After 10 years of suspension, the Industrial Development Authority (IDA) revived the industrial development companies, based on new conditions and controls to avoid repeating previous mistakes that were brought up by a number of investors, and led to land price hikes.
The conditions and regulations newly introduced by the IDA to approve the allocation of new land for industrial developers have been discussed for years, but they are finally coming into effect. The IDA issued a conditions booklet for the first land offering in 10th of Ramadan City, an area of 4m sqm.
The conditions brochure, a copy of which was obtained by Daily News Egypt, showed that the IDA has created a new system called “Competitive Points” to choose between offers. It gives each company a number of points indicating their compliance with the new conditions and controls.
The conditions booklet obligates development companies to comply with a wide range of technical and financial requirements related to the final selling prices for investors, the provided services, the period of implementation, the financial efficiency, as well as the areas allocated for small projects.
IDA will start receiving the financial and technical offers of the industrial development companies on 21 November. The authority had determined the selling price of the land at EGP 220 per sqm and obliged companies to pay 25% of the total value of the contract, with the remaining value to be paid over three annual instalments.
The brochure included three main parts: the basic rules for the acceptance, evaluation, and comparison between bids, the acceptance documents of the offers, while the third part explained the competitive points system.
Financial and technical offers submitted by industrial development companies must be in the Arabic language. The IDA has the right to issue supplements of the booklet including any amendments without reference to the bidding companies and they do not have the right to object to those changes. However, these supplements should be delivered to the applicants before the deadline of submitting the offers.
According to the basic info, bidding companies are obliged to bear all the required costs, expenses and fees in relation to preparing their offer. They are required to respond to queries and negotiations related to the booklet and the consequent contractual procedures. The IDA is not responsible for repaying any of the above-mentioned expenses or fees associated with the bid whether the offer is accepted or rejected.
The IDA shall not accept any amendment, removal or addition to the offers unless it is written between brackets and signed by the company. The IDA obligates each bidding company, whether a natural or legal entity, to present within its bid the name of the person authorised by the company to sign the offer and correspondences related to the booklet.
Bidding companies wishing to compete on the land shall present the original copy of the offer including all documents signed by the bidding company and sealed to the authority in accordance with the conditions booklet, in addition to two photocopies stamped with the stamp of the original offer.
The booklet determined the evaluation criteria of the accepted offers based on the competitive points system, which gives each candidate a number of points according to the companies’ compliance with the project’s requirements.
The IDA is entitled to cancel the offering before evaluation as long as this is deemed to be in favour of public interest and the authority shall have no liability toward the bidding companies. The authority is also entitled to cancel the offering during the allocation session, if the lowest offered price is inappropriate. It is also entitled to cancel the offering if all or most of the offers are accompanied by reservations that do not comply with the booklet’s conditions and specifications or can not be evaluated.
The brochure states that the IDA has the right to cancel the tender based on the recommendation of the offer evaluation committee and after the approval of its board of directors, without any liability to the bidding companies. In this case, the companies would not have the right to request refunding the cost of the conditions brochure or any other expenses. The IDA may accept or reject any offer without giving reasons and without any liability to the bidding companies.
The offers may be accepted based on the recommendation of the evaluation committee. The offers shall be received and studied after the approval of the IDA’s Board of Directors, if they met several conditions.
The booklet organised the rights of the bidding companies wishing to withdraw their bids. Those companies are not entitled to withdraw the fees in case of failure to submit the required documents within the specified dates or to respond to queries or requests that the IDA deems necessary to evaluate the offer. However, IDA gave companies the right to withdraw during the allocation session and pay 20% of the primary letter of guarantee’s value.
The conditions brochure determined the validity period of the offer as 90 days, starting from the date specified for opening of the sealed technical offers. The evaluation shall be completed before the expiry of the validity period of the offer. If this was not possible, the IDA can request extending the validity period and the companies have the right to accept or reject the request. In case the companies refused, the primary letter of guarantee will be returned to them without any liability for expenses.
The booklet obliged the bidding companies to accept any amendments made by the State Council and its departments to the industrial development license contract. The companies would not have the right to object to the amendments or to request refunding any costs.
The submission of offers and the admission conditions
The conditions booklet determined four basic documents when presenting the offer: the admission letter, the primary letter of guarantee worth EGP 5m to develop a single industrial zone, a sealed technical envelope containing the name of the company, and a competitive envelope.
The booklet specified several conditions for the acceptance of offers, including good banking reputation that is determined based on the financial situation of the company, and confirming that at least one of the main partners has documented experience in an activity related to a special industrial zone with a total area of not less than 7,500 square metres.
In terms of financial aspects, IDA determined the minimum paid up capital at EGP 20m to develop a single industrial zone. In case the bidder is a company under establishment or a group of companies, the minimum paid up capital is calculated according to each partner’s share.
The brochure stipulated that the minimum annual activity revenue of previous three years must be at least EGP 30m per year, in case the bidder is a “company under establishment” or a group of companies.
Eight documents to be submitted by the companies for admission
The second part of the conditions included the admission documents of the industrial development companies, whether it was one company or a group of companies.
The booklet required the bidding company to submit an updated document explaining its financial situation issued by the Central Bank of Egypt (CBE) of a maximum one-month period prior to the opening of the sealed offers.
This document may be replaced by an authorisation to the IDA to inquire about the bidder’s financial situation, in addition to an updated document of the company’s financial situation issued by the central bank of the district hosting the industrial development headquarters, registered by the Egyptian Ministry of Foreign Affairs (for foreign companies).
The documents must also include a valid tax card and an updated official document from the Commercial Registry. For the companies under establishment, a non-ambiguity certificate will be presented showing the name of the company to be established, in addition to a certificate of registration in the country of residence if the company is foreign.
The conditions brochure requires the bidder to submit their original financial statements, supplementary notes and the auditors’ reports for the previous three years.
The documents of the industrial development shall include an obligation to raise the paid up capital of the company (if the applicant is a single company), and to establish a joint stock company with a paid up capital of EGP 20m (if the applicant is a group of companies).
The conditions booklet set several technical controls for the approval of bids. Industrial development companies are obliged to establish a main 25-metres wide road network and a secondary 15-metres wide road network, as well as an internal 15-metre wide ring road on the boundary of the allocated land in the 10th of Ramadan City.
The booklet forbade the construction of closed-end streets within the industrial complexes, and obliged the companies to establish at least two main entrances to the area and 7-meter width green belts separating the neighbouring industrial zones.
The companies are allowed to use all the allocated lands for industrial purposes, except the service area. In no case shall the allocated land in this area be used for non-industrial purposes.
The conditions brochure also obliged the companies to use only 60% of the allocated land for industrial purposes, of which only 10% shall be allowed for stores and warehouses. The green space shall not be less than 5% of the area, while roads and parking lots shall not be less than 25% of the total area.
The booklet determined certain basic services that the industrial developer shall provide in the allocated area, notably an administrative building for the management of the industrial zone, a clinic, an equipped training centre, cleaning services, a nursery and a water tank with a storage capacity of 3,000 cubic metres.
The evaluation of bids (Competitive Points System)
The conditions booklet created a new competitive points system to choose between offers. It gives each company a number of points indicating the extent of each company compliance with the conditions and controls.
The booklet gives 60 out of 100 points for quality aspects service that includes three main determinants (final selling price of land for the investor – the offered services – small industries area). The booklet gives 25 points for efficiency (duration of development and previous experience), and other 15 points for financial ability (finance investments – return on investment – value of paid up capital).
The booklet includes three investments that illustrate the competitive criteria for land offers to be offered to companies, the first of which includes the level of service provided, while the second includes the capacity and technical competence. The third includes the financial efficiency.
The first investment requires companies to determine the selling price per metre to the final investor to compare them with other accepted offers, bearing in mind that each increase applied by the company on the lowest price offered in the other offers of EGP 50 is equivalent to five of the forty points specified for the evaluation. Companies obtain 10 points if committed to providing total services to the region, and 7 points for basic and optional services. They receive zero points for offering basic services only.
The second investment measures the ability and technical competence of the applicants in terms of duration of development, and the previous experience of the major development partners. It gives 20 points to companies that undertake the full utilisation of the space within two years, 10 points within three, and no points for more years.
An investment is granted five points for self-financing companies, three points for external financing of less than 30%, one point for external financing of between 30% and 50%, and no points for those relying on external financing greater than 50%.
An investment is given five other points for companies with a return on investment that is greater than 20%, three for a 15-20% return, 10-15% and no points for less than 10%.
The investment has set an additional five points for companies whose paid-up capital exceeds EGP 40m, four points on capital of EGP 30-40m, and three for capital of EGP 20-30m, not given points for capital of only EGP 20m.
Customisation and contracting
The terms of reference have shown that the IDA will send written notification to all accepted bidders, including the date and venue of the public meeting for the initial allocation, and the priority of the offer in accordance with the competitive arrangement.
The prospectus explained that the priority in the selection between the areas offered will be according to the priority of the bidder and its competitive arrangement. It stressed the need to meet the attached pledges and the final guarantee letter before the commencement of contractual procedures for the industrial developer assigned to them in principle.
The study is a special item for the amendment of the State Council to the contracts concluded. The bidder is obliged to accept any amendments made by the council and its departments to a licence for the development of an industrial zone, primarily the sale of primary land and other attachments.
Model contract between industrial development and developer
The contract to be signed between the IDA and the winning industrial development company included 19 items and all procedures and conditions between the two parties.
The first item provides for the approval of the IDA to develop and establish the necessary facilities, as well as to finance and maintain the industrial zone, all while committing itself to coordinating with the concerned parties to connecting the facilities (water, sewage, roads).
The investor must promote and market the industrial zone in order to attract investors in the industry, provided that investors can meet the specifications specified in the development plan according to the agreed timetable.
The prospectus states that if the developer cannot implement the approved plans according to the timetable, they may request the IDA to extend the timetable, stating in the request the reasons for extension—with the approved timetable to comply with the approved plans, in accordance with the modified timetable.
According to the contract, the developer will not enjoy all contract benefits except when the certificate of fulfillment of the conditions is issued by the IDA to pay the full price of the land under the contract and all the conditions in accordance with the approved plans.
The developer shall notify the IDA and request the issuance of a certificate, stating that the developer complies with its obligations.
According to the terms of reference, the IDA is entitled to cancel the offer finally if it believes the lowest price is unsuitable and does not meet the point of view of the IDA does not reflect the priorities at the time of preparation of the booklet conditions and without any responsibility rests with the IDA towards the bidder and the right to cancel the offer if all or most of the reservations are accompanied by reservations comply with the conditions of the IDA.
The IDA stipulated that 20% of the value of the letter of primary insurance, estimated at EGP 5m, should be withdrawn if the investor wishes to withdraw.
The contract stipulates that the investor must not exceed their electricity, water, and sanitation needs specified in the contract. If the developer wishes to exceed these requirements, the approval of the IDA shall be obtained, and the surplus needs of electricity and utilities shall be provided from the developer’s expense.
The IDA has set the electricity capacity of companies wanting to get 1 million square metres at 16 MW and 34 MW for companies with 2 million sqm.
The IDA explained in its contract with the developer that the IDA has the right to dispose of lands that have not been disposed of by the developers.
The contract obligates the industrial developer to prepare a model of the rules and procedures governing and regulating the activities within the industrial zone and related relations. These rules should aim at investors’ compliance with the safety and environmental rules and any other requirements stipulated by the relevant laws and approved by the IDA.
In accordance with the signed contract, the IDA committed the companies of the industrial developer to submit the timetable for the various industrial activities to be established in the industrial lands within one month from signing the land contracts.
The developer is committed—no later than three months from the date of the contract—to submit the comprehensive plan and detailed timetable for the implementation of the project.
The contract stipulates that the industrial developer shall be required to provide a piece of land with an area of 1,000 square metres attached to the service area and free of charge to be owned by the IDA to establish its headquarters or for any purpose deemed by the IDA in the Industrial Developer Zone.
According to the contract signed between the IDA and the companies of the industrial developer, the IDA committed the companies to not exceed the maximum selling price per square metre at the price specified in the financial offer within one year starting through the adoption of the master plan.
Under the contract, the developer is not allowed to increase the maximum selling price per square metre during the contract period for the specified value, in addition to the annual bonus only after submitting an application to the IDA and obtaining the approval of its Board of Directors at the time to increase the maximum selling price per square metre.
If the developer does not meet 80% of the sales during the period specified by the IDA in the contract period, the IDA has the right to re-allocate the land plots that have not been disposed of with its knowledge.
The IDA explained in accordance with the terms of the contract that it has the right to enter the industrial area to follow up the progress of the work and inspect the industrial zone without notice to the developer.
In the case of the IDA’s knowledge that the developer cannot complete the acquisition of specific plots of land or the non-implementation of the industrial zone in accordance with the approved general plans, the IDA shall inform the developer of a written report of the violations committed, to which the developer must submit within 30 days the reasons for violations.
The items shall be fined EGP 5,000 for 90 days, and in the case of repeated developer of the same error, the IDA is entitled to reduce the area of industrial area granted to the developer.
Once the IDA has terminated the contract with the developer, it will be incumbent upon the industrial developer to abandon the possession of the industrial zone. The IDA shall re-enter and resume the possession of the industrial zone. All improvements made by the developer to the area shall be transferred to the IDA.
According to the contract, the developer may not waive any rights and privileges to any person, company or institution. The IDA shall not consider any request for waivers, except in the event that the developer has fulfilled its obligations in accordance with the contract and the assignment is capable of complying with the developer’s obligations.
The assignee shall have precise texts stating that the assignee complies with all the undertakings established under the contract and shall not make any amendments or additions until the date of submission of the project.
Land sale prices for developers
The contract signed between the IDA and the development companies is the sale price of the land metre on the 10th of Ramadan City at EGP 220 per square metre. This includes the provision of utilities (roads, water, drainage, electricity).
The developer pays 25% of the land price as a down payment. The rest of the land’s price is paid in three installments, plus interest.
In the event of delay in payment of any instalment of the fixed price, the developer shall bear the accrued bank interest (credit and debit interest) in accordance with the interest rate declared by the CBE.
If the developer fails to pay within 60 days after the due date, the IDA shall be entitled to apply the provisions stipulated in the license contract to develop and develop the area and to suspend any credits to the developer from the maturity date of the installment until the payment of the interest.
The annual and semi-annual report form submitted by the developer
The terms of the conditions stipulate that the winning developer submits an annual or semi-annual performance report showing what has been accomplished during the previous year, and that the year shall start from the beginning of January and end in December of the same year.
In case of shortfall, the developer shall submit in each area where there is a time deficiency. The reasons for failure to reach the planned achievement in the previous year’s report, including the corrective steps that will be applied to compensate for periods of time deficit during the reporting period for the following year.
The prospectus is required to submit the annual report within a period not exceeding the last week of January, the length of the implementation period. The IDA shall have at most one month to review the report. If the IDA requests clarifications for any of the areas of the report, the clarification shall be requested by the industrial developer within a period not exceeding one month from the date of receipt of the report.
The IDA may, upon its request, invite the developer to provide clarifications. It shall then have the right to reject the report of the industrial developer if it considers that the report does not meet the requirements of the contract or the specifications of the IDA.