Algeria freezes deal with Egypt's Ezz Steel

Algeria has frozen a $750m deal with Egypt's Ezz Steel and is in talks with other investors to replace the Egyptian firm, Algerian Industry and Investment Minister Hamid Temmar said on Thursday.

Ezz Steel is the latest Egyptian firm to encounter problems with its investments in Algeria, after Orascom Telecom bowed to weeks of pressure and said it would begin talks to sell its Algerian mobile phone unit to the government.

Ezz Steel signed a deal with Algeria in 2007 to invest $750m in a steel plant as part of the firm's regional expansion plan. But the plant, earmarked for the the eastern Algerian region of Jijel, still exists only on paper.

Speaking in parliament, Temmar said his government had earlier asked Ezz Steel to bring the project into line with a 2009 law which caps foreign ownership of new Algerian businesses at 49 per cent.

"But the project has been affected by financial crisis and problems linked to soccer," Temmar said, referring to a dispute between Egypt and Algeria over qualification for this year's soccer World Cup. "This has led to the complete freezing of the project."

"In order to replace Ezz, we are currently studying projects from companies including ArcelorMittal and Cevital," the minister said.

Cevital is a privately-owned Algerian firm with interests ranging from solar power to sugar refining. ArcelorMittal, the world's biggest steelmaker, is the majority owner of the El-Hadjar steel plant near Algeria's eastern city of Annaba.

Ezz Steel could not immediately be reached for comment. The firm's Cairo-listed shares did not react to the news because trading on the stock market had already closed.

The Algerian government's decision to freeze the project will affect Ezz Steel's ambition to expand outside Egypt, said Shaimaa El Nemr, analyst at Pharos Holding, a Cairo-based financial services firm.

"If this is true and Arcelormittal is going to be the one that's going to take over the project, then it's most likely that (Ezz Steel's) expansions in the region will ... be put on hold until they find another alternative," said the analyst.

Algeria's dispute with Egypt's Orascom Telecom over its local mobile phone unit, known as Djezzy, has prompted some analysts to talk about growing economic nationalism in Algeria, an oil and gas exporter of 35 million people.

Orascom Telecom was in talks with South Africa's MTN to sell Djezzy after it was hit with back-tax claims, but those talks were blocked when the Algerian government said it was exercising its right to buy the unit itself.

The Egyptian firm said on Thursday in Cairo that it would enter negotiations to sell Djezzy to the Algerian state.

Diplomatic relations between Egypt and Algeria hit a low late last year when there were clashes between rival supporters during World Cup qualifying matches.

Crowds angered that the bus carrying the Algerian national team had been stoned in Cairo ransacked Orascom Telecom's headquarters in the Algerian capital.