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Monday, 22 March 2021

Eastern’s new tender will be based on point-count bidding

The bidding process for a license to establish Egypt’s second major tobacco company will be assessed on a points system, according to the conditions booklet the Industrial Development Authority (IDA) has released for the auction, the local press reports. Bidders looking for a piece of Eastern Company’s monopoly on the sector should earn at least 70% of the system’s total 13k points to qualify for the tender.

What does the license allow you to do? Go head to head with Eastern — provided you don’t mind having the state-owned giant on board as a 24% partner in your venture.

Who’s interested so far? An unnamed Emirati is likely to throw its hat in the ring, according to a report in Al Mal’s print edition, which notes the bidder has a particular interest in non-traditional nicotine products including e-cigarettes. Major tobacco distributors and brand owners have expressed reservations about the conditions of the license sale, including a complaint that giving the new company an effective monopoly on e-cigarettes and heated tobacco would be anti-competitive.

The value of the license may reach USD 350 mn, Eastern’s CEO Hany Aman told El Hekaya’s Amr Adib last night (watch, runtime: 7:20).

There are, naturally, conditions: The IDA’s conditions would protect Eastern’s market share by preventing the new company from producing cigarettes at the same price point as the monopoly’s mass-market Cleopatra brand, which accounts for 98% of Eastern’s revenues, the state-owned cigarette manufacturer confirmed yesterday. Other conditions:

  • Minimum production of 15 bn cigarettes a year and a maximum of 50 bn (Egypt currently produces 80 bn smokes per year);
  • No restrictions on exports;
  • Allowed to purchase or rent some of Eastern’s unused assets
  • Must pay 25% of the value of the license within a month of being selected, with the rest in three quarterly chunks;

Bidders will accumulate points in two categories: Industry track record (7.5k points with a relative weight of 60%) and the pillars of the manufacturing proposal (5.5k points with a 40% relative weight). Track record covers everything from experience specific to the tobacco industry, the bidder’s forays into other industries, investments in other industries, and a financial analysis of their portfolio and sources of funding, among other criteria. Bidders will also be scored based on the types of cigarettes they plan to make, the expected water and energy consumption levels and emissions, the timeline for getting the company off the ground, the expected size of its staff, and how much it would rely on Eastern labor force.

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