Steel factories will not be allowed to produce while operating below capacity without sufficient justification, says the Ministry of Mines & Energy.

The Ministry is working on a draft directive for the factories to report their production capacities every quarter within 10 days of halting production. The directive allows the government to revoke a factory's licence, provided its requirements remain unmet.

According to the State Minister for Mines & Energy, Million Matewos, the directive is prepared to ease the input shortage by enhancing the productivity of domestic producers. The Ministry says it wants to identify plants with capacity and support underperforming factories in their operation.

For Takele Uma, minister for Mines & Energy, the move is "more supportive" than meant to exercise control.

Following the green lights from the Council of Ministers, experts at the Ministry have been preparing regulations and directives for different minerals such as ceramics and granite since last year.

A lobby group formed in 2008, the Ethiopian Association of Basic Metal & Engineering Industries, representing 75 steel and metal manufacturers, has been lodging complaints to officials about foreign currency and raw material shortages. The metal industry needs raw materials, close to 12 million tonnes, to perform at full capacity. Most factories struggle to survive even after they collect scrap metals from federal agencies - they operate at less than 10pc capacity.

The Association is unaware of the draft document and attributes supply shortages as a root cause. According to its leader, Solomon Mulegeta, manufacturers have been pleading for a lower price of scarps.

In july this year, authorities designed a short-term plan to end scrap metal auctions and offered discount prices to alleviate the scarcity of raw materials. Three months later, six factories were identified and received 10,000tns scrap allocated based on their capacity.

One of them, Dire Steel Plc used to ship billets from China, Turkey, and India to produce rebar and wires and got the last approval for a letter of credit (LC) a year ago. Established a decade ago with a capital of 400 million Br (grew to 1.2 billion Br), the company used scrap metal from Dire Dewa University, which its managers claim was insufficient.

With an annual production capacity of 360,000tns, it has been six months since Dire Steel ran out of raw materials and stopped production. According to its executives, the production capacity is declining due to poor quality scraps compared to imported billets. The company was offered scrap metals. However, its managers did not take the 82tns of scarp from Dire Dewa University.

According to Sewnet Abeje, the company's CEO advisor, transportation costs have been another headache.

State Minister Million said they got approval from the Ministry of Finance to subsidise transportation and fuel costs.