Hiber Sugar joins forces for convenience sake

From left to right: Ali Bin Amin, Israeli ambassador to Ethiopia; Yewondoson Bekele (Eng), board chairman of Hiber; and Jacques Ollech, general manager of BDFC, while chatting before signing the Memorandum of Understanding. (Source: Addis Fortune)


Addis Fortune, October 26, 2009

Hiber Sugar SC and BDFC agreed to a joint investment on sugar production in the Amhara Regional State and will submit their action plan to the regional Investment Promotion Agency on Tuesday, October 26, 2009.

Hiber, formed by 30 individuals, has been selling shares to the public ever since July 2009. They intend to close the sale of shares in April 2010 after they have raised one billion Birr.

BDFC, is a share company established by two brothers of Israeli descent, Jacques and Daniel ollech. This company, based in Brazil also has business interests in the United States.

The joint investment agreement signed by the two companies at the Hilton Hotel on October 21, 2009, was a union of convenience.

Hiber only has its investment licence, but it maintained that the Amhara Regional State asked for proof of their financial capabilities before it gave them the 25,000hct the company had applied for.

BDFC, on the other hand, had already been given 17,400hct of land in 2008, a year after it came to Ethiopia. It is also getting close to receiving an additional 13,000hct in the same area of the Tana-Beles Basin of Jawi Wereda, Hawi Zone of Amhara Regional State.

"Working with BDFC will give us the immediate right to use the allotted land as well as access to the foreign currency they bring with them," said Menalachew Simachew, one of the organizers of Hiber.

The joint investment will have a capital of four billion Birr, of which 30pc will come from the two companies; credit for the rest of the capital will need to come from local and international lenders. The two have agreed that Hiber will come up with 20pc of the cash while BDFC will contributed 10pc, according to Neguse Hunegnaw deputy general manager of BDFC.

BDFC may contribute an additional five per cent in the form of machinery and equipment, Menalachew says.

BDFC's interest in the joint investment, according to Jacques Ollech who is general manager of BDFC Ethiopia, is the experience of the founders of Hiber in the local sugar industry, which ranges to over 30 years.

BDFC returned to Ethiopia from Brazil after having been gone for a period of one year. In their letter to the Agency, on July 16, 2009, an explanation as to the delay of their return holds the global financial crisis responsible. At this point, the Agency had been waiting for BDFC for over a year.

In mid October, the Agency requested the company to submit its action plan before the end of November. It was during this time that BDFC was holding talks with Hiber about the joint investment.

The two companies have not formally informed the Agency that they have formed the joint investment, Aynalem Belete, process owner of Amhara Investment Promotion Agency told Fortune. He expressed his hope that the two together could move faster on the project which the regional state is eager to see realized.

The regional state should be notified of any further delays in order to intervene, Aynalem said; although he did not convey what kind of intervention would take place.

The two companies have now started moving faster, Menalachew says and continued that they have already started talks with the Agricutltural Equipment and Technical Services Enterprise (AETSE). This state owned company is to clear and prepare the land for the sugar plantation.

A formal letter will be submitted to the enterprise on Monday, according to Menalachew, and then AETSE will send experts to the area to survey the land and offer them a price.

The next task will be planting seeds of the cane on 500hct, which will provide them with the stems which will be cut and planted to start the sugar cane plantation.

The aforementioned companies have started talking with a number of consultancy firms from Brazil, England and India including with JP Mukerji, the Indian firm which worked on the expansion project of Wonji Sugar Factory. These companies will be involved in a bid, with the one offering the least price likely to be elected to do the feasibility study on agriculture, industry and civil work, according to Menalachew.

The selected firm is likely be the one to continue with the consultation until the commencement of operation of the sugar factory, he explained.

"The feasibility study is our bankable document," he clarified. "With it, we will contact possible lenders including the World Bank and the African Development Bank."

The feasibility study will be completed within four to six months, according to Menalachew Indian company (which he did not name) has offered them machinery on soft loan.

F.C. Schaffer & Associates, Inc, the American company which constructed Fincha Sugar Factory, is also said to have contacted them with the proposal of a working relationship alongside offers of credit and a stake in the company.

"We have responded that we are glad to work with them," said Menalachew. "But we will let them know how that will be when the time comes."

The company boasts that its factory will be able to produce 1.17 million tonnes of sugar, making Ethiopia one of the largest sugar producers in Africa. The combined annual production of the three state owned factories, Wonji, Metehara and Fincha, is only 275,000 tonnes. They hope to employ up to 10,000 workers and produce 28 million litres of ethanol from molasses.

The Tana-Beles area is known for its black alluvial soil type which is proven to yield a good harvest of sugarcane, Minalachew told Fortune. Its altitude of 1,000 to 1,200 metres and annual rainfall 1,500mm is also suitable for sugarcane plantation, he says.

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