Marketing-Börse PLUS - Fachbeiträge zu Marketing und Digitalisierung
print logo

Damietta Factory on the Defensive

Ongoing protests over the operation & expansion of Misr Fertilizer Production Company? (?MOPCO?) ?in Damietta are costing the company & stakeholders.
13.12.11 | Source: Business Today Egypt

As protesters still gather in Tahrir Square to protest military rule, a battle that predates the revolution is still raging on in the port of Damietta within the city’s industrial zone.

On November 8, protesters took to the streets of Damietta demanding the closure of what they called “death factories,” environmentally harmful production facilities run by Egyptian fertilizer company, Misr Fertilizer Production Company (MOPCO). The protests soon turned violent, with clashes between the demonstrators and security leading to one death and 12 injured as at press time.

The company has faced public outcry for years. Concerns first arose in 2008 when the company’s first plant started production in June.

Protesters claim that the factory’s operating production line does not adhere to environmental regulation and pollutes the Nile River, its marine life and surrounding agricultural land. What started as a small sit-in at the city’s port quickly escalated to a protest of 3,000–4,000 demanding closure of the factory.

In November, the protesters blocked all roads leading to the city as well as forcefully closing down the city’s port, which effectively halted all production. After a failed attempt by central security forces and army personnel to quell the unrest, the Supreme Council of the Armed Forces (SCAF) ordered the factory to be shut down and all expansion operations to stop.

The company denies the accusations of harming the environment. Ahmed Sadek, the finance director at MOPCO, says the company is one of few that take the environment seriously.

“We are one of the few factories that have an environmental monitoring station inside the factory. This monitoring station is directly connected to the environmental protection agency. So far, we’ve been operational for three years with no complaint,” says Sadek.

When asked about the wastewater that the factory produces and claims by protesters that this water is polluting the surrounding marine life, Sadek replies, “Any factory produces wastewater, the important thing is that it is treated. There are measures for this and standards by which we operate.”

“The fertilizer industry is not considered a polluting industry. The raw materials for urea production are simply natural gas and air; the fumes that come out of our chimneys are water vapor,” Sadek says.

Sadek believes the problem is simply a lack of trust and that the people are refusing to believe the company is adhering to environmental regulations. He feels that an international body should asses the environmental impact and make a final judgment.

MOPCO created a committee to negotiate with protesters about bringing in an international environmental agency. “Since they don’t believe us, then maybe they will believe someone from abroad,” Sadek says.

What worries Sadek the most are the financial consequences of the factory’s indefinite closure. “I hope we [overcome] this issue because the financial repercussions on the company and the Egyptian economy are immense,” he says.

The majority of stakeholders are Egyptian investors and public-sector companies, with 71% of the factory owned by EGAS, GASCO, the National Bank of Egypt and Misr Insurance. “The Canadian-based Agrium, one of the largest fertilizer companies in the world, has a stake of only 26%,” Sadek notes.

MOPCO has one operational production line while two others are under construction. Sadek explains that those two production lines were originally owned by EAgrium, a joint investment between the Egyptian government and Canada’s Agrium.

The Canadian stake in EAgrium was acquired by MOPCO through a share swap. The deal resulted in MOPCO owning the three production lines and Agrium gaining the 26% stake in MOPCO.

As the Canadian investor had already faced trouble in 2008 when residents demanded that the construction be relocated, the Egyptian government absorbed the situation through the share swap deal and relocated the factory to the MOPCO premises.

“This operation generates over $1 billion per year, and this is the second [time] we face troubles. The foreign shareholders could take it to international arbitration where we would most likely lose the case.

“The government guaranteed the project, gave all the permits and the operation will commence on time. It will be very easy for lawyers to win this case if its taken to international arbitration,” says Sadek
These events will have a negative effect on foreign direct investment in the future, something Egypt is currently in dire need of, he says.

“We are poisoning the investment climate in Egypt. Investors will think twice before coming here. Just last week the minister of trade and industry was due to visit Canada in order to attract investments; the visit was cancelled,” Sadek says.

The company is heavily financed by debt from almost all Egyptian banks. “MOPCO has outstanding loans [worth a total of $160 million] that financed the first production line,” says Sadek. “As for the other two lines currently under construction, there is syndication [worth $1.05 billion]between 22 banks.”

A source at one of the syndicate banks, who preferred to remain anonymous, says the banks are currently evaluating the consequences of the closure.

“We are trying to figure out how long the factory can remain closed while we maintain our repayment schedule,” says the banker.

Over 90% of the $1.05 billion (LE 6.31 billion) loan has been utilized, with construction originally expected to be completed by the end of 2012. Once operations begin, the company will be required to start the repayment six months later.

Repayment is impossible, however, if the operations are ceased. This will not only affect the banks but could have very adverse effects on the fertilizer industry as a whole.

“The industry will be classified as high risk and consequently banks will ask for very high interest rates to finance such mega-projects. With no internal injection from local banks to the industry and with foreigners refraining from investment, there won’t be very much to work in,” says Sadek.

FREE NEWSLETTER