Steel Bars Supply Drags for Several Months




The year 2015/16 was a fascinating one for those involved in the steel industry. It seems there was a cutthroat fight among two contradictory forces within the industry, which ended up in the control of local producers to supply the lion’s share of the country’s demand.

The chronicle of the battle between these two forces – local producers and importers – came as the Federal Procurement Service revealed a tender to purchase 44,000tn of steel. In due process, a local producer, Steely RMI, was on the verge of winning the bid to supply the steel. This was after preferential treatment by the Service, granted in line with the procurement law of the land. The law gives leeway to local producers based on a claim that they add 35pc of the value locally. In this regard, Steely was given a 15pc advantage in the price offers it listed to supply the steel bars.

The international steel producers argued against the decision and the rationales behind it. They argue that Steely doesn’t have an adequate capacity.

However, Steely’s attempt finally ended up in embarrassment, when the Service discovered that an audit document submitted by Steely was not representative of its capacity to add 35pc of the value locally. The fact was, Steely have less than the aforementioned capacity.

It was just after this that the result of the local producers’ lobby to gain restricted access to the supply of its, predominantly housing, projects came. Unlike previous years, these producers were successful in winning the hearts of decision makers, which finally led to the interference of the executive body. It has issued a specific directive that orders public offices to restrictively purchase steel from the so-called indigenous local factories.

Before the issuance of these executive orders, it was even difficult for local producers to compete alongside international steel suppliers. Even those local producers that were close to winning some chunk of a bid to supply steel had failed to progress to the end.

It was just after a circular issued by the Finance Ministry that the locals were granted protection. However, on other hand, the circular pushed importers and international firms aside.

Some actors in the industry have also accused these producers of exploiting the protection by the government. They were scrutinised for giving such an expensive price and causing extra cost to the government. This scrutiny resulted in the interference of the PM’s office to investigate the alleged claim. The letter, which was submitted by traders in the sector, pointed its finger at the skyrocketing of price – 300pc a kilo of bars. This will have direct implications on the cost of government housing projects when they are transferred to the public.

The battle in the steel industry has also manifested itself in another form, with nail importers accusing Steely RMI and its affiliate company for monopolising the nail market and, as a result, endangering the ability of local nail producers to fairly compete in the market.

Ending the year with such a saga, the PM’s office is investigating the two cases.

November, 2015

Steely RMI, a local company, was announced to have won a bid to supply 44,000tn of steel bars at a total cost of 804 million Br. During this bid, Steely listed 18,262Br a tonne, which was actually higher than its two competitors in the bid. Along with Steely, two Turkish companies – Vilmesks and Metal Market Dis Tikart’s – listed 16,197 and 16,636.9Br, respectively.

However, Steely was granted a price advantage of 15pc upon its submission of an audit report that was said to prove that Steely adds 35pc of the value. It was after such consideration that Steely was awarded the contract to supply the bars.

December, 2015

The Federal Public Procurement & Property Administration Agency has begun to investigate Steely’s award. The investigation was initiated by Metal Market – one of the competitors in the bid. The company has challenged the decision to award Steely and the rationale of the 35pc value addition. It argued that Steely, while importing billets as its major input, cannot add 35pc value to the end product.

January, 2016

The Procurement Agency has snatched the award that was handed over to Steely. This came after months of investigation by the Agency, which discovered that the audit report submitted by Steely was not representative.

In due process of the bid, Steely has submitted an audit report which is said to prove its ability to add 35pc of the steels value, locally. The investigation proved that Steely’s capacity was somewhere around 27pc.

February, 2016

The three bidders, including Steely RMI, were invited to be part of the second round of bidding, following the snatch of the award to supply 44,000tn of steel bars from Steely.

Three of the bidders have listed their respective prices.

March, 2016

Steely has withdrawn itself from the bid, while two of the Turkish companies – Metal Market and Vilmeks – have listed their prices, which are less than what was listed during the first round. The companies have given their price upon the request of the Procurement Service to revise the price they gave in November 2015. The Service claim that there is a decrease in the international steel market.

Metal and Vilmeka listed a price that ranged from 334 to 401 dollars a tonne.

During this month, the global steel market has witnessed a sharp decline in price. It sold up to 90 dollars a tonne at the international market.

The excessive Chinese production and injection of steel was said to be the reason behind the decline.

April, 2016

Vilmeks refused to sign a deal with the Procurement Service and requested for a revision of the price it gave in March 2016. The company claims that it is difficult to supply the steel bars with the prior price. The bid has finally been suspended.

The Ministry of Finance & Economic Cooperation has issued a circular that ordered the federal budgetary offices to restrictively purchase steel bars from local producers. Following this, the Service has shifted the international tender into a national competitive bid.

In line with the circular issued by the MoFEC, the Addis Abeba Saving House Development Enterprise has announced a bid to purchase 1.5 million kg of reinforcement bars, with a range of sizes. On April 27, 2016, the Enterprise opened the financial proposal of the bidders. Accordingly, the bidders offered from 19.5 to 24 Br a kilo.

May, 2016

The Enterprise proceeded with the three billion birr purchase. East Steel was able to take over the major chunk of this bid. Out of the total amount, East Steel obtained 2.4 billion Br for 123.7 million kg of steel.

C & E Brothers Steel Factory and Abyssnia Integrated Steel also took a share, offering the lowest prices of 371 million and 98 million Br, respectively, for the purchase of different sizes amounting to almost 25 million kilograms.

The exaggerated price by the local producers collided with a decrease in the international price and finally led to the cancellation of the tender by the Enterprise.

The Ministry of Trade’s new inspection method on the quality of imported steel bars before they enter the country has created a logistics nightmare. A number of trucks were overcrowded on the streets of Modjo, waiting for test results of samples taken from the total load. Limited by its own under capacity, the Ministry and the Ethiopian Conformity Assessment Enterprise have dragged out the process for weeks.

June, 2016

The Public Procurement Agency has dropped three local producers over the technical aspect of the bid to supply the long-delayed 44,000tn of bars. The Agency claimed that these local producers failed to submit a proper document that proved the quality standards. Finally, these companies managed to bring the document.

July, 2016

The Savings House Enterprise has re-commenced the cancelled bid process. In the second bid, the Enterprise amended the total amount of bars from 150,000tn to 220,000tn. In this respect, a total offer of 3.7 billion Br was listed by the local producers. During this bid, the chance of winning over the major share went to C & E Brothers, with a total offer of 2.2 billion Br for four bar sizes.

In this month again, Local Steel producers have listed their offers for the supply of 44,000tn to the Service.

August, 2016

C & E Brothers won the bid to supply 44,000tn of bars at a total cost 784 million Br.

By the time the global market of steel bars was 312 dollars a tonne, while the Chinese market it is sold for 335 dollars.

Yet importers went into the Prime Minister’s office to complain about the price abuse by these producers. The appeal to the PM raised a number of issues to prove their claim. It argues that the producers are intentionally ganging up to fix the prices listed to government procuring agencies.

The appeal further indicated the gap between the market price, international price and the bid offer, where the third one is tagged with higher price. Following the appeal, the PM’s office has begun to investigate the case.



Published on Sep 10,2016 [ Vol 17 ,No 853]


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