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Egypt steelmakers to pay for withdrawn manufacturing licenses

Trade ministry-proposed settlement scheme calls for four companies, including Ezz Steel, to pay licence fees to government

Ahmed Feteha, Thursday 12 Jan 2012
Steel
Steelmakers will pay a total of LE1.4 bn to acquire the licenses (Photo: Reuters)
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Egypt's Ministry of Trade and Industry has approved a settlement scheme aimed at resolving the outstanding dispute over five steel manufacturing licences that were withdrawn from four Egyptian steelmakers last September, the ministry announced Tuesday.

The settlement scheme stipulates that the four companies pay the licence fees to the government – 15 per cent up front, and the rest in five-year instalments.

"This was the decision reached by the industry minister, but it’s still awaiting Cabinet approval," said Samir Noamany, head of sales at Ezz Steel, one of the steelmakers involved in the dispute.

Last September, an Egyptian court ruled that recently-issued steel manufacturing licences be withdrawn from Ezz Steel, Beshay steel, Suez Steel and Tiba Steel.

According to the new settlement agreement, Ezz Steel will pay a total of LE660 million for two licences. Suez Steel will pay LE385 million, Beshay LE385 million, and Tiba LE38 million for one licence each.

Noamany, however, told Ahram Online that the companies in question had not yet formally approved the scheme. He declined to say whether Ezz Steel, the biggest steelmaker in the Middle East, had approved the scheme or not.

"This settlement is separate from ongoing legal procedures, since the companies are appealing the court verdict that called for the withdrawal of the licences in the first place," Mohamed Hanafy, head of metallurgic industries at the Federation of Egyptian Chambers of Commerce, said.

Construction of the Beshay Steel and Suez Steel manufacturing plants has already begun, but exact details about the projects are not available, since both companies are not listed on the local stock exchange. According to one informed source, Beshay has already completed about 80 per cent of its steel factory.

Ezz Steel plans to build two plants, the first of which is already 70 per cent completed at a total investment of LE2.4 billion. Construction of the second has yet to begin.

"Ezz Steel will not be severely affected by the extra amount it will have to pay for the two licenses," one industry analyst said on condition of anonymity. "The license value only amounts to about 11 per cent of total capex invested in Ezz's factories."

Both Ezz factories are being built for the purpose of “vertical integration,” meaning that they will not necessarily boost production, but will help reduce costs for other Ezz operations, Beltone Financial analyst Omar Taha told Ahram Online.

The four steelmakers are expected to accept the settlement scheme, especially given that they already have made significant investments on the ground, say industry insiders.

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