Gov’t Seeks 42bln Birr To Finalize War-afflicted Welkait Sugar Project

Audit report reveals continued huge losses for Sugar Industry Group

The federal government is searching for alternative funding sources for 42 billion to breathe life into the Welkait Sugar Plant, which has been closed since war engulfed northern Ethiopia in 2020. The Welkait sugar estate is just one of several under the ailing state-owned Ethiopian Sugar Industry Group accruing huge losses.

A new audit report reveals the war inflicted 17.7 billion birr in damage to the sugar estate, which is under the purview of the Sugar Industry Group, formerly known as the Ethiopian Sugar Corporation.

The Welkait Sugar Plant was constructed with more than USD 500 million secured in the form of a loan through the China Exim Bank in 2013. Contractor China CAMC Engineering was awarded the project after the former state-owned Metals and Engineering Corporation (MetEC) was booted due to delays.

The plant, which is expected to have the capacity to crush 24,000 tons of sugarcane a day, had not been finished when war broke out in late 2020.

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The findings of an audit by the Ethiopian Audit Services Corporation conducted for the year ended June 30, 2022, and released by the Sugar Industry Group last month indicate that “significant financial investment is deemed necessary for completing the Welkait factory and related infrastructure, including plantation.”

The financial investment needed is no less than 42 billion birr, which is anticipated to be secured through bank loans, according to the report.

“The project’s continuity hinges solely on obtaining this bank financing,” it reads.

The Industry Group is also considering privatization as a potential solution, although efforts to liberalize close to a dozen state-owned sugar estates have repeatedly failed in the past.

The report indicates that although the management has been unable to access the project for assessment, physical assets valued at close to 18 billion birr, including machinery, buildings, irrigation systems, and other infrastructure, were exposed to potential damage during the war.

The report reveals that sugar estates in Oromia have also sustained damage from conflict. Fighting has caused losses of 281 million birr and 245 million birr on the Arjo and Fincha sugar factories, respectively, according to the audit report.

“The loss is due to vandalism perpetrated by rebels since the onset of the conflict in Oromia,” it reads.

The Tendaho Sugar Factory in the Afar region has been affected by conflict, weather disruptions, the transfer of movable assets to other factories and projects under the Group, and the termination of most of its staff, according to the report.

“Consequently, the management of the Group has yet to decide on the Tendaho Project’s fate and whether to sell or operate it as a joint venture with other investors,” it reads.

Construction on the Omo Kuraz 5 factory, which began in 2016 under Chinese contractor JJIEC, has been halted due to financial reasons.

“Management is yet to decide on the future fate of the project,” reads the report.

The Industry Group is under the supervision of Ethiopian Investment Holdings, which is looking to sell up to 100 percent ownership in no less than eight sugar estates. These include four estates in Omo Kuraz, as well as Arjo, Didessa, Kessem, Tana Beles, and Tendaho.

The Industry Group has ownership of the Omo Kuraz, Tendaho, Arjo, and Welkait estates. The remaining, including Beles, Wonji, and Metehara, will have “their own legal personalities directly controlled by EIH,” according to the report.

The belated audit report comes as officials at the Ministry of Finance prepare to issue 900 billion birr in bonds to cover 845 billion birr in bad loans extended to state-owned enterprises by the Commercial Bank of Ethiopia.

The Sugar Industry Group accounts for more than 110 billion birr of these bad loans.