Egypt buys back Tanta Flax company over 15 years after privatization deal

The Egyptian government agreed on Saturday to pay LE340 million (around US$21.7 million) to buy back Tanta Flax and Oil Company, over seven years after a deal to privatize the company was voided in the courts, a source told Mada Masr.

Nationalized in the 1960s, Tanta Flax and Oil was sold in 2005 to Saudi Arabian investor Abdel Ellah al-Kaaki in a deal that substantially undervalued the company, the courts later ruled. 

Public Enterprise Minister Hisham Tawfiq said on Saturday that the buyback negotiations were completed. Tawfiq did not say how much Egypt had agreed to pay in the settlement.

Yet, a senior official at the holding company who is directly involved in the negotiations told Mada Masr on condition of anonymity that the talks have concluded on returning [the company] to the state’s possession for LE340 million.”

Kaaki paid the Egyptian government LE83 million for the company in 2005. Five years later, workers who lost out on pay or who were fired in the wake of the deal took the government to task for selling the company in a legal appeal.

A final 2013 court ruling voided the sale“proving that the valuation process was corrupt,” said lawyer Khaled Ali, who represented the Tanta Flax workers in their legal filing at the time. In its ruling, the Supreme Administrative Court observed that the government instrumentalized “soft regulations” and “clear incentives to investors” to sell off Tanta Flax despite its profitability, as Hosni Mubarak’s government rushed to try and privatize a total of 127 companies between 2004–2006. An earlier 2011 ruling in a lower court also noted that even in 1996, the company was worth LE211 million (approximately $62 million at the time according to Mada Masr’s calculations), substantially more than the LE83 million it was ultimately sold for nine years later (approximately $14 million). 

Another six similar privatization deals were also voided in 2011, including those of the Shebin el-Kom Spinning and Weaving Company, the Nasr Boilers Company, Omar Effendi department stores and Nile Cotton Ginning.

Since its sale was invalidated, the company has been acting independently, with any profits generated passed neither to the Public Enterprise Ministry, nor the state-owned National Investment Bank which owned a 43 percent stake in the company before the 2005 deal, nor to the 2005 buyer. At present, only four out of the company’s 10 factories are currently in operation, the holding company source told Mada Masr.

Ali added that the buyer has been unable to profit from Tanta Flax’s factories up to this point, and claimed that the lawsuit facilitated the company’s return to state hands, speculating that the government would otherwise have been obliged to pay the “old buyer a much higher price.”

It is not yet clear how Saturday’s buyback deal will affect the thousands of workers who were impacted by the privatization deal. Since 2005, Tanta Flax has downsized from some 2,300 to fewer than 200 workers as the majority of its production lines came to a halt. The final court decision in 2013 also stipulated that all workers forced into early retirement at the time of the sale be restored to their positions.

A worker dismissed after the deal, Gamal Othman, previously told Mada Masr that the investor didn’t pay salaries to workers for six months in response to repeated strike action, and that over 600 workers were forced into early retirement in the wake of the sale. 

Similar state buybacks are unlikely to happen again. In 2014, new legislation blocked the legal pathway to challenge privatization contracts made prior to the 2011 revolution, prohibiting appeals from any party other than the government itself or the buyer.