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Uncertainty ahead for Egypt's steel industry

The fallout of years of corruption continues to take its toll, with licensing being reviewed in the Egyptian steel industry

Ahmed Feteha and Bassem Abo Alabass, Sunday 18 Sep 2011
Steel
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A steel producer deemed as "ambiguous" the recent court verdict of withdrawing steel licences that were offered directly to steel makers without public bids. "Steel makers are waiting for verdict interpretations to be published," he told Ahram Oniline on condition of anonymity. 

For him, steel makers are not to blame for any "violation" this process entailed. "We follow what the Ministry of Industry decides. If [the minister] says bid, we bid. If he gives us free licences, we follow."

In 2008, the Ministry of Trade and Industry launched a tender process for the extension of licences for existing steel mills, and new licences for new ones.

The source added that Egyptian steel producers involved in this licensing verdict are disappointed after they met with the head of the Industrial Development Authority (IDA) on Saturday, describing the meeting as "useless".

Ismael Nagdy, the current head of the IDA, asked for the meeting to try to settle the disputed licenses issue, but "He said nothing," the source said

“Some of those given licences are about to produce, so withdrawal of the license would end thousands of workers’ jobs," the same source said, warning of the impact of this on the Egyptian steel industry.

On the other hand, “None of the licences affect current production, as the licences are yet to operate,” Beltone Financial comments. “The status of these factories is unclear for Beshay Steel and Suez Steel as the two companies are not publicly listed.”

Omar Taha, analyst at Beltone Financial, told Ahram Online that for the two factories mentioned above, construction has started. As for Ezz Steel, their LE2.4 billion factory is 70 per cent complete while construction of another hasn't commenced yet.

"Beshay completed about 80 per cent of its steel venture on the free license carrying on by 6200 workers" the source told Ahram Online. 

Taha explains that the Ezz factory would have been used for vertical integration, i.e., it will not contribute extra production, but will help reduce costs for other Ezz operations. He also shares the public impression that the court verdict is unclear. "Ahmed Ezz was fined and sentenced to jail while heads of other companies were not touched. This raises some question marks on the verdict."

On 15 September, an Egyptian court ordered the withdrawal of two licences from Ezz Steel in addition to sentencing Ahmed Ezz and former IDA head Amr Assal to 10 years in jail with a LE660 million fine to be paid between them.

Former Minister of Trade and Industry Rachid Mohammed Rachid also was also sentenced to 15 years in jail, along with a LE1.4 billion fine. 

However, the source estimates that Ezz Steel will not be severely hit by the court decision, at least not directly. "The company was not fined nor was it forced to pay for the license."

According to Taha, Ezz Steel could even benefit from the license withdrawal as the company would become eligible once more to apply for new licenses.

As for the fate of Ezz Steel investments on the ground, Taha expects vicious legal battles before a final decision is reached. "It is still too early to assume how this will be played out."

Ahram Online tried to call Ezz Steel company representatives but they were unavailable for comment. 

According to Reuters, on 18 September Ezz Steel, said on Sunday the court ruling would not impact current operations but was expected to hit future investments. It said former chairman Ahmed Ezz, who had held a top post in ousted Hosni Mubarak's party, would appeal his sentence.

Ezz Steel said in a statement it was considering legal options to confront any impact from the ruling. It said it was reviewing future investments that had yet to be executed and which could be subject to a temporary freeze.

The bourse said Ezz shares, which were suspended, would trade again later during Sunday's session. Ezz Steel shares fell 10 per cent after the firm issued its statement about the ruling's impact on the firm.

Trade in the shares was suspended, according to stock market rules, after falling 10 per cent.

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