Sugar Corp. in the red
In spite of its huge responsibility to repay more than USD two billion in foreign debts, which it borrowed for its outstanding projects, the Ethiopian Sugar Corporation (ESC) has found itself in a grave financial crisis due to its failure to complete any of its projects.
Endawek Abete, Chief Executive Officer (CEO) of the corporation, who was appointed to the position a few months ago, and his deputies appeared before the State-Owned Enterprises Standing Committee of the House of People’s Representatives (HPR) on Monday to report on the activities of the corporation. However, what the officials has presented by way of report to the MPs was quite shocking.
According to the CEO, the corporation will be compelled to halt its mega projects unless the government quickly intervenes to relieve bottlenecks. The corporation has already invested more than 77 billion birr within the last six years and it is now on the verge of ceasing its duties because of a critical financial crisis it has encountered. The financial difficulties are also becoming a source of dispute with its contractors; while some of them have gone to the extent of demanding their dues through a formal court process.
ESC was reorganized as a corporation in 2010 with the aim of executing the government's ambitious plan to establish a giant sugar industry within the first five years of its strategic planning period— Growth and Transformation Plan (GTP), which concluded in July 2015.
Building ten new sugar factories with capacity ranging from 12 to 24 thousand tons of sugarcane per day and cultivating sugarcane plantation on 320,000 hectares of land in various parts of the country was the plan the corporation was tasked to undertake within the strategic period.
By accomplishing these, the government expected an aggregate production capacity of 4.07 million tons of sugar per year and 181,604 meter cube of ethanol by the end of the GTP. Furthermore, contribution of 101 MW electricity to the national grid and export revenue of USD 1.2 billion were some of the economic returns expected by the end of the first GTP.
This business plan seems bankable to foreign lenders specifically those form China that availed more than USD two billion in 2010 with a government guarantee.
The new management at the corporation, however, came up this week with a painful report that revealed the devastating progress in the ten new sugar factories. According to their report, none of the ten new sugar projects have been completed yet, after more than six years since their commencement in 2003.
Among the ten new sugar factories, it is only Kessem Sugar Factory that has managed to achieve completion of 96 percent of project and it is expected to be commissioned in the coming July. The remaining nine factories are far below this performance, the report indicated. For instance, Kuraz-3 Sugar Factory, which is being constructed in the lower Omo Valley, has reached only 25 percent, while Beles-1 and Beles-2 that are under construction have reached 60 percent and 23 percent, respectively, according to Endawek.
The other two projects in the Omo valley, Kuraz -1, Kuraz -2 have reached 86 percent and 58 percent respectively, according to the CEO.
Two other projects Kuraz-5 and Welkayet Sugar projects have not commenced yet, the CEO said.
The Metals and Engineering Corporation (MetEC) was selected by the government to undertake the construction of all the ten new sugar factories, Abraham Demise, deputy CEO of the corporation told members of the standing committee.
However, there is no contractual agreement between MetEC and the corporation and the relationship it has with the corporation is not governed by rules of business, Abraham explained.
Finally, the government realized that MetEC is not with the capacity and knowledge to undertake quite a number of projects at once, and decided to take seven of projects from MetEC, the deputy CEO said.
“Finalizing the three sugar projects is now the responsibility left to MetEC, however, it is not willing to complete one on time,” Abraham told the standing committee, “To the contrary, it has been paid more than 90 percent of the payment due to it while the projects are far below their financial status,” he added.
The corporation has the responsibility to repay the loans but none of the factories are completed yet. However, paying back the debt will start as of the coming year, according to Abraham.
“We have borrowed a little bit more than USD two billion and we are expected to reimburse 13 billion birr as of the coming year,” he said, adding “the corporation is not in a financial capacity to do this.”
Tesfaye Yigezu, chairman of the standing committee was curious to know why MetEC was paid more than 90 percent while the projects on its hand are lagging behind.
The deputy CEO Abraham explained that usually the project is expected to be commissioned if 90 percent of the payment is provided to the contractor. “But in our case, MetEC doesn’t have a business relation with the corporation. It was assigned by the government and there is not contractual agreement between us,” he said.
The former management should be blamed and questioned for the ill relationship it has created with MetEC, all the new management argued.
The standing committee ordered the new management to discuss with the responsible government body and alleviate the financial crisis first and finalize some the projects so as to satisfy the current local demand.
The committee also planned to arrange another discussion with MetEC and other responsible organs.