Frigomedit did not accomplish any of its missions relating to safety stocks, local market regulation or the export of Algerian products. Besides, it was ousted by public authorities in 2016 from the proceedings of establishing safety and regulation stocks of potatoes due to non competitive prices and the differential cost the Public Treasury was supposed to pay the company. 

Despite the billions it engulfed, a program that was supposed to establish a logistics network for public cold storage is yet to be completed even though it was started in 2010. The company that the authorities entrusted with the project (the former society of management of participations (SGP) Productions animales -Proda- which became the agro-logistics group Agrolog) proved incapable of managing it. 

This program mobilized around 54 billion dinars and nearly one million square meters (941 189 m²) of land. Its purpose was to restructure the portfolio of the cold storage sector, rehabilitate existing public cold stores and build new warehouses.

Over a decade later, however, the company created to do so, Frigomedit (a subsidiary of Agrolog) has not even completed half of the initial program. 

Frigomedit, in fact, did not succeed in any of its missions relating to safety stocks, local market regulation and exporting Algerian products. It has also been ousted by the public authorities, since 2016, from operations to constitute security and regulation stocks relating to potatoes because of its non-competitive prices and the cost of the differential that the Treasury had to pay it.

According to the 2022 Court of Accounts report, which Twala summarizes here, the program that was supposed to be achieved in 2016 hasn’t been finished on December 31, 2021. The credits allocated to the company to finance its investments have only been half used and those committed to upgrading existing warehouses and building new ones are not profitable, generating financial charges that the company obviously could not repay.

Born from the merger-absorption of the “Magasins généraux”, subsidiaries of the Sotracov (MAG-Sahel, MAG-Soummam and MAG Skikda) and Agro-Froid (MAG-Oran and MAG-Mostaganem) groups, The ”Entrepôts Frigorifiques de la Méditerranée”, by abbreviation Frigomedit, inherited 38 cold storage warehouses totaling 328,000 cubic meters, including 20 warehouses belonging to the former Enafla and the former Onapsa companies which are in liquidation, with a capacity of 228,000 cubic meters.

As it was initially conceived, in 2010, the program aimed to build 61 additional public cold storage warehouses with a capacity of 627 500 cubic meters in order to reach a public storage capacity of around one million cubic meters. That was not taking into account the failure of Frigomedit. 

A financial pit

In 2021, the program’s ambitions were lowered and its substance resized. The initial 61 new warehouses initially planned became 30, with a capacity barely reaching 383 500 cubic meters. That brings the program’s one million cubic meters substance down to 700 000. Even worse, barely two new warehouses were delivered in late 2021, one in El Oued (20 000 cubic meters) and another in Oran (30 000 cubic meters). 

As for rehabilitating and upgrading old structures, only 28 warehouses out of 38 were affected, while 8 warehouses remain non-functional.

The partnership concluded in 2012 with the Serbian company ITN Food Business Development did not go through. 

In March 2019, the State Participation Council (CPE) ordered the liquidation of the Salsef joint venture, created between Frigomedit and ITN Food Business Development for the construction and operation of cold storage warehouses. The Court of Accounts found that the dissolution procedures had not been completed, but the general manager of Frigomedit had hinted that the case could go before an international arbitration tribunal.

“Frigomedit has taken the legal and regulatory precautions in view of the complexity of this case which could eventually be submitted to international arbitration,” the Council wrote.

Frigomedit’s investment plan for the construction of new warehouses has therefore been halved, from 61 to 30 new warehouses, or from 627 500 to 383 500 cubic meters. The forecast cost has increased from 13.6 to 24 billion dinars, which means that the cost of building one cubic meter of cold storage has tripled.

the delays in the implementation of this part of the program have resulted in significant cost increases. This is due to the fact that the projects have had to be re-evaluated several times, and that the debt service on the loans that were taken out from the Bank of Agriculture and Rural Development (BADR) to finance the projects has also increased.

According to data the BADR gave to the auditors of the Court of Accounts, the total amount of the projected financial charge (Credits consumed, interest due, credits not used) is 24 billion dinars. 

The additional costs resulted, on the one hand, from the delay in the launching of the projects, the timetable of which is set for five years (2010-2015), and on the other hand, from the delays in accomplishing the various phases of implementation of the cold warehouses.

The amendments modifying the construction works of the warehouses – the progress rate of which had reached more than 40% – total 2.075 billion dinars, which represents 27% of the total amount of market commitments.

The registered delay in accomplishing the program also caused an important financial charge represented in commitment fees Frigomedit had to pay the bank for the credits not used but put at its disposal. This charge exceeded 1.3 billion dinars as of December 2021.

However, it was above all the “unrealistic” assumptions of the company’s business plan that made the investment costly.

Incompetence

According to the auditors of the Court of Accounts, the profitability threshold of the investment plan was built upon two hypotheses that did not withstand testing on the ground: an “unrealistic” achievement cost and a sizing of the investment plan solely on the basis of the market of cold storage of consumer agricultural products.

Frigomedit’s investment plan endorsed a forecast building cost of cold warehouses of nearly 22 000 dinars per cubic meter. 

The bids received to follow up on the first unsuccessful calls for bids launched in 2012, nevertheless proposed to build the cubic meter at 70 000 dinars on average, leading the Council of State Participations to review its investment and increase it twice, in 2013 then in 2018, to finally bring it to 24 billion dinars, i.e. approximately 62 500 dinars per cubic meter.

The cost noted by the auditors of the Court of Accounts as of December 31, 2021 is around 100 000 dinars per cubic meter for the 187 000 cubic meters under construction – 76 000 dinars per cubic meter for committed projects totaling 246 000 cubic meters according to the general manager of Frigomedit –.

The Court of Accounts’ investigations reveal that “despite the downsizing of capacities to build and the reevaluation of the allocated amount for executing the investment plan, the related business plan has not been updated”. 

That’s not all. Cold storage business is not so remunerative and regulation and safety storage operations are seasonal and time-limited. Thus, the company cannot generate enough income to meet the repayment deadlines of its debt which are approaching.

The fact of the matter is that Frigomedit was unable to grasp this cold storage market where it is accepted that infrastructure cannot be profitable in isolation from just-in-time activities. It has not been able to develop processing or export activities as underlined in the strategy document prevailing at its creation. Export operations have so far remained marginal and flow management operations for processing are almost nil.

Frigomedit must reach a turnover that generates 700 dinars/month/cubic meter of cash flow to be able to honor its commitments with the bank starting 2027, date of the end of its deferred payment which marks the start of the reimbursement of monthly payments and interest in full. This is not easy given the prices charged on the market – 300 dinars/month/cubic meter at positive temperatures and 600 dinars/month/cubic meter at negative temperatures –. Especially since it does not control its operating costs which, according to a financial projection relating to the break-even point of cold warehouses under construction, are around 1000 dinars/month/cubic meter.

Thus, the question of the viability of Frigomedit now arises with acuity. Would it be able to repay its bank loans? This is ultimately unsustainable.

The added value created by the company remains very low. It did not exceed 24% of turnover in 2020 (13% on average), which indicates a low profit margin from operations. And this, at a time when the financial charges generated by its debts and those of the staff weigh heavily on its cash flow, representing respectively 209% and 45% of the added value.

This situation of Frigomedit, which is already struggling to impose itself on a volatile and not very transparent agricultural products market due to the predominance of the informal sector, is in risk of going from bad to worse.

Guidelines 

The projected cost of the project includes, in addition to construction costs and the supply of technical equipment installed in working order, the cost of the acquisition of handling and weighing equipment (trolleys and pallet trucks, converters, scales and weighing machines) as well as office equipment. However, Frigomedit deemed it appropriate to prune the “handling and lifting means” part of its guidelines. These acquisitions, representing 10% of the total amount of the investment, have not been included in the committed contracts.