A long-standing operator in the water bottling industry, SBG Industry Plc., bottlers of 'Arki' water,has faced operational difficulties recently. A dispute with Sheger City Administration officials, leading to a two-week suspension of operations. The closure, attributed to "failure to meet financial obligations," has impacted 250 employees.

The company received a demand from the Burayu Land Administration Office for an immediate 18 million Br down payment, representing 10pc of a 142 million Br lease fee, along with additional charges for wall-and-roof tax and bank interest. Officials state this is part of a strategy to ensure companies fulfill their payment obligations while the remaining lease balance is payable over 40 years for an 80-year leasehold.

Deputy Manager Dereje Terefe expressed confusion regarding the sudden financial requirements, leading to months of appeals. He stated that the land lease rate increased substantially from 1.21 Br per square meter under the Oromia Regional State to 56 Br under the Sheger City Administration, with the company alleging a lack of prior notification.

"They forcibly shut down the plant," Dereje told Fortune.

Founded in 2016, SBG Industry Plc. was acquired by the Saudi-owned Seqa Group. The company reports addressing 40 million Br in unpaid taxes from prior ownership and incurring losses of 41 million Br, further complicated by the new city administration's regulations.

SBG initially made a 4.5 million Br down payment, and subsequently encountered difficulties in meeting the remaining financial obligations. The company reports that the scale of the investment, coupled with typical operational adjustments, contributed to these challenges. Last week, the Burayu Revenues Administration Bureau has also issued further demands for a 13.5 million Br down payment, with warnings of closure for non-compliance.

"We're constantly facing threats," he said.

Located in Burayu town, the facility, spanning approximately 62,000Sqm, has a daily production capacity of 85,000 bottle packs. Operations have been further complicated by power outages, raw material shortages, and security concerns.

Dereje expressed frustration regarding the management of the situation and the responses to their requests for clarification. He disclosed that they are suffering from major losses, operating at less than 40pc of its production capacity while facing overwhelming financial obligations from the administration.

"We're on the brink of collapse," he told Fortune.

Sheger City, a newly formed entity comprised of consolidated towns, is a hub for industrial activity. The City Administration has implemented a new land policy converting land ownership to a modern leasehold system, with officials saying they are meant to enhance revenue generation for infrastructure development. New water usage regulations also require businesses to remit upto one percent of annual gross revenues. However, the policies has led to financial disputes with numerous industries, leaving many to halt operation.

The challenges faced by SBG Industry Plc. reflect broader concerns among businesses in the region, particularly regarding land charges. Similarly, three months ago, Asku Plc, another water bottling company, received a demand from the Burayu land administration for a 30 million Br down payment, representing 10pc of a 300 million Br lease fee.

Following the implementation of a new land policy by Burayu officials, all land plots are now subject to lease agreements. Company executives have expressed concerns regarding the handling of appeals for leniency, stating that their requests have not been addressed.

"The demand from authorities has created financial management challenges, requiring the prioritization of payments that impact production," a management representative stated.

Asku Plc, part of the ABIG Group, bottles AquaAddis and other beverages, including Royal Crown tonic water, RC Cola, and Orange. The group, with multiple operations within Sheger, is now navigating financial pressures related to these unanticipated payments. Amenti Plc, a related company, received a demand for 310 million Br from the Burayu Land Bureau, which has impacted its operations. Sarem Food Complex Plc., a biscuit manufacturer employing 700 people in Burayu, has also reported repeated lease demands and pressures from revenue authorities.

The Ethiopian Beverages Manufacturing Industries Association has attempted to address these disputes, but progress has been limited. Companies continue to face major pressures and potential business failures. According to the Association, over 50pc of the 134 companies under the Sheger City Administration are experiencing similar issues.

Ashenafi Merid, general manager of the Association, suggested resolving disputes through mutually acceptable arrangements, such as agreed-upon installment payments, noting that no solutions have been proposed by authorities. He said that many companies are unable to meet their financial obligations due to operational challenges and financial strain, leading to potential insolvency.

"The manufacturing sector stands in considerable peril," he warned. "Compulsory payment demands are not the solution."

Sheger, formed from consolidated towns in late 2022, is divided into 12 districts, serving as a hub for myriad businesses and millions of residents. In the 2023/2024 fiscal year, the city generated 16 billion Birr in revenues, with an ambitious target of doubling it for this year. The target is primarily reliant on taxation where lease prices contribute substantially.

Sheger officials assert all businesses must adhere to the law. Teshome Adugna (PhD), the founding Mayor of Sheger City, noted that the new administrative structure was implemented to address urban complexities resulting from past neglect and disorganisation in six major cities within the Oromia Regional State. He said that the 12 districts had experienced unregulated expansion and deterioration, leading to infrastructural deficiencies.

"These were forgotten towns and highly unregulated," he told Fortune.

Upon assuming office in late 2022, Teshome initiated reforms, including revising proclamations to consolidate towns into a unified city framework, forming Sheger City from Burayu, Menabichu, Sulutla, Legetafo, Sebeta, and Gelan. According to Teshome, these towns were characterised by uncontrolled construction and land occupation, lacking optimal development. He indicated that previous governance structures generated limited revenue, necessitating new legislation and regulations for urban planning.

This required increases in taxes, primarily lease rates, to bolster revenue and advance development initiatives. He noted that Sheger City currently has limited road coverage, electricity coverage, and water accessibility, indicating critical gaps in service provision.

"We needed to drastically increase the rates to boost revenue," he told Fortune.

Teshome's public service career includes positions such as head of the Oromia Planning & Development Commission and the Oromia Investment & Industry Bureau. He holds an undergraduate degree in economics from Addis Abeba University, a postgraduate degree in developmental economics from India, and a post doctoral degree in Developmental Economics from Austria.

Under his leadership, land availability in the newly found city has been adjusted, and penalties have been imposed on investors for non-compliance with regulations.

"We understood this would be a painful adjustment for investors," he said.

However, he reiterated that revenue collection would be enforced, as leniencies and concessions could lead to tax evasion, allowing companies to avoid their financial responsibilities.