Athi River mining Company says the government should allow it to operate as a commercial enterprise for it to operate profitably. File
East African Portland Cement Company (EAPCC) is asking the government to reduce its stake in the firm to below half in a move that will remove state restrictions on its operations in Kenya’s competitive cement market.
The cement maker says its compliance with state rules, especially on procurement, was blunting its competitive edge at a time when its rivals like Bamburi Cement and Athi River Mining (ARM) are not shackled by bureaucratic regulations, allowing them to make decisions fast.
The government owns 25 per cent of Portland while the state controlled National Social Security Fund (NSSF) controls 27 per cent—which combined make the company a state-owned company.
“I would like to emphasise that part of the problem with the running of EAPCC involves the restrictions we operate under, specifically the Public Procurement Act and the State Corporations Act,” said Mr Kephar Tande, the firm’s managing director.
“The government should allow Portland to operate like a strictly commercial enterprise and this can be achieved by reducing both the government’s own and the NSSF shareholding to below 51 per cent.”
The reduction of the government’s interest in the firm through the Nairobi Stock Exchange (NSE) has been on the cards in the past six years and the Privatisation Commission says it is still working on the offer.
Mr Tande said the state holding had not been a problem in the previous operating environment, arguing that Portland is presently disadvantaged in the ongoing vicious battle for market share that has ushered price wars.
Increased cement capacity arising from new entrants and increased production by existing players that has seen the price of 50-kilogramme bag of cement fall from Sh770 in December to Sh660 despite a rise in cost of raw material. “We are operating in an environment where decisions need to be made with great speed and Portland lacks this crucial market share driver,” said Mr Tande in a statement that was echoed by the firm’s chairman Mark ole Karbolo.
The fresh capacity has come from new entrants such as National Cement, makers of Simba brand, and to a larger scale Mombasa Cement who supply the Nyumba brand and production enhancement by existing players including ARM and Bamburi Cement has left the market with excess capacity despite vibrancy of the construction sector.
The East Africa Cement Association — the cement producers’ lobby — estimates that surplus in the market will grow to more than two million tonnes in 2012 from 200,000 tonnes in 2008.
The price drops comes at a time when the players are faced with rising energy costs —coal and fuel— which account for between 35 and 45 per cent of their production costs.
For instance, oil prices have risen 30 per cent since November to $108 a barrel while electricity prices have risen by nearly 25 per cent since the start of the year.
Portland cement made a Sh792 million net profit in the six months to June compared to Sh630 in the same period last year and it is racing to overturn the Sh292 million loss it returned in the year to June.
