The sole state-owned winemaker, Awash Winery SC, is finally about to be transferred to private hands, after several previous failed attempts.
The Privatisation & Public Enterprises Supervising Agency (PPESA) approved Blue Nile Investment PLC’s 459.9 million Br offer for the winery on Friday, February 22, 2013, albeit with the requirement of a shorter payment plan.
Blue Nile, established through a partnership between emerging real estate developer, Mulugeta Tesfakiros, and 8 Mile, an equity firm chaired by Bob Geldof, offered to pay 35pc of the offer upfront and the rest in equal parts over five years, when the 70-year-old winery was auctioned for the fifth time in November 2012.
However, since 8 Mile, a foreign company, owns a 51pc share in Blue Nile and does not have prior dealings inEthiopia, the PPESA requires an advance cash payment, in foreign currency, amounting to 8 Mile’s share. Only local companies and foreign companies that have previously worked with the PPESA can make an offer to pay in installments over a
offer to pay in installments over a period of years. Local companies can pay within five years, and foreign companies with prior investments within three years.
Established to make African based investments that lead to growth, 8 Mile has several investments inAfrica, but this its first venture into the Ethiopian private sector.
It is the upfront payment rule that Busberry PLC, another contender for Awash Winery, and part shareholders in Dashen Brewery, were betting on they offered to pay the entire 15.2 million dollars they had offered for the winery upfront, during the November auction, according to a local representative of the company. Their offer, however, was lower than the indicative price of 439 million Br set by the Agency.
If the winery is successfully transferred toBlue Nile, the first order of business will be to develop the vineyard, according to Mulugeta. The PPESA had included a 500ha farm in Merti Jirsru, formerly belonging to Upper Awash Agro Industry, when it auctioned Awash’s two factories in Addis Abeba. This farm, along with another 42ha plot in Zeway, previously supplied grapes to the winery.
It took six unsuccessful privatisation attempts, twice through negotiations and four times through auction, which invariably drew offers less than the indicative price, before the PPESA added the farm as an incentive.
Mulugeta agrees that this was a good move. It was indeed this action by the PPESA that moved him to look for investors, and to make an offer above the indicative price. The businessman who operates several companies under Muller Industries, including; Muller Real Estate and Langano Bekele Molla Hotels, had previously made a bid for the winery, during its fourth auction, in February 2012.
Partnering with businesswoman, Tigist Deneke, he had offered 202 million Br for the two factories, without the vineyard; significantly lower than the 397.4 million Br indicative price.
“Only around 80ha to 120ha of the farm is currently used to grow grapes for the winery,” Mulugeta told Fortune. “We will utilise all 500ha and plant grapes that can produce world class wine within the next three years.”
To achieve this goal, Blue Nile will bring in experts from South Africa, as well as various grape varieties from abroad, according to the company’s’ business plan.Blue Nile’s five year plan also includes doubling the production capacity of Awash and erecting a larger winery.
“The latter plan, however, may be pushed back, since the money for investment may go towards paying the 51pc the Agency required,” said Mulugeta.
Currently the winery can produce seven million litres of wine annually, under 12 brands, including the well known; Axumite, Gouder and Awash.
Though it had been unchallenged since it was established in 1943, competition for Awash is now coming from the Castel Winery, sister company of French based brewery BGI. BGI, which previously bought Saint George Brewery from PPESA in 1997, was asked by the late prime minister, Meles Zenawi, to build a world class winery, because of the company’s expertise inFrance.
Castel was then given 450ha of farmland in Zeway, 163Km from Addis Abeba, inOromiaRegionalState. After a 300 million Br investment to plant four varieties of wine and erect a winery, Castel had its first harvest in 2011, getting 75ql of Chardonnay grapes from 12ha of land. This was enough to produce 250,000 bottles of wine.
It, however, delayed its entrance into the industry, opting to wait for a full scale harvest. It expects 8,000ql from its current harvest, which could produce 900,000 bottles of wine. Castel has set its second tentative production date for the end of 2013.
However, representatives from Castel and Blue Nile, that Fortune talked to, believe that there is enough space for both wineries and even others to exist inEthiopia.
Ethiopia Imported 10,637hl of wine in the 2011/12 fiscal year, at a cost of 27.8 million dollars, according to Ethiopian Customs & Revenue Authority (ERCA). The volume and value of imported wine showed 10.5pc and 12pc increments, respectively, compared with the previous year. However, according to 2011 figures from Data Monitor, a market analysis website, latent demand for wine in Ethiopia is estimated at 50,687hl.
Both Castel and Awash also plan to export 60pc of their production, both to other African countries and to the wider world market.
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