AFRICA: Portland Cement severs clinker supply deal with Bamburi

East Africa Portland Cement Company (EAPCC) has severed a multi-million shilling clinker supply contract with Bamburi, its anchor shareholder, ending a four-year deal that had raised questions over potential conflict of interest due to common shareholding and market rivalry of the two listed firms.

The cement maker has signed a new deal for supply of the raw material with rival National Cement, which will see EAPCC save bout Sh270 per tonne. Information on the signing of a new contract with National Cement is contained in EAPCC’s annual statement, and was also confirmed by embattled managing director of the cement firm, Kephar Tande. “We found out that other players were offering lower prices which means we could leverage on lower clinker costs to improve our profitability,” said Mr Tande mid this month.

Although EAPCC is a listed firm, it is still considered a state corporation since majority of its shares are held by the government — making it difficult to import its own clinker due to stringent Public Procurement Oversight Authority’s rules.

EAPCC’s decision to single source the supply of clinker, a key raw material used in the manufacture of cement, from Bamburi raised eyebrows when it was signed in 2007. Bamburi, through its parent company Lafarge, controls 41.7 per cent of EAPCC.

Lafarge also holds a 73 per cent interest in Bamburi Cement and until 2009 held a 15 per cent stake in the country’s other cement maker, Athi River Mining. Cross ownership of the three cement companies has in the past led to accusations of unfair business practices, including collusion in setting prices. EAPC and Bamburi have previously been embroiled in battles over control, with EAPC seeking to cut back on Bamburi’s say on its strategy, especially on the procurement of clinker. Mr Tande said Bamburi’s prices were higher than the average market’s. Last year alone, EAPCC bought clinker worth about Sh256 million from Bamburi.

No formal contract

Officials of Bamburi said that the supply deal with EAPCC was on a need basis, where the clinker would be delivered after payment has been received, claiming that there was no formal contract.

The government controls more than half of EAPCC’s stake, 25 per cent directly and 27.5 per cent through the National Social Security Fund, NSSF.

National Cement imports its clinker but has announced plans to build a clinker plant in Kajiado at a cost of Sh10 billion, to be funded through a syndicated loan from KCB and Standard Chartered.

National Cement MD Raval Narendra said EAPCC was now their biggest client. “We are the biggest clinker importers in the region now because we have established contacts in Europe and the Emirates, we signed a supply contract with EAPCC for 150,000mt for this year,” said Mr Narendra.

EAPCC also plans to set up a clinker plant in Kitui next year after it acquires a limestone-rich parcel of land in the medium term to ensure self-sufficiency. Increased competition has pushed EAPCC, which is estimated to control about 25 per cent of the local market, to seek production efficiency.