Ethiopian Construction Works Corporation

Transcription

1 Ethiopian Construction Works Corporation Proposal for Partnership of Ceramic & Tile Factor Business Date: October 26, 2022

2 TABLE OF CONTENTS 1. INTRODUCTION OBJECTIVE CERAMIC PRODUCTION& DEMAND IN ETHIOPIA PRODUCT DISCRIPTION & RAW MATERIAL SUPPLY CHAIN KAM PLC. AND THE PROPOSAL TO WORK IN PARTNERSHIP ABOUT KAM PLC KAM PLC. S PROPOSAL TO WORK WITH ECWC PROJECT DATA AND STATUS PROGRESS VERSUS SCHEDULE BENEFITS EXPECTED BY BOTH PARTIES BENEFITS FOR THE CURRENT OWNER BENEFITS FOR ECWC PROPOSED TYPE OF PARTNERSHIP RECOMMENDATION... 7

3 1. INTRODUCTION Ethiopia is considered as one of the fastest growing economies in Africa which resulted in the demand for the growth of construction industries all over the country. This in turn led to the increasing demand of construction input materials such as ceramic wall and floor tile, foundries cement, block etc... Ethiopian Construction Works Corporation is implementing transformation initiatives to achieve faster and quality delivery of its service so that to stay competitive in the market and optimize its profitability. Among the five transformational packages designed and implemented by ECWC industrialisation and digitalisation is the one emphasised on up grading, diversifying and meeting the quality of international standards of its manufacturing input production unit. The past two years have seen the completion of feasibility studies for various manufacturing construction inputs product investments. The establishment of ceramic wall and floor tile is the most significant one among the feasibility studies undertaken for manufacturing construction inputs. The establishment of Ceramic Factory was initiated and promoted by Ethiopian Construction Works Corporation (ECWC) to evaluate the commercial, technical and financial and environmental viability of establishing ceramics and floor tiles factory. It was found in the feasibility study that there is a lucrative market opportunity for ceramic products locally. The market demand-supply gap analysis indicates that there is a positive gap that necessitates the establishment of companies engaged in ceramic production. The result of the business feasibility study indicates the soundness of the project. Other than commercial benefits to the owners, the project will results in additional positive social and economic contribution to the national economy. The project will also create permanent job opportunities. Though the study recommend the implementation of the project by the corporation s own financing it is also a wise decision to look for local and international companies to work with so that the macro and micro level benefits associated with it can be realized. With this regard KAM ceramic products plc. Which is Local Company in its letter dated Aug. 26/2022 expressed its interest to work jointly with ECWC offering to finish its newly established factory located at Bishoftu. Therefore in this proposal, the objectives, product description and the market, raw material supply and the status of the factory based on the physical observation have been discussed. And finally the recommendation and implementation plan for effective decision are included. ~ 1 ~

4 2. OBJECTIVE The ceramics and floor tiles factory has several objectives which are both economic and social. The first main objective of this project is to engage in ceramics and floor tiles production to generate income over the invested capital, and to positively contribute to the sub-sector as well as the country s economy, promoting government investment policy by import-substituting and other rational economic benefits driven from the project s operations. The second objective is creating job opportunity and enhancing skill and knowledge transfer for Ethiopians. 3. CERAMIC PRODUCTION& DEMAND IN ETHIOPIA Ceramic tile industry in Ethiopia is at its infancy stage. The industry in Ethiopia includes the manufacture of ceramic products like floor and wall tiles, insulator and sanitary, kitchen wares clay structure. Currently Ethiopia has a few numbers of ceramic tiles manufacturing factories. Even if there are few companies in sight that are planning to establish ceramic tile factory in the country, as a result the country is heavily depends on imports to fulfil its demand. The feasibility study conducted by ECWC and KAM plc demonstrate the demand for wall & floor tiles is derived from the demand for residential houses, government development activities and private commercial building and investment works. In general, residential Building construction, Commercial Building construction and institutional infrastructures are the major areas utilize ceramic tiles as major construction items. 4. PRODUCT DISCRIPTION & RAW MATERIAL SUPPLY CHAIN Ceramic tiles are thin slabs made from clays and/or other inorganic materials, generally used as coverings for floors and walls. Ceramic tiles are usually shaped by extrusion or dust pressing at room temperature, then dried and subsequently fired at temperatures sufficient to develop the required properties. ~ 2 ~

5 The locally available raw materials for production of ceramic tiles are kaolin, feldspar, quartz, clay, silica & sand. All raw materials are locally available in the market. Frit glaze, Additives like & Decoration materials will be imported from abroad. According to the assessment made by KAM Plc the feldspar and quartz raw materials are transported from Shakisso located 494kms, the major raw material kaolin 187kms (around Zuway & Alemtena) while the clay which will come from Mugher is 147kms away from the Factory site in Bishoftu in each case. 5. KAM PLC. AND THE PROPOSAL TO WORK IN PARTNERSHIP 5.1 ABOUT KAM PLC KAM Ceramics Products PLC is a proprietorship company established by two shareholders; Ato Kasahun Mulugeta and Wro.Eleni Yilma. KAM Ceramic Products PLC is a company established with initial capital amount of Birr 300 million (the actual equity investment of the company is above the initial capital).the major shareholder of the company is Ato Kassahun Mulugeta taking about 99% of the company s ownership. Whereas, the remaining share amount, i.e 1% is owned by the other shareholder of the company, Wro.Eleni Yilma. Currently, the company has been implementing a project for manufacturing of ceramic tiles (wall tiles & floor tiles) products. In terms of land size and location, the project is under establishment on the total leased land size of 35,000m2 obtained from Oromia Regional State and located in East Showa zone, Bishoftu town. To determine the business viability of ceramic manufacturing in Ethiopia, market; technical, organizational and financial study was conducted. KAM Ceramic Products Plc. and Development Bank of Ethiopia (DBE) has allocated a sufficient budget to finance the establishment of the said ceramic tile factory. 5.2 KAM Plc. s PROPOSAL TO WORK WITH ECWC KAM Plc. In its letter and the proposal attached with of dated aug. 18/2022 has expressed their interest to become our business partner as they consider our organization as prospective business partner. It is known that now day, business owners/businesses don t have enough resources to build, manage and operate their projects or whatever business innovation they have, so having a reliable partner is a good strategy. Every business needs the support of other entities for a better success. Those entities will share their resources (financial, technical, experience, business opportunity etc.) with them, and they will give something profitable in return. With this regard KAM Plc invited ECWC to be a part of their aforementioned business by grabbing our interest and ultimately earn our trust by submitting the partnership proposal. ~ 3 ~

6 5.3 PROJECT DATA AND STATUS Project Name: KAM Ceramic Products Plc. Ceramic Tile Factory Project Financer: The Development Bank of Ethiopia & KAM Ceramic Products Plc. Machinery Supplier: KEDA Clean Energy Co LTD Civil-Works Contractor: ELHIRU Building Contractor Type of Work: Construction of Factory Buildings other necessary Electrical, Mechanical & Sanitary Works, Supply & Installation of Ceramic Machinery Supplying contract: Supply of Ceramic Machinery Equipment for Ceramic Floor and Wall Tiles Production line, Accessories and Installation Tools, and The Installation, Commissioning of the same & Training of Personnel Based on the assessment and physical observation made by our department KAM Ceramic Products Plc. is undertaking the project of a modern ceramic wall and floor tiles manufacturing plant in Oromia regional state, Bishoftu town, kebele 01, which is financed by the Development Bank of Ethiopia. After signing the initial loan contract in 2015 for a plant capacity of 5,000m2/day, the promoter was looking into the possibility of increasing the production capacity which will eventually make the company more competitive in the forthcoming competition. More over with the coming into picture of another similar project which uses coal gas, relatively cheaper than diesel, as the primary source of energy for product processing, they learned that the competitiveness of our future company will be at stake. Therefore, they are compelled to revise their plant technology, increased the production volume at full capacity to reach 18,400m2 tiles per day, revised the project costs accordingly and presented their revised proposal to the financing bank, DBE. Accordingly, in December 2019, DBE accepted their revised project cost and approved additional loan. 5.4 PROGRESS VERSUS SCHEDULE From their initial plan the project was scheduled to start production in January 2021.But on actual facts, in their evaluation the status of the project activity at present, work actual accomplished (Building & Construction works, Purchase, Installation & Commissioning of Machinery & Equipment),which is almost above 90%, the progress of the overall project activity is satisfactory. ~ 4 ~

7 But due to so many reasons like time taking a lengthy process in approving the additional finance, by the financing bank (DBE), the project delayed to this time that they are somewhat behind their initial schedule. Because of the above reasons they are forced to reschedule the whole activity and currently they are undertaking final stages of implementation works, to start trial production, in December 2022 and production in full capacity in the coming months. ~5~

8 5.5 BENEFITS EXPECTED BY BOTH PARTIES BENEFITS FOR THE CURRENT OWNER Achieving its goal in having big, reliable and potential customer Supply of its products to the partner company as it is emerging as the largest company implementing/contracting big national projects of the country Increase company s credibility and acceptance by other potential partners and stakeholders(financiers, machinery & input suppliers) Becomes a good example of public private partnership Reinforcement of financial standing of the company for future expansion and product variance, as both parties have the plan to expand our productions like Sanitary ware & ceramic insulators Take advantage of/great opportunity/use organizational /institutional capacity of the proposed partner for research and development and demand oriented production and supply. As in ceramic manufacturing industries there are new trends and quite various range of complimentary products, this requires copping with the new developments in the industry supplying state of the art with eco-friendly machinery, technical support and materials Getting additional driving energy and reliable business partner to come out as accompany with wide range of product manufacturer and supplier of building material and inputs To get advisory services on virtual tile design and geometric pattern to cop-up with the latest international trends. Provide a possibility-if they need a support from stake holders the partner may be able to get them to government offices and financial institutions support. It may also help with access requirements, advertising and be able to provide other equipment or resources BENEFITS FOR ECWC Timely delivery/acceptance of its product needs for its projects (to get the ordered supplies on time sustainably) Acceptance of quality products during manufacturing locally, special emphasis will be given in selection of technology for order based products and special requirements. Get priority as a customer in purchase of products based on specific requirements such as size, quantity, quality and type Possibility of easy access to foreign currency for importing of materials, goods, services and technology from abroad for its ~ 6 ~

9 projects, as the company has a short term plan to export its products to neighbouring countries Expansion of income generating activities and sectors by investing its capital. Provide expertise. Strengthen relationships-working with partners can deepen and Strengthen relationships as well as introducing with new firms, organizations and new ideas. This may lead to other projects in the future. 6. PROPOSED TYPE OF PARTNERSHIP As per Ethiopian new Commercial Code there are seven types of business organizations. In Ethiopia, as elsewhere, there are two general types of privately owned Business organizations, or they broadly fall in two major categories i.e. Partnerships and Companies Partnerships:- General Partnership, Dual Liability Limited Partnership, Limited Partnership and Joint Venture Companies:- Share companies, Private Limited Companies and Single Member Private Limited Company All those business organizations governed by the Commercial Code. The type of partnership that KAM is proposing to engage with ECWC is joint venture, where ECWC can buy some portion of the share or by acquiring an interest from the existing company holding. A joint venture (JV) is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance as per shareholders agreement. This proposed partnership helps us both to access and moving to a new market, particularly emerging market (local & international); to gain scale efficiencies by combining assets and operations; to share risk for major investments or projects; to expand our business development of new products or to access skills and capabilities we have. 7. RECOMMENDATION As it is clearly indicated on the mandates of the organization, ECWC can establish a new feasible business to maximize its service and generate reasonable profit to strengthen the financial capacity of the Company. With this regard ECWC is currently in a transformation process giving special emphasis of expanding manufacturing of construction inputs. ~ 7 ~

10 Accordingly, our department has been conducting several feasibility and prefeasibility studies among which establishment of ceramic and roof tiles has got the most attention by the strategic management. Meanwhile, KAM Plc. has forwarded an invitation to work with our corporation in a form of partnership which the most welcome opportunity, considering our interest. Accordingly, we recommend that ECWC shall go through the following steps to decide and finalize the establishment of the company if accepted. Activity Duration 1) Preparation of proposal and submission for decision Nov. 4 2) Acceptance / Rejection of proposal by the strategic management Nov. 5 Nov. 9 3) Negotiate and decide on the Percentage of share Nov. 10 up to Nov. 14 4) Consultation with the legal department on the form of partnership 5) Signing of MOU Nov. 20 6) Evaluation and valuation of the project and submission of report 7) Review of the Valuation report by the strategic management and board. 8) Finalize the legal requirements and establishment of the company Nov. 15 up to Nov. 19 Nov. 21 up to Dec. 20 Dec. 21 up to Dec. 25 Dec.25 up to Jan. 25 ~ 8 ~

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