A local share company has started negotiations with the government to buy the oldest sugar estate, Wonji Shoa Sugar Factory, with an offer of 11 billion Br.
In a letter dated October 16, 2018, Ethio-Sugar Manufacturing S.C requested the Ethiopian Sugar Corporation and the Office of the Prime Minister to provide it with priority preference to buy the Wonji factory, located 110Km south of the capital.
The request for acquisition includes two factories run by Wonji Shoa Sugar Factory along with 12,800ha of sugarcane plantations. The 7,000ha is currently cultivated by out-grower farmers organised under 32 associations. The factory currently has a production capacity of 6,250tn of cane a day and produces over 174,000tn of sugar a year.
“The Corporation has received the request of the company to acquire the factory,” said Gashaw Aycheluhem, corporate communications executive officer of the Corporation.
The Corporation has initiated negotiations with Ethio-Sugar and has formed a three-member committee tasked to lead the privatisation process.
Once the committee forwards its recommendation, it will be submitted to the management of the company, which will transfer it to the board of directors for approval. The final green light will be given by the Public Enterprises Holding & Administration Agency, which oversees state-owned enterprises, according to Gashaw.
“To raise the funds, we will sell shares to individuals and international companies like HVA Holland Company,” said Erssido Lendebo (PhD), deputy general manager of Ethio-Sugar. “We will be travelling to Holland soon to sign a deal with the company.”
HVA, a company established in 1879 with a wide range of experience in agricultural and agro-industrial development, constructed the Wonji Sugar Factory in 1951. The current factory was formed with the merger of Wonji and Shoa Sugar Factories, also developed by H.V.A.
Ethio-Sugar Manufacturing expects to have 40,000 shareholders, of which 10,000 will be farmers from Adama, Lome, Fentale, Boset, Dodota and Welnchiti areas. The remaining shares will be offered to employees of the company, local business people, the diaspora community and international companies.
“We will start to offer the shares in the coming weeks,” said Erssido.
The shares have a par value of 1,000 Br, and a single shareholder can buy a minimum of 10 shares.
For employees of the company interested in buying shares but without the resources, the company is facilitating loans with private banks, according to Erssido.
Commercial Bank of Ethiopia, Berhan International Bank, Cooperative Bank of Oromia and Awash Bank are negotiating with the company, according to Erssido.
Kebede Kena, customer service manager of Cooperative Bank of Oromia, confirms that the company has started the process with his bank.
“The company has opened a blocked bank account for share deposit accounts,” Kebede told Fortune.
Ethio-Sugar, which was founded three months ago by 24 shareholders, expects to raise the full amount within six years, according to Erssido.
The privatisation could bring efficiency and productivity in the company, according to Habetamu Birhanu (PhD), a lecturer at Addis Abeba University, College of Business & Economics. He also believes that the company could generate more income for the country through taxes and export.
“The private owners can inject fresh capital and technology into the factory,” he said, “plus, it has a good return as sugar is one of the highly consumed commodities.”
Currently, seven local sugar factories are operational with an annual production capacity of four million quintals, while the annual demand is more than six million quintals. The operational factories include Wonji Shoa, Metehara, Fincha, Tendaho, Arjo Dediessa, Kessem and OmoKuraz Sugar Factory II. To fulfill the local demand, Ethiopia imported 414,587tn of sugar in the 2016/17 fiscal year.
Last month Prime Minister Abiy Ahmed (PhD) inaugurated Omo Kuraz III sugar factory built in Bench and Maji zone in the Southern part of the country at a cost of more than eight billion Birr. The factory became the eighth operational sugar factory in the country. Built by a Chinese company, COMPLANT, it has a capacity of producing 8,000ql to 10,000ql of sugar a day.
The committee of the Corporation and management of the factory started the negotiations a month ago. The management of the factory claims that they have not been informed about the privatisation scheme that is underway.
“We aren’t notified about it,” said Kecha Tafa, the factory’s communications head.
It is not only Ethio-Sugar Manufacturing who expressed interest to aquire Wonji Shoa Sugar Factory. In early 2017 the management of Hibir Sugar S.C, a company which is currently struggling to survive, proposed to acquire the factory. However, the shareholders of Hibir Sugar opposed and rejected the management’s plan.
HVA did not respond to the email from Fortune before the paper went to print.
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