international price and quality.
Due to a series of complaints, reversals of decisions and total cancellation at the end, this purchase of 44,000tn of steel at the federal level has also taken a long time. After close to a year in progress, it was decided to revamp the whole process and to restrict the bid.
The decision to cancel the procurement is prolonging the delay of Saving House Development’s projects, which are already past the promised period of delivery.
Transfer of 1,292 houses which were said to be complete, to those under the scheme, is still pending. Close to 164,000 people are registered in this scheme.
The Enterprise tentatively will announce the rebid invitation on June 1, if East’s plea is met, to withhold the rebid until proper understanding is reached between the Company and decision makers on the issue.
Leave a Reply