French conglomerate Lafarge, it seems, is here to stay as far as its shareholding in East African Portland is concerned, at least for the foreseeable future.
The company, which owns Bamburi but holds stakes in its rivals in Kenya, says it will decide its fate in Portland after privatisation which, as things stand, appears long in coming.
Lafarge holds 41.7 per cent stake in Portland, while the government has controlling stake of 25.3 per cent and through a 27 per cent held by the National Social Security Fund (NSSF).
Bamburi last year diluted its 15 per cent stake in Athi River Mining in what was said to be a culmination of a boardroom war, but Lafarge chairman and chief executive officer Bruno Lafont rules out any divestiture soon.
"We are waiting the for the government's decision on privatisation of EAPC. That's what will determine our decision on EAPC," Mr Lafont told Smart Company in an interview last week. "At the moment we are not in a divesting mood."
Lafarge has in the past pushed for the two Bamburi and EAPC to merge or partner in the local cement market, but met fierce opposition from EAPC.
Analysts predict Bamburi might want to grow its stake in EAPC when its privatised to get control of Portland's management.
The government currently calls the shots, with appointing authority for the managing director, an influential and yet highly politicised post. Just like other parastatals, Mr Lafont says, the trouble with EAPC is management.
"Bamburi or Lafarge doesn't have any role in day-to-day running of EAPC, which makes it difficult to know what is going on. These are some of the assets we have no control over," says Mr Lafont.
In its full-year 2009 results ending June 30, 2010, Portland reported Sh292m loss, citing rising production and administration costs. This compares with a profit of Sh1.8 billion in the same period a year earlier despite growing its revenues by Sh1.3 billion to Sh9.4 billion.
Former managing director John Nyambok left in June in a huff after he fell out with the board. Part of the turnaround strategy for EAPC is privatisation. Two weeks ago, Industrialisation minister Henry Kosgey appointed Mr Kephar Tande as the new MD.
The cement market is tightening and the year ahead looks tough, with competitors focusing on price and value-addition. New entrants include National Cement and Mombasa Cement which are challenging the dominance of Bamburi, EAPC and Athi River Mining.
Devki Steel Mills Ltd's National Cement began operations early this month and new rival Mombasa Cement is building a huge clinker plant next to EAPC in Athi River.
The stiff competition has seen market shares change. Second-quarter statistics show that Bamburi's market declined from 62 per cent last year to 50 per cent, as EAPC increased from 18 per cent to 20 per cent.
Athi River Mining, which manufactures the Rhino brand, saw its market share remain steady at 10 per cent, while Mombasa Cement (Tororo), has seen its market share rise from 10 to 20 per cent.
"No one is a monopoly. This is a free market economy. Our goal is to be the best in the market," the Lafarge boss says, adding that to achieve this, it will seek to cut costs as it improves quality.
In the next five years, the group plans to boost capacity in Kenya, about a million tonnes from the current 2.5 million tonnes a year, to the tune of Sh10.7 billion (100 million euros).
"The increased competition is impacting temporarily on our market share, but those are just market forces. Things will change as we increase capacity," he says.
The biggest challenge for cement firms in Kenya is high production costs, especially energy. In Africa, Lafarge has invested in 15 countries, and Mr Lafont says the group has a strategy to invest 70 per cent in developing countries that show the highest potential for growth.
"There is huge opportunity for us to expand. We are witne-ssing changing demography, urbanisation and economic development," he said. He said consumption of cement per capita in Africa is still very low due to low gross domestic product in most of the countries. "Every country is unique with different opportunities and challenges," he added.
The East Africa Cement Association, the cement producers' lobby, estimates that surplus in the market will grow to 2.4 million tonnes in 2012 from the current 200,000 tonnes.
And analysts predict that going forward the market will remain more or less the same, except for the entry of National Cement (Devki Steel) which is likely to take up some market share from existing players.
According to the Central Bank of Kenya's latest Monthly Economic Survey for August 2010, cement production for the period January to July 2010 amounted to two million metric tonnes, 8.6 per cent growth from last year's 1.9 million metric tonnes.
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