The Egyptian Iron and Steel Company: A symbol of optimism grows old
 
 
Courtesy: Al-Mashhad.com
 

When Abdel Qader Yehia* speaks about the Egyptian Iron and Steel Company, where he has worked for 30 years, he refers to it as “my company.”

Abdel Qader and his fellow workers at the state-owned iron and steel company are looking on in trepidation as rumors swirl about the potential liquidation of a company that once symbolized Egypt’s post-colonial industrial development in the mid-1950s. 

As with many of the workers, Abdel Qader’s story is tightly intertwined with the company’s. He joined the company in 1990, one year after a historic sit-in was brutally dispersed by security forces. Instead of breaking the labor movement, however, the government crackdown galvanized the workers, who made further gains in union elections. 

At that time, the state’s iron company offered well-paid and secure jobs. Abdel Qader, now approaching his 50s, got the job at 19, after finishing a three-year apprenticeship program in which he learned manufacturing skills in a school run by the company. 

His father had also worked for the company. Abdel Qader was able to join the apprenticeship program, he says, due to a policy that granted priority to the children of employees. 

In the training program, he received a symbolic stipend, as well as free workwear and meals. All graduates were guaranteed a permanent position at the company upon completion of the program. 

The extensive training and job security allowed Abdel Qader to marry and support five children, the eldest of whom is currently in college.

However, much of what once made the Egyptian Iron and Steel Company a symbol of industrialization and a source of security for workers no longer exists. The company, saddled with debts and meeting less than 30 percent of its annual production targets, has placed a moratorium on new hires, and no longer guarantees employment out of the apprenticeship program. Repeated modernization plans have been forestalled. Most of the sizable workforce that once made demands unprecedented in the history of Egypt’s labor movements has shrunk considerably, due to management and state efforts to push for early retirement and to defang the leftist wing. What was once a well-paying job — Abdel Qader once took home a profit-sharing bonus equivalent to 16 times one month’s salary, but that figure has dropped to equal to five months — is plagued by uncertainty. 

What exactly will happen next is unclear. Former Prime Minister Sherif Ismail sits at the head of a special committee that has been tasked with deciding the company’s fate. There have been indications that the company will be liquidated. However, workers are making a last-ditch effort to modernize the derelict furnaces, hoping to resurrect what was once a mark of auspicious beginnings for a newly independent Egypt. 

Once the star of an emerging sector, Iron and Steel falters

The Egyptian Iron and Steel Company’s unique history has both shaped its rise to prominence and led to its current troubles. 

For starters, the company is the only one among 32 companies in Egypt’s iron industry that depends on iron ore extracted from Egyptian mines. 

The discovery of iron ore deposits in Aswan in the mid-twentieth century was the main rationale for the establishment of the Egyptian Iron and Steel Company in 1954. This initial capacity was expanded in the 1970s with the discovery of iron ore deposits in the Bahariya Oasis, which were connected to manufacturing plants in Cairo by railway. The company also owns quarries in Suez and Minya that extract limestone used in iron manufacturing. 

As a result, the company has rarely suffered in the face of foreign currency shortfalls, which have hit its competitors, who depend on the import of production inputs. 

However, this dependence on iron ore necessitates a particular type of smelting: blast furnaces. The Egyptian Iron and Steel Company is the only company in Egypt that uses blast furnaces to smelt iron ore into steel. Blast furnaces produce what is known as pig metal using a mixture of iron ore, coke, and substances like limestone. The pig metal is further refined into steel in a second process. 

All other companies in the sector, however, depend on electric arc furnaces, which use high-current electric arcs to melt steel scrap and convert it into liquid steel. 

In the aftermath of the Egyptian government’s government’s macroeconomic adjustment plan, which was accelerated by the deal with the International Monetary Fund in November 2016, the cost of inputs in steel production skyrocketed, as subsidies were lifted.

While electricity prices went up by 50 percent, natural gas by 80 percent and water by 40 percent, the cost of coke went up by a whopping 200 percent. 

The significant production costs the company suddenly took on might not have been so catastrophic if it weren’t for the pre-existing debt from dilapidated machinery.

According to Abdel Qader, the machinery and equipment started to deteriorate exponentially without any effort at repair or replacement by the end of the 90s. 

“I and many other workers noticed the deterioration, as malfunctions became more and more frequent,” the worker tells Mada Masr. 

According to a Central Auditing Authority report on the company’s Fiscal Year 2018/19 financial statements, the deterioration reached a level at which “many production lines were halted repeatedly because of the aging machinery and equipment. The report notes that the rate of breakdowns and malfunctions reached 92 percent of all operating hours, up from 82 percent the previous year., 

In turn, the size of production from the fourth furnace, the only operating furnace of the four the company owns, fell to 166,533 tons of cast iron of the targeted 581,004 tons in 2018/2019.  Thus, actual production barely exceeded 28 percent of the targeted production — a significant decrease even from the previous year, when actual production had been 46 percent of its target.

Production stoppages are not only caused by frequent equipment breakdowns but by a steep shortage in coke and the extreme volatility of coke supplies delivered by the Nasr Coke Company. 

This graph below shows the trajectory of the Iron and Steel Company’s net profit and loss from 2009 to 2019. A net profit of LE49 million in 2009 was replaced by a net loss exceeding LE1.5 billion last year.  

Source: EGX data

Mass labor exodus

The company mismanaged not only its machinery, but its workforce. 

For Abdel Qadar, the main turning point for workers was when the government opened the door for early pensions in the early 2000s, a time when there was significant talk about privatizing state-owned companies.

“The announcement of early pension pushed many workers to believe that retirement was inevitable — that the end of their time at the company was imminent,” Abdel Qadar says. “The workers expected that the company would be privatized, especially after the government privatized the Egyptian Refractories Company in Helwan — which used to supply ours with refractory bricks to build the inside walls of furnaces.”

In the minutes for its extraordinary general assembly meeting in November, the company acknowledged that the application of the early pension scheme “without limitations starting in 2001” led to the exit of “excellent, experienced middle-aged  labor.”

The decline in the workforce was hastened when the company enacted a full moratorium on new hiring in 2010, 20 years after the last cohort of hirees in 1990, according to Abdel Aziz Khalil*, an employee in the company’s financial management. 

“As workers were retiring or passing away, the number of workers gradually went down,” he tells Mada Masr.

Within the last three years, the company’s labor force shrank by 13.4 percent. 

Source: Minutes for Egyptian Iron and Steel Company’s extraordinary general assembly meeting in November

“The dream of the company’s successive managers was to reduce the labor force” by any means, says Kamal Abbas, the general coordinator of the Center for Trade Union and Workers Services and a former employee in the company before he was fired for his leadership role in the company’s major sit-in in 1989, one year before Abdel Qader joined the company.  

Before Abbas left the company, “the management used to confidently assert that reducing the number of workers to 12,000 from the 19,000 at the time would be sufficient to raise profits, but now the number of workers has gone way below that target.” 

Aging out the workforce

The moratorium on new hires has led to a significant drop in the number of young workers employed at the company. The percentage of the total labor force that is under 30 years old currently stands at 2.17 percent, while those between 50 and 60 represent 54 percent of the whole labor force.  

Source: Minutes of November General Assembly meeting

The shift in age demographics is a potential factor in explaining the current weakness of labor mobilization in the company, which had once been an exemplary, well-known model, Abbas tells Mada Masr. 

For the former company worker, the decline in the company labor movement’s power started in the union elections of 2001, when the leftist wing of the workers’ leadership failed to win more than two seats. 

“Before the elections, we, the labor leadership supported by the [Center for Trade Union and Workers Services], had won four seats on the union’s committee, including a seat won by Fawzy Mohamden. But he passed away before the end of his term,” Abbas says.

Fawzy Mohamden, one of the most well-known labor leaders in the history of the Egyptian Iron and Steel Company, played a key role in the 1989 sit-in, which gained such traction that the state, represented at the time by then-Interior Minister Zaki Badr, resorted to the use of extreme force to disperse workers. Security forces broke into the company and fired live ammunition at workers, killing a worker named Abdel Hay Suleiman. 

The 1989 sit-in was organized in response to management’s decision to fire two board members who had been elected by workers. The board members were targeted for supporting a list of concessions workers had won via previous strike action and for pushing for the dissolution of the union committee affiliated with the company’s management. Workers had signed a petition to impeach the committee, an unprecedented move in Egypt’s labor movement history. 

Suleiman was invoked in the slogans of candidates running for the board of the union committee in 1991. Some candidates used pictures of the slain worker in their campaign images, with others adopting slogans such as “Abdel Hay lives on” and “Do not elect Abdel Hay’s killers,” the latter a reference to candidates close to the state. Workers heeded these words, and the left-leaning candidates swept the elections. 

Although the company has a historically active labor force, it never joined the push toward independent unions, which started in 2008 and then flourished after the January 25 revolution. 

“The reality is that independent unions never spread well among public sector workers,” says Abbas. “For example, in the Egyptian Iron and Steel Company, it was very hard to give up membership in the old union committee because it meant giving up membership in the fellowship fund that grants a worker a severance package of LE120,000.”

Union elections were supposed to take place in 2011, but the eruption of the January 25 revolution led to the dissolution of the Egyptian Trade Union Federation’s board and the postponement of the elections until a new union law guaranteeing labor union pluralism was issued. 

But this never happened. 

Members of the union committee, which included members of Mubarak’s dissolved National Democratic Party, remained in their positions until elections were held in 2018 “in accordance with a new union law issued by an authoritarian authority,” according to Abbas. 

Today, with talks that the company may be liquidated, workers have only an enfeebled labor movement to turn to. 

Years of promises

In an interview with Al-Masry Al-Youm newspaper in February, Public Enterprise Minister Hisham Tawfik hinted at a possible decision to liquidate the company. Tawfik told the paper that the special committee tasked with deciding the fate of the company would make a decision “very soon.”

In May 2019, Tawfik formed a committee to study and determine the fate of the Egyptian Iron and Steel Company. The committee was headed by former Prime Minister Sherif Ismail, and included professors from the Military Technical College and representatives of sovereign bodies. 

However, no one from the company itself was appointed to the committee. Furthermore, the committee has not visited the company’s premises, according to Khaled al-Feqy, the head of the General Union of Metal Industries and a board member of the Metallurgical Industries Holding Company.   

The special committee was formed after a series of aborted plans to modernize the company. In the last six years, the government has announced and then backed off various modernization plans. According to Feqy, these plans could have stemmed the company’s losses. 

“The government-backed off a plan to fund a modernization plan in cooperation with a Russian company. Ibrahim Mehleb, the prime minister at that time, promised to provide funding worth US$50 billion, while Ashraf Sharqawi, the public enterprise minister in Mehleb’s Cabinet, pledged LE100 million to rehabilitate one of the furnaces. However, the company needed to rehabilitate a boiler, which never happened,”  says Feqy. “In 2018, Khaled Badawi [the public enterprise minister at that time] canceled a deal to renovate the company in cooperation with a Chinese company that intended to build new furnaces powered by electricity to recycle the scrap iron. In the same year, Tawfik canceled another tender for modernization.”

One of the most famous modernization plans was introduced by the former CEO of the company, Sami Abdel Rahman, before he was fired. Abdel Rahman declined Mada Masr’s request for comment on his plan. However, Khaled Mohamed*, a senior member in the company’s union committee, laid out its features to Mada Masr. 

“Sami Abdel Rahman targeted increased production in three phases. The first would have allowed 1.2 million tons to be produced per year, which is the full productive capacity of the company. The second would have pushed production to 3 million tons — a figure that would have gone up to 5.5 million tons,” Mohamed says.

A senior source in the company with good knowledge of the successive modernization plan who spoke to Mada Masr on condition of anonymity says that Abdel Rahman’s plan “aimed to introduce new electricity-powered furnaces that would have recycled the iron scrap from the waste of the company’s blast furnaces, build a new factory for rebar with a production goal of 750,000 tons annually, and modernize the current factory by renovating the blast furnaces.”

According to Mohamed, Abdel Rahman’s plan would have been financed by selling the company’s unutilized land assets, so that the company would be better positioned to repay its debt after reaping the benefits of modernization. However, the government rejected the plan in principle, arguing that the company was only granted land assets for operational activities, such as building new factories. 

The company’s land assets are the cornerstone of its share value, according to the annual report issued by Shuaa Securities titled “20/20 Vision: Keeping an Eye Out.” According to the report: “Iron’s value is closely tied to its non-operating assets. We believe the stock price is linked mainly to the value of its land bank, albeit unquantified.”

Though the majority of shares are owned by the Public Enterprise Ministry’s Metallurgical Industries Holding Company, the remaining shares are traded, as shown in the figure below.   

Source: EGX

“After its full-fledged insistence on rejecting the sale of land assets to finance modernization, the government is currently building support for the idea of selling the land assets, not for modernization but to pay the company’s natural gas and electricity debt,” says Mohamed.  

The company currently owes natural gas, electricity and other companies a total of LE5 billion, according to the meeting minutes of the November general assembly meeting.

Light at the end of the tunnel

Without a clear indication of the company’s fate, workers are torn between hope and despair.  They expect the company to be liquidated in the next two months; the company announced it would begin accepting applications from engineers to transfer to another company in the public sector.

For Abdel Qader, the announcement represents an implicit declaration of the government’s intent to liquidate the company. 

But there is hope, too. When operations were revamped at one of the four furnaces earlier this month, workers interpreted it as a sign that the company would continue. 

Gamal Abdel Mawla, the head of the union committee, tells Mada Masr that Medhat Nafea, the CEO of the Metallurgical Industries Holding Company, agreed to the company’s request to use spare equipment in storage facilitates to rehabilitate one of the furnaces. 

“The available spares would cover half of what is required to fix the furnace, so we requested to import the rest of the spares, which would cost 3 million euros. But we have not heard a response to this request,” said Abdel Mawla. “However, [Medhat Nafea] promised to visit the company to inspect the outcomes of the first phase of the rehabilitation of the furnace.” 

Rehabilitating the furnace will increase the functional operations in the company, bringing two of the four blast furnaces online.    

In a statement addressed to the Egyptian Stock Exchange, the company announced it intends to close a settlement with the natural gas company to pay off debts worth LE3.6 billion through an arrangement to sell off two pieces of land owned by the company. 

In addition, Abdel Mawla says that the company’s board meeting with the CEO of the Holding Company concluded with a decision to allow the company to reschedule its debt owed to the Nasr Coke Company in exchange for increasing the supply of coke to 700,000 tons per day, which is significantly higher than the current daily supply of 300,000 tons.

This step comes as a response to interim modernization plans the board of the company has presented to the Metallurgical Industries Holding Company. 

The newest modernization plan, according to Mohamed, entails “providing a regular supply of coke, ranging between 500 to 800 tons per day and rehabilitating one of the three dormant furnaces.” 

“This plan requires LE400 million in liquidity from the Metallurgical Industries Holding Company to be used exclusively for modernization, not for the repayment of debt,” Mohamed adds.

This interim modernization plan includes the sale of unutilized land assets to pay the company’s debt, with “the debt repayment phase being considered a first step to get rid of the accumulated financial burdens in order to pave the way to kick off the modernization plan that aims to raise production to 600,000 tons, which is the level that would achieve equilibrium between cost and revenue to end losses,” said Mohamed. 

 

*Pseudonyms are used to protect sources from management or national security retaliation

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Beesan Kassab 
 
 

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