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Monday, 02 August 2021

An Egyptian industrial icon: Steeling for liquidation

The historic Egyptian Iron and Steel Company is being liquidated after incurring billions in losses

Ahmed Abdel-Hafez, Friday 22 Jan 2021

A week ago, an extraordinary general assembly of the Egyptian Iron and Steel Company decided to liquidate its steel plants and spin off its mining activities. The loss-making company, established in the early 1950s, will have to sell off six million square metres of its land assets to pay off its LE9 billion outstanding debts before liquidation.

The decision stirred unprecedented debate between those who support and others who oppose the liquidation, with this reaching the corridors of the House of Representatives. The opposition feeling was so high that the cabinet led by Prime Minister Mustafa Madbouli issued a statement giving the reasons behind the decision to liquidate.

The four-page statement revealed the company’s finances from 1997 until 2018-2019 based on a study conducted in 2019 by the Holding Company for Metallurgical Industries (MIH), Iron and Steel’s mother company.

Discussion of the fate of the company began when Yasser Al-Hodeibi, deputy head of the Wafd Party and a member of the newly elected Shura Council, presented questions about the reasons for the liquidation in a memo to Madbouli.

Were they related to unfixable structural problems, he asked, or management problems? Was there a lack of funding that could be managed, or redundant labour that could be dealt with through early retirement programmes? Why did the iron and steel industry owned by the private sector make a profit, while the public sector was losing money?

Unlike the questions raised in the Shura Council, MPs were stern in their questions to the minister of public enterprise. Although parliament had just began its sessions, the issue was the focus of the Planning and Budgeting Committee and the Industry Committee.

MP Mustafa Bakri said he would present 150 official documents revealing the intention to liquidate the company, which he described as “an edifice” of Egypt’s industrial history.

Bakri accused the minister of public enterprise of rejecting offers by foreign companies to overhaul Iron and Steel, stating that “the company has 200 million tons of raw iron and its trademark is worth $100 million”. He said that the minister of public enterprise had taken up a hostile stance towards the workers and was intent on bringing down the company.

Mohamed Badrawi, a member of parliament’s Planning and Budget Committee, said the crisis was due to changes by successive managements of the company’s responsibilities and their failure to find solutions for accumulated losses. There had been no interest in modernising production lines, he said.

Badrawi proposed allocating the LE2 billion the state was planning to offer to workers to finance a strategy to renew the company’s production facilities. He added that the company had been making profits until 2007.

He also suggested that the state offer “facilitated loans from government bodies to buy new equipment. The updated production lines should run on natural gas instead of coal.”

He requested the revision of deals between the Iron and Steel Company and its coal-production arm, one of the activities that make profits, by consulting with foreign experts. He said the company’s activities in producing medical oxygen should be looked at, particularly as it had made large quantities available at the onset of the second wave of the coronavirus.

In its statement, the government explained the decision to liquidate the Iron and Steel Company. “The company made marginal profits in most years between 1997-98 and 2002-03. These [marginal profits] do not give a correct image of the true situation, however. The company used revisions of its assets [land] worth LE4.092 billion to record gains. The Central Auditing Agency has rejected this method,” the statement said.

“The profits the company made from 2005-06 to 2009-10 were through occasional revenues not related to its main activity, such as carried-over revenues and allocations. If these are taken out, it turns out the profits are actually losses.”

Government replies to media questions focused on company losses that had reached LE8.5 billion and production capacity that was no more than 10 per cent of designed capacity as a result of the wearing out of production lines.

The liquidation was the right decision, it said, asking those who opposed it to “set aside” their emotions.

The same thing was said by former minister of public enterprise Mounir Fakhri Abdel-Nour. In a recent media appearance, he said that “the question now is why the company fell down and could not get up again. The answer is simple: it is making losses and doesn’t have what it takes to succeed. The company’s technology is outdated. Its German production lines were initiated in 1954. In 1961, Soviet lines were added. At that time, production was also weak, but it was able to cover fixed costs. Production was expensive because expenses were enormous.”

The Ministry of Public Enterprise denied worries concerning the effects of the liquidation on the iron and steel market. “The company produces 112,000 tons of steel annually, which is less than one per cent of market capacity. Consumption ranges between seven and eight million tons a year, and Egypt’s capacity currently stands at 11.8 million tons. It imports about two million tons at prices that are less than those of the iron and steel that is locally produced,” the ministry stated.

The cabinet said there had been three failed attempts to upgrade the company’s facilities in 2014, 2018, and the first quarter of 2019. International companies had been invited to manage it on 20-year contracts with no less than $100 million in incentives and reductions in the workforce and paying off debts that stood at LE6.5 billion at the time.

However, such efforts had failed to save the company, it said.

*A version of this article appears in print in the 21 January, 2021 edition of Al-Ahram Weekly.

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