State Owned Enterprises- Company Overviews OCPA - Ministry of Industry & Minerals Note: All currency figures are in 000's of Iraqi Dinars unless otherwise noted. 1. General Information Company Name: Sector Brief Description Revenue in 2002 (Iraqi Dinars '000s) # of Employees Annual Employee Salaries & Bonus Headquarters Address State Company for Iron & Steel Engineering DRI, structural sections, spiral pipes and reinforcement bars. Company started sponge iron plant in 1964 and steel plant in 1978. 29,446,769 4,290 5,730,546 Basrah, Khar Al Zubair (15km from port) 2. Company Highlights Massive looting to all facilities, which is ongoing. $20-30M USD in damages. May be up to one year before production could be restarted. Pipes are in particular demand from Oil Ministry, who has asked that this Company receive priority attention. The project has been allocated to Um Qasr plant. Reject pipes can be used for water and sewage. Pipes are critical to Oil Ministry's goal of multiplying oil output over next couple years. Estimated needs of 250K tons/year indefinitely. Would provide $25M USD in annual value added revenue to Company. Oil Ministry willing to purchase raw materials. Local production costs for pipes, including shipping, are $200/ton cheaper than imports (may be a result of subsidies, though). After removing subsidies, Company believes production should remain competitive. However, it may not be fully considering value of subsidies it historically received. Company received scrap metal free of charge, received almost $10M USD in import subsidies, and used 86mw of electricity in 2002 for virtually no cost. Also used 68 million m3 of natural gas at virtually no cost. Unit cost without these subsidies needs to be studied. Has new pipe plant worth $20M USD in storage in Germany. Will increase the Capacity from 80K tonsto 250K tons/year. Will cost $8M to transport and erect. Local advantages: (1) transporting coils is expensive (2) Importing of finished pipes would be logistically difficult, and (3) necessary coatings are made of local materials. Has $1M USD in a Jordanian account, currently frozen by Jordanian government. 11 page report by local Ministry official on strategy for developing this Company on file. Ministry of Oil has an MOU for steel coils to the value of $44M to be converted into pipes at this location. Part of the machinery is Spanish made and it may be possible to rehab through Spanish funding. Company has between $50M and $80M worth of raw materials (scrap metal and iron sponge pellets, with interested buyers. Allocated $500K USD for 2H 2003 operating budget and provided with zero mw off of grid. 3. Facilities Name Pipe Plant Damage % 80% ($6M USD to repair) Pipe Plant German storage 0% Steel Structure Plant Basra Iron and steel $496M paid in 1979 $7M USD to repair Value of All Plant & Equipment Before War, and Total investment was $550M USD not including real estate costs. Initial Purchase Dates and Prices for Major Items spiral $22mil 3 lines build 1975 city Basra Power Needs 85mw 4. Products Product Name Bars Sections Spiral Pipes New Spiral Pipes Plant in Storage Description of Importance of Products to Other Iraqi Industries 5. Customers Customer Name SC for Construction Materials (Min of Trade) Iraqi Military Oil Ministry 6. Suppliers Supplier Name Primier (Turkey) Unnamed Syrian Company Red Found (Russia) Sigri (Germany) Graphite from India Sorpa (Turkey) Unit Measurement Design Capacity Available Capacity tons 240,000 60,000 tons 160,000 tons 100,000 60,000 tons 250,000 0 Ministry of Trade main bars and section Pipes for Ministry of Oil and Water Board 2002 Production 2002 Revenue 4,400 2002 Revenue Subsidized (Y/N) Y Products Sold to Customer and Unit Pricing Sections and bars at 400K ID/ton Artillery pieces at 325K ID/ton Spiral pipes at 450K ID/ton 2002 Purchases $3,214,250 USD $1,275,000 USD Subsidized (Y/N) Y, thru MOU Y, thru Protocol Products Purchased and Unit Pricing Rolling mill rolls 500 tons of graphite electrodes 500 tons of graphite electrodes Company Name: Didier (Germany) Viecher (Austria) Manesman (Germany) MCC (China) Mica from Turkey Mitsubishi - Japan Esab (Sweden) Silvana (Turkey) Current Payment Terms From Suppliers State Company for Iron & Steel 25% advanced payment, 15% at time of opening the L/C. Remaining 60% when products are received. 7. Imports & Exports 2002 Import Markets for Raw Materials Potential Import Markets in Free Market 2002 Export Markets for Finished Products Potential Export Markets in Free Market Extensive. See list of suppliers. Total cost of imports of $220 to $260 USD / ton. None. Gulf area, especially the medium sections. 8. Competition Description of Competitive Situation Main competitors were imports brought in by SC for Importing Construction Materials (MOT). Market Share Description Company was covering no more than 5% of local demand. But at full capacity prodution can cover 30%. 9. Summary of War Damage & Looting of Property & Equipment $7M USD of looting damage to control equipment and electrical work at steel structure plant. Description of Damage Separately, $6M USD damage to pipes plant. Power generators also damaged. Current Operating Status Immediate Property & Equipment Needs To Restart Operations Total Cost to Return to Pre-War Condition 10. Inventory Status Raw Material Status Not operational. Will take 5 months to one year to repair damage and begin operations, maybe up to 1 year. Will take 9 months to erect and start new pipe plant. Must repair most damage described above. $20M USD for both factories, and growing. Iron ore and Steel scrub are available for 1year production. 1M to 1.2M tons of scrap steel at facilities (which it received free of charge). An additional 500,000 tons are scattered around the country. 500K tons of iron ore pellets worth $27M USD. $1M worth of bricks and electrodes. Scrap metal and iron pellets would last 3 to 5 years under normal production rates. Immediate need for import of graphite electrodes, ferro alloys, refractories & spares. Company could sell scrap metal and iron sponge pellets for over $50 million, maybe as much as $80M. Also has $1.5M USD in other finished goods. Months of Material Supplies & Production Rate Immediate Raw Material Needs Finished Products Supply (Units and Value) 11. Fuel & Electricity Needs Description of Fuel Needs Description of Electricity Needs 5 mcf of natural gas For two furnaces, need 85 mw 12. Other Needs to Restart Working Capital Needs Security Needs Other Needs Rebuilding cost is more relevant than working capital Yes, looting is still a major issue as of 7/12/02 13. Strengths, Weaknesses, Opportunities & Threats Availability of scrap metal, cheap labor and energy, availability of complete infrastructure and Description of Strengths harbor facilities for import & export, good technical staff. Description of Weaknesses Old equipment and production technology make operating costs uncompetitive. Company Name: Description of Opportunities Description of Threats State Company for Iron & Steel To upgrade the production capacity with modern equipment and add new longitudinal welded pipeline to serve oil and gas industry (8 - 24") 200k to 250k meter /year. Looting and ongoing security threats. 14. Long Term Strategy Description of Strategy Need to erect new pipes factory and upgrade steel structure factory. Total renovation on property and equipment would cost $150M USD. This would allow output to increase to 600K tons/year (over $200M USD in annual revenue). See reports on file for full description of strategy. ARW pipes (similar to spiral pipes). Longitudinaly welded pipes. No partnerships identified by mgmt, but willing to partner with manufacturing and/or marketing companies. Potential New Products Potential Partnership Opportunities 15. Revenue and Costs Overview Description of How Pricing Was Set Description of Production Costs Potential for Profitability in Free Market Cost of production + 30% profit. In free market, Company can sell merchant steel at $275 USD per ton, bare pipes at $600, anand coated 3 layer P.E. at $700. Labour & raw materials (20%), Utility (3%), depreciation (0.5%), Rental interest (1%), other expenses (0.25%) Depends on ability to invest in modernizing production equipment.