The Ethiopian Shipping and Logistics (ESL) under its new leadership, files its clarification for the second time to the National Bank of Ethiopia (NBE) in order to receive a green light for its lucrative investments of two new big vessels.
The enterprise which currently owns nine bulk carriers, besides the newly added second hand ultramax, a midsize vessel, has been in a project to buy two vessels on an aim to expand its operation in the sea freight.
As per the process, including the international bid, the state owned logistics enterprise has selected a Chinese ship builder, Xiangyu, to construct the brand new vessels that may take more than two years to hand over.
“We have concluded the framework agreement with the company to carry out the project, while the details will be determined when the financial issue is concluded,” Wondwossen Kassa (Cap), Deputy CEO of ESL, told Capital.
Wondimu Denbu, Deputy CEO for Corporate Service at ESL, told Capital that the enterprise has filed its explanation for the second time to the central bank as per the request of NBE.
“We have tabled the required document and explanation to get a permit for the foreign currency to commence the procurement of the two vessels,” he added.
As per the plan, the state owned financial giant, Commercial Bank of Ethiopia (CBE), will facilitate 70 percent of the required fund for the procurement of the two vessels in a process that is said to take over two years.
“We will cover the 30 percent and CBE will facilitate the remainder as a loan if we shall get foreign currency,” Wondimu explained, adding, “We are under discussion with NBE to get approval for the foreign currency.”
He said that the payment will be concluded in five installments with 20 percent each. As per the framework agreement, the initial payment will be concluded when the contract is signed and the balance will be divided on steel cutting, keel-laying, launching and delivery.
“We need the foreign currency on five payment schedules that we clearly explained to NBE in filing,” he added.
“We are confident that the process will be finalized very soon,” he expressed his hope about the approval of the foreign currency.
As per the agreement the new coming vessels will be a dry carrier with an ultramax type carrying capacity of over 63,000 DWT. Currently, the nine dry carriers that ESL owns are ‘handysize’ vessels with about 28,000 DWT.
It can be recalled that about 11 years ago the successful logistics enterprise had embarked to purchase nine vessels including two tankers at a total price tag of USD293.5million courtesy of a loan backing from the Export Import (EXIM) Bank of China that made the vessel collection to 11, until recently.
However now it has passed a decision to manage the procurement by its own finance or a local source since it would gain better benefits than access from foreign financers.
Recently, ESL concluded a process to swap Bahir Dar and Hawassa, the firsttankers that ESL owned on its history with 42,000 DWT capacity each, with ultramax dry bulk carrier.
According to Chief Wondwossen, the process of swapping the tankers with the biggest ever vessel with a capacity of over 63,000 DWT is completed.
The vessel named MV Abbay II is currency at Shanghai, China and the ESL crew has already taken over the management to embark the operation with some adjustments like radio communication, trading and class certification.
The vessel is seven years old and is fairly a young carrier as experts on the sector explain.
Wondwossen told Capital that the vessel that was owned by US company, with German operator, and Marshall Islands was registered to be in good condition and was managed by good operator prior to its acquisition.
Experts said that possessing such kind of vessel is economically viable since owning brand new vessel takes years, “When the second hand vessel with few years of operation was spotted, the operator sought to include it on its fleet immediately.”
Ultramax is the latest bulk carrier vessel type in the logistics industry with less than ten years in the business. Currently, it has a huge market demand and competition. In terms of profitability and environmental issues, these vessels are considered highly friendly.
Ultramax come with their own cranes that allow the vessels to discharge or load on any port.
Wondwossen said that this vessel will be instrumental in meeting the target of ESL to be the biggest player on cross trade in the region.
The ESL operation on the cross trade, which is taken as one of major operations under the logistics enterprise, has become more profitable. In the first nine months of the current budget year, the enterprise has secured USD 20 million from this operation alone.
“Our vessel will become more profitable in the cross trade activity so the coming of huge vessels like the new coming one is expected to boost the activity of ESL in the region,” the Deputy CEO for Shipping Service explained.
ESL is also using other ultramax vessels to transport bulk cargos like fertilizer, coal and wheat to Ethiopia.
Experts said that the new coming big vessels shall support huge local cargos besides supporting the east African coast up to South Africa and Indian Gulf, which has a gap on container feeder service.
The two tankers were not economically viable; but were bought to transport Ethiopian cargos.
From the onset of the arrival of the tankers in Djibouti, which is the major port site for Ethiopian vessels, about ten years ago both vessels laid idle for six months until a Kuwaiti company which is affiliated with Ethiopia, through an oil supply partnership, took administration on behalf of the Ethiopian vessel operator.
After the administrative takeover, the vessels were then transferred to a Dubai based management company.
As per the agreement, the Dubai based company handled the ship and technical management while ESLSE took over the chartering. This however was not a profitable venture.
“The crew and the management are not ours,” Roba Megersa, former CEO of ESL told Capital a couple of months back whilst reminding that the tankers were not profitable since their arrival.
The logistics enterprise thought it best to part ways with the vessels but faced delays due to debt, but they were free at the end of the past budget year that allowed the company to swap them successfully.
When the seven 28,000 DWT multi-purpose vessels were built they cost USD 32.5 million each while the two oil tankers price points was USD 37 million each.
About 16 years ago, the enterprise also bought two multi-purpose vessels from China, ‘Shebelle’ and ‘Gibe,’ named after two rivers in Ethiopia.