The Egyptian government decided at last to pump new investments into the troubled Egyptian Iron and Steel Company, writes Wael Gamal A special general assembly of the Holding Company for Metallurgical Industries recently approved part of a plan for refurbishment of the Egyptian Iron and Steel Company (EISCO), at a total cost of LE280 million. The sum, which will be divided over the next three years, will cover urgent, short-term needs like the overhaul of a high-voltage furnace. The Ministry of Investment had been reluctant to respond to appeals from the troubled company's management for intervention and closely studied the proposed restructuring and investment plan during recent months. EISCO, which was founded in the 1950s, for decades was considered the crown jewel of Egyptian heavy industry. In the 1990s, however, the industry was opened to the private sector which gradually built up a controlling share of the market, and whose firms proved more efficient than EISCO. Moreover, years of mismanagement crippled the company's performance and left behind huge financial problems. Despite an almost 50 per cent reduction in the work force through the early retirement scheme, EISCO has accumulated debts worth LE5 billion, and now pays LE463 million annually for debt service. Seventy- five per cent of EISCO debts are to the government and the public sector. The financial crisis exacerbated other problems, as a lack of new investment in upgrading production led to a worsening position in a competitive market. "We are trying hard to control losses so as not to reach the point of liquidation, which could take place once losses reach 50 per cent of the company's capital. We are facing many problems, including an irrational number of workers and the effects of fixed pricing policies for decades," said Adel El-Danaf, chairman of the Holding Company for Metallurgical Industries. El- Danaf argues that some top-priority investments are necessary in the short term to bring the company back to its full production capacity. The conditions of production lines, machines, and high-voltage furnace number three have been deteriorating drastically. The crisis situation of the company failed to produce any immediate response from the government, but Mahmoud Mohieddin has focussed on the company's problems since he was appointed as minister of investment. Several field visits and meetings have taken place as well as a conference held at the end of last February between the management, the government, financial experts and foreign and local industry experts to discuss the future of EISCO and the feasibility of the restructuring and refurbishment plans. According to Mohieddin, the government's unhurried attitude is due to a change in its intervention criteria. "The idea of national industry castles is not valid anymore. Egypt has enough monuments. We are not giving one more pound on the basis of social considerations. This is an economic entity which consumed nearly LE1 billion in the last four years. Pumping more investments has to be based on investment feasibility criteria. The radically different future of the company is the only justification of new government investment," he said. In a press release by the ministry after the general assembly meeting, Mohieddin stressed again that the proper decisions always target preservation of public funds and the state's resources. Therefore, the return on investment criteria will be used as a basis for any decisions made, since "the proposed plan is not assistance or simply the injection of funds to the company". Mohieddin also announced that the debts of the EISCO will be resolved within the framework of debts of the public enterprises sector. A comprehensive agreement between all public sector enterprises for settling their debts, which amount to around LE32 billion, in addition to LE5 billion in debts owed to the National Investment Bank, is currently being discussed with the Central Bank of Egypt and Ministry of Finance. The step taken by the general assembly was driven by recommendations offered by the conference held in February. Those recommendations stressed the idea that a refurbishment project is critical for much-needed business and financial restructuring plans. Ahmed El-Nozahi, an industry expert, estimated that building a similar factory would cost over LE10 billion, while the current factory holds a real possibility of improving productivity and performance. Other positive factors also played a role in justifying the government's action. The cycle of the steel industry, which has been peaking in recent months, has helped the company improve its performance. The company increased its exports to 25 per cent of sales, taking advantage of high prices in international markets, and achieved a profit of LE41 million for the first time in several years. "Also, EISCO has the competitive advantage of nearly 80 per cent dependence on local products protecting it from exchange rate fluctuations and international raw materials price hikes," said Ali Helmi, chairman of the company. Helmi added that the "proposed plan will decrease important input costs, namely coke, due to the expected increase in productivity, not to mention the retention of trained workers during the restructuring programme." Despite the fact that EISCO's technology is aging, it has the advantage of being the only integrated factory of its kind in Egypt. Still, the company was requested by the general assembly to present a detailed plan including a timetable for the implementation of the approved investments, in preparation for another meeting to be held in the coming weeks.
