Leading international consultants PwC, Ernst & Young raise bid to oversee privatization of Ethiopia’s sugar factories

ETHIOPIA – The privatization process of Ethiopia’s state-owned sugar factories is forging on, with two international consultants, PwC and Ernst & Young submitting their expression of interest to be hired as transaction advisors to oversee the process.

According to reports by Addis Fortune, the Public Enterprise Holding & Administration Agency (PEHA) invited consultancy firms to file their expressions of interest in undertaking the job last year.

The winning firm, which is expected to be announced in months ahead, will be picked using “Quality- and Cost-Based Selection,” a method that is commonly applied to select consultants based on combined results of technical and financial evaluation.

A contract will be granted to the firm that receives the highest combined score after the evaluation.

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The consultants are expected to have not less than 5-years of experience in developing, assessing and advising privatisation activities and be knowledgeable in matters pertaining to legal, regulatory, operational, industry and technical operations in the sugar sector.

They also expected to come up with plans and recommendations for a privatisation transaction, conduct market research, and suggest the best transaction approach that fits each sugar plant, besides providing support for the Agency in bringing potential investors during the privatisation.

Business evaluations of the sugar factories conducted by Booker Tate, a UK-based sugar and agribusiness consultant, valued them at US$2.05 billion

Ethiopia’s privatizes the sugar factories to promote operational efficiency

The companies slated for privatisation include Tendaho, Kesem, Omo Kuraz II and III, and Arjo-Dedesa which are operational and Tana-Belese I and II, Welkayit, Omo Kuraz I which are currently under construction.

Initially, the government intended to privatise 13 sugar factories; however, it dropped the plan for three operational plants: Wonji Shoa, Metehara and Fincha sugar factories, and decided to keep them under government ownership.

Also, the privatisation plan of Omo Kuraz VI Sugar Factory, which was under construction was held back due to poor performance by the building contractor, leaving it 20% complete.

The decision to offload the sugar factories has come about as the government is unable to cover the debt accumulated over the years and maintain funding for faltering sugar plants.

Although having a combined daily production capacity of 5,000tn of sugar, the state-owned sugar factories were only producing 4,000tn in 2020.

Ethiopia pumps huge amounts of funding to keep the factories afloat

With ambitions of meeting the growing sugar demand and then earning foreign currency through export, the Ethiopian government has been financing the development and renovation of sugar projects since 2010, establishing the Sugar Corporation as an instrument for the accomplishment of its plans.

The Corporation has however since accumulated huge debts; 81.6 billion Br (US$1.9 billion) from domestic loans and US$2.1 billion of foreign debt as of the end of the last fiscal year. The Commercial Bank of Ethiopia (CBE) alone is owed 70 billion Br (US$1.6 billion) in the form of a corporate bond.

Through bringing the private sector into the operation of sugar factories, the government hopes to boost production to meet domestic demand and even export to fulfil sugar deficits in neighbouring countries.

Ethiopia has 1.4 million hectares of land favourable for sugar production and annual sugar demand per capita was estimated at 10kg in 2019.

Supply, however, stands at seven kilogrammes per capita, while the country imports up to 300,000tn of sugar a year.

Last year, 200,000tn was imported, costing US$374.89 a tonne for supply and US$62 a tonne for transportation.

Heavyweight food industry players have expressed their interest of owning the sugar factories in the East African country, with the likes of Coca-Cola Company through its Ethiopian subsidiary, East African Bottling Share Company, and Nigeria-based Dangote Group joining in the race.

Asset and business evaluations of these sugar factories were conducted by an independent auditor – Booker Tate, a UK-based sugar and agribusiness consultant. All sugar factories combined were valued at 88 billion Br (US$2.05 billion).

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