Compensation of former owner leads to court injunction
The privatization process of National Alcohol and Liquor Factory (NALF) has been delayed due to a claim by the former owner.
Late last fiscal year, the agency that at the time was know as the Ministry of Public Enterprise (MOPE), but is now called the Public Enterprises Holding and Administration Agency (PEHAA) opened a bid document for NALF. The alcohol factory is the largest in Ethiopia and the bid was the largest ever offered for a government enterprise by local investors. Lominat Beverages Plc, owned by the prominent business personality Binyam Berhane and Brook Worku, who is also well known in the spirit industry, offered 3.62 billion birr to fully own NALF.
In the bid opening late last June, Lominat, Pure Alcohol and Beverages Manufacturing and Metadim Manufacturing tabled their offer. The last two companies, both local, offered close to 1.7 billion birr and over 1.5 billion birr respectively, which are also very high compared with the tagged price of PEHAA. The floor price that the former ministry tagged was 1.27 billion birr.
Even though the company, that offered the highest price is expected to secure the company when they make a down payment the factory has not yet been transferred to Lominat.
Lominat is getting ready to build another beverage factory and they wanted to include NALF as an additional conglomerate.
Wondafrash Assefa, Public Relations Head of PEHAA, told Capital that the Ministry of Finance, which oversees the agency, has given a grace period to settle the down payment.
This was done at the company’s request, however the deadline for that grace period ended this week.
“The Ministry of Finance extended the deadline even though the first grace period ended,” he added.
Sources who are close to the matter said that the company is ready to settle the down payment, which commonly is 35 percent.
Sources said that the problem transferring the factory is related with Berhane G.Medhin, the former owner, who bought the factory during the period of the emperor from the original founder Elias Papassinos, a Greek citizen. Capital learned that the company has received a court injunction because of a claim from the former owner which makes it unfeasible to transfer the factory to Lominate.
“About 20 years ago the valuation work of the enterprise was conducted and the government approved giving some money as to the former owner,” Wondafrash said. “The government has called the former owner to get 2.7 million birr in compensation, but he preferred to secure the entire factory which has branches in different locations in Addis Ababa and its surrounding areas,” he said.
“After the Ethiopian Privatization Agency (EPA) did a survey on the company it gave two options. One was for me to pay the 26.4 million birr to the government and take back my company or for me to get a compensation payment. I took the first offer and responded to the EPA, later renamed MoPE that I would pay the money and take over the NALF. Until the final week of my stay in Addis Ababa about 28,000 Eritreans were deported. Due to the Ethio- Eretria border conflict, many were taken away as a threat to the national security,” Berhane, who was one of those deported, told for Capital during an interview last September.
Wondfarsh recalled the letter written about two decades ago to the former owner. The letter was written by mentioning the ‘Review of Properties Taken in Violation of the Relevant Proclamations (Amendment) proclamation no. 193/2000’ that allowed the government to posses the enterprise and settle the former owner’s required sum.
The proclamation article 7, sub article 1 states that: where a property taken in violation of the law: a) cannot be returned to the owner due to substantial public investment made on it or is administered as an inseparable unit of other properties or due to other reasons related to the public interest; or b) is owned by a public enterprise which is being dissolved and liquidated in accordance with Article 39 of Proclamation No. 25/92; the former owner shall be entitled to compensation. The amount of compensation shall be assessed and determined by the Agency.
In June Brook, CEO of Lominat told Capital that NALF is worth what his company offered. “To be frank the company is one of the most profitable public enterprises, and has a huge market in the country,” he said.
The major shareholder of Lominat, which was formed in 2014 by the two businessmen with the goal of joining the beverage and sprit industry, Binyam is well known in the import and distribution of various commodities including distribution and trading alcohol and sprits over three decades.
Lominat planned to develop the local market at international standards. Brook stated that Lominat would provide import substitution and export products. The products of NALF are prominent in the region mainly the South Sudanese market.
“We can produce the alcohol products and different brands that are imported from abroad and substitute exports by 90 percent,” Brook told Capital in June.
NALF is the collection of four factories three in Addis and one in Sebeta, 25km west of Addis.
In the 2016/17 budget year NALF’s sales were 607 million birr with a growth of 132 million birr compared with the 2015/16 budget year.
The net profit of 122.4 million birr after tax, which has showed a 30 million birr increase within a year, is also a record amount registered by the liquor factory for the stated period, but last year’s performance was expected to be higher since it had expanded.
The National Tobacco Enterprise, which was transferred to Japan Tobacco as major shareholder of the tobacco monopoly and full ownership of Meta Beer by Diageo are also two record privatization sales that have occurred recently.