Parastatal seeks clean slate after chequered past

After several failed starts, the much-maligned Nyayo car is set to chug to life yet again, only this time on a different chassis. The Numerical Machining Complex, the parastatal in whose yard the African dream car was born, is now seeking Sh2.9 billion to set up a steel mill. This for a company that was only revived early last year by the government.

The plant is intended to begin operations in the next 18 months depending on availability of the sought-for funds. Already, a project study has been forwarded to Treasury and other government arms for approval. According to Mr George Onyango, the chief executive of the corporation, the mill would be the organisation’s trump card as it seeks new growth anchors and to retrieve its once-revered status.

“The company cannot be commercially sustained on its traditional approach of doing business. The mill is set to define the strategic approach to business and as a backbone of industrialisation in Kenya,” said Mr Onyango. In the new business model, the firm hopes to specialise in the production of high quality steel through the use of scrap metal. This would then be converted into various grades for own production and for sale to other industry players.

The project, to be done in phases, will mainly be used for the manufacture of steel iron. The initial milling plant, the company says will be host ed at its Workshop Road headquarters, tucked within the Kenya Railways yard. Going by the status of the firm and its financial position, the amount it intends to raise for the complete set-up of the mill and its subsequent operation modalities may be quite the task to achieve.

The firm’s balance sheet is still riddled and punctured with old debts that were accrued in its initial days of operation. However Mr Onyango says that, the debts notwithstanding the company still has a robust enough asset base to act as its loan security should it decide to trudge down that road. These assets include a 1200-acre plot in Athi River that would in the future be turned into an industrial park.

However, a copy of the project proposal which the Smart Company has in its possession indicates that the firm would offer 63 per cent of the amount and raise the balance from other financiers. This translates to about Sh1.8 billion from the company and possibly the government.

“It should be noted that the existing cash flows are healthy enough to sustain servicing of a loan even without incorporating the additional stream of cash to be generated from new activities,” reads a section of the study report, carried out by Lead Consultants Limited.

Industry data shows that the average quantity of steel imports annually from overseas into the region is 40 tonnes. In the region, Kenya already boasts of about 20 steel related industries. Neighbouring Uganda has another four that may also heighten the competition for NMC.

“All the companies in the region currently make only single types of steel as opposed to what we will be doing. We are seriously looking at milling,” said Mr Onyango. In 2002, the government stepped in to protect local steel mills by imposing a 20 per cent export duty on scrap, which is used to melt and cast ingots normally supplemented with import billets.

The complex intends to use the stock of scrap metal currently lying at the yards of Kenya Railways and which consist of obsolete engines, wagons and rail tracks that may not find any use in the modernisation of the regional rail network. The railways management is currently selling scrap to dealers who in turn are suspected to be exporting them.

Theft by groups of people from the firm’s upcountry stations and rail network is also rampant. “We are trying to engage the Kenya Railways to stop the selling of this scrap such that when we finally start the production we can sort and use them as our initial raw materials,” says Mr Onyango.

To boost its raw materials, the company is understood to have also requested the government to lock in country-strategic stocks of scrap metal through the re-imposition of tight fiscal measures. Currently, it is estimated that there are about 100 registered scrap metal dealers in the country. They mostly collect the materials for delivery to steel melting industries and also to brokers who export it, mainly to China and South Africa.

Established in the late 1980’s by retired President Daniel Arap Moi, the complex has been widely associated with the Nyayo Pioneer cars. The cars that today remain parked at the main workshop of the firm may just well represent the ambitious vision of the then President. The company has since then dropped off the radar and its activities became near obsolete.

During its formation, the government had envisioned that it would be the start up manufacturer of automotive vehicles and spare parts. But weak capitalisation and politicising of the whole operation rendered the affair impotent. “Coming from a past that we all understand, our mandate today is to make sure that the company gets back to its initial goals,” says Mr Onyango.

Already the Privatisation Commission of Kenya last week advertised for bids to evaluate the company for possible privatisation. The company today is engaged in manufacturing of vehicle and agricultural spare parts. Among its clients include General Motors East Africa and the Federation of Agricultural Organisation-Somalia. Its product sample includes gearboxes, brake discs and a host of other vehicle spare parts that are still produced on an order basis.

“We are slowly receiving orders from local firms although in small bits, however we are confident that this will grow in the coming years,” said Mr Onyango. However to boost its business, the company is also engaged in the business of Computer Aided Design (CAD) as well as training for the same. It is also an appointed reseller of WorldsView Technologies of South Africa.