State takes Lafarge to the competition chief in Portland row

The government has asked the competition watchdog to investigate Lafarge’s dominance of Kenya’s cement market, deepening the row between the State and the French conglomerate over control of East African Portland Cement Company (EAPCC).

In a letter to the Competition Authority of Kenya, Industrialisation PS Wilson Songa last week accused Lafarge of seeking to damage East African Portland Cement Company in order to protect its interests in Bamburi Cement.

Dr Songa wants Lafarge and its representatives in the EAPCC board--Titus Naikuni (Kenya Airways chief executive) and lawyer Hamish Keith—punished for alleged anti-competitive behaviour.

Lafarge has a 41.7 per cent interest in Portland Cement and owns 58.9 per cent of Bamburi Cement.

Portland has been embroiled in a long and bruising shareholder war that is mainly centred around the government’s determination to have a new team shepherd the cement firm, a move that has been difficult with Lafarge’s upper hand in the board.

“We believe that they (Lafarge) created the current dispute in the management of the company to negatively affect the operation of the company for the benefit of Bamburi,” said Dr Songa in a letter dated December 19 to the director-general of the Competition Authority of Kenya, Kariuki Wang’ombe.

“We kindly submit our request that the Competition Authority…investigate this matter and take appropriate action against Lafarge and its appointed directors, namely Titus Naikuni and Hamish Keith. Lafarge has a financial interest in maintaining control at board and management levels of the company.”

This will be the latest attempt by the State to cut Lafarge’s interest in Kenya’s cement market.

Last year, it prompted the Competition Authority of Kenya to issue Lafarge with an ultimatum to voluntarily offload part of its shares in Portland Cement or have its stake in the company diluted by force under anti-trust laws.

The Competition Authority accused the French multinational of “unwarranted concentration of economic power in the cement industry in Kenya.”

He cited Lafarge’s sizeable shareholding in two of the country’s leading cement producers. Lafarge sought the court’s help to stop the competition watchdog.

The French conglomerate has always maintained that it has a minority stake in EAPCC, arguing that its ownership is not sufficient to exert control over Portland Cement.
Lafarge also argues that Portland is a genuine competitor of its Kenya subsidiary, Bamburi Cement. However, this position has been contested by Dr Songa.

“Lafarge has a dominant position that results in market share accretion and negatively impacts other industry players,” says Dr Songa in the letter to Mr Wang’ombe.

Researchers at Standard Investment Bank say that the two biggest cement makers, Bamburi and Portland, have lost significant market shares to new entrants National Cement, makers of Simba brand, and to a larger scale Mombasa Cement who supply the Nyumba brand in recent years.

The investment bank places Bamburi’s market share at 39 per cent from about 60 per cent in 2009, Portland Cement (20 per cent), ARM Cement (18 per cent), Mombasa Cement (15 per cent) and National Cement (eight per cent.)

The boardroom undercurrents at Portland burst into the public domain last Tuesday when Dr Songa and NSSF executive Gideon Kyengo stormed out of the shareholders’ meeting and immediately protested to the capital markets regulator over the manner in which the AGM was conducted.

The government, which owns 25 per cent of Portland, teamed up with NSSF (27 per cent) to try to take control of the Nairobi bourse-listed firm’s boardroom dominated by Lafarge-allied directors.

All the agenda items were passed through acclamation — a process the majority shareholders said was in breach of good corporate governance rules and the company’s Articles of Association.

Poll

The government was said to have preferred voting on the basis of shareholder strength, but Portland reckons in a letter to the Capital Markets Authority (CMA) that the State and NSSF never demanded a poll.

READ: CMA moves to probe Portland after chaotic AGM

The cement maker says that the government’s notice to have former CMC chief executive Bill Lay appointed to the board instead of Lafarge’s representative Didier Tresarrieu and that of increasing the number of directors to 11 from seven was time barred.

It reckons that a seven day notice ahead of the AGM was needed.

More recently, the Treasury and NSSF have found it difficult to push its agenda through the Portland board because the chairman Mark ole Karbolo – though appointed by the government and its CEO – have been leaning towards Lafarge, effectively giving the French conglomerate an upper hand in the boardroom.
“The recent demonstration of blatant impunity by the chairman, the managing director and Lafarge directors at the AGM reinforces the urgent need to quell Lafarge’s anti-competitive attempts to damage the company,” said Dr Songa.