The steel industry is in shock over last week's court verdict withdrawing manufacturing licences awarded to five companies without public bids, Ahmed Kotb reports The controversial ruling created confusion in the industry as it included three companies that are not party to the case being tried. The defendants were Ahmed Ezz, the owner of Egypt's largest steel producer (Ezz Steel), Amr Assal, former head of the Industrial Development Authority (IDA), and Rachid Mohamed Rachid, former minister of trade and industry. The court sentenced Ezz and Assal to 10 years in prison each, and fined them both LE660 million. The ruling also included a 15-year jail sentence for Rachid, fining him LE1,414 billion. In addition, the ruling retracted licences granted to Ezz's two companies, Beshay Steel, Tiba Steel and Suez Steel. "The strange thing here is that those three companies were not notified that they are part of the case. The verdict was very surprising," Mohamed Hanafi, general manager of the chamber of metal industries at IDA told Al-Ahram Weekly. He added that the whole industry might collapse if the banks that finance these companies' projects decided to withdraw their support. "Steel companies cannot do without bank financing in deals that mainly consist of importing production materials and equipment from international companies," he said, adding that this could lead to a major collapse of those companies. The extent of damage to the national economy is unknown. "Thousands of workers might be laid off," Hanafi said. The five companies, according to Hanafi, own 11 steel plants that produce 85 per cent of a total of nine million tonnes of steel rebars each year. "The problem is not in suspending work in the new plants that the companies obtained the licences to construct, because they did not start operation yet. We only fear that the banks will get worried and stop dealing with the companies and their operating factories, thus forcing them to shut down," Hanafi stated. Total loans that the banks granted the five companies are estimated at LE6.7 billion. A meeting was held on Sunday at the Central Bank of Egypt (CBE) with the managers of the banks that granted the loans to the steel makers, but the results of the meeting remain unknown. The court ruling is confusing because it did not specify whether it actually means retracting the licences from the three companies not owned by Ezz or obliging Rachid to pay for the value of the licences. The companies prefer the latter as an explanation for the verdict. "The verdict is unclear and we will have to wait for its interpretations to be published before taking any step," said Rafik El-Daw, chief executive officer of Suez Steel which obtained the licence in 2006, employed 4,200 workers and started production with two million tonnes per annum. "We ask the government not to take any action before the interpretations are published because any rush to execute the verdict now would hurt our investments," El-Daw told the Weekly, adding that IDA has already asked his company, along with the other two, to pay for the licence which they got for free. The value is somewhere between LE350 million to LE400 million. "We replied by stressing on our legal rights in that licence which we obtained after taking all the legal steps necessary," he said. El-Daw pointed out that his company requested to join the case before the verdict was issued but the court refused because they are not a party to the case. "The government could withdraw the licence from us, but first it should give us back LE6 billion we invested in our steel plants." The local steel market, which is in a state of stagnancy since 25 January, has not felt the pinch of the court verdict yet as prices are still stable, trading at LE4,900 per tonne. There are no predictions of price hikes in the near future but fears mounted over expectations of overstocking steel products due to the absence of construction projects even more. "Everyone will wait to see the repercussions of the verdict," Hanafi said. In the same context, IDA's president, Ismail El-Nagdi, announced that there will no longer be any bidding processes to obtain steel licences in the future which will be given to any company interested in investing in the steel industry as long as it has the proper expertise that qualifies it to provide the needed finance. He added that the government will no longer provide subsidised energy and that the companies will have to pay the government for it or import energy. El-Nagdi said the move came after IDA has received many requests from local and foreign companies looking to invest in the steel sector, and that he believes this step will help bring the prices down by eliminating monopolies and making the product available in huge quantities. However, Hanafi believes that this will have no impact on the prices because they are pegged to the international market. Until the Weekly went to print, the government had not taken any decision regarding the verdict and the minister of industry and foreign trade, Mahmoud Eissa, was quoted as saying that "meetings are held regularly and the state of confusion will be over in a few days, because maintaining and supporting investments is the main priority."
