For the size of the project and the amount of investment put in it, the major shareholder of Derba MIDROC Cement Plc, Mohammed Hussein Ali Al-Amoudi (Sheikh) has stayed away far too long from travelling to this far-flung area, 70km northwest of Addis Abeba, where the largest cement plant in Ethiopia has been erected. Not even one of the 23 scheduled events in the past has succeeded in bringing him there, according to a staff member of the company. Only after the company organised a media tour did he take time to see what his money was up to.
The reason could have been Al-Amoudi’s desire to see Haile Assegdie, former state minister and now his point man for MIDROC’s major investments in Ethiopia, get through the project before he saw it.
“He had told me once that I was hired to give him the keys,” Haile told Fortune during a media tour to the site of the plant that is almost completed, back in December 2011. “We have been waiting for the day to do that.”
Visit Al-Amoudi did in January 2012, after workers from China National Building Materials (CNBM) put the plant on performance commissioning, and Derba resolved its issue with the electric power provision of the state utility monopoly, which demanded a 10 million Br deposit to connect the substation Derba installed to the national grid.
However, official inauguration of the plant is scheduled for today, February 5, 2012, an event that has been rescheduled at least three times since January 14. Prime Minister Meles Zenawi was thought to have inaugurated this mega project, the size and investment has no much in the cement industry. Should Meles be there today, it will be his first attendance at an inauguration of any of the investments by MIDROC Ethiopia, while it will be recorded as his second at a private company’s property after the textile factory set up by Turkish investors was opened in his presence last year.
No doubt that the plant that Debra MIDROC has erected at a place whose name the factory bears is the single largest ever since the Italians put up the nation’s first cement plant in Dire Dawa in 1938.
Now acquired by National Cement, the nation’s first plant has also gone through unprecedented change with its new owners, including the upgrading of the old plant, which has a daily output of 500tn of clinker. National Cement has come to be yet another large cement plant in the country, owned by private investors.
Dire Dawa Cement & Lime Factory was acquired from the Privatisation and Public Enterprises Supervising Agency (PPESA) in 1995, after East Africa Group Plc paid 80pc of the 48 million Br recapitalised company.
Since then, the company has gone through some major share restructuring after the PPESA sold its remaining stakes, leaving five shareholders in control of National Cement, today: Jatish Manila Patel, a Kenyan businessman with 250,000 Br in shares; Mekonnen Legesse, with 303,000 Br; and East Africa Group Plc, with 72,000 Br. But, the two largest shareholders are East Africa Mining Corporation at 23.6 million Br in shares and SGI Ethiopia Cement Ltd a subsidiary company of the British Virgin Island-registered Schulze Global Investments, which has 24.2 million Br in shares.
The architect of all of this manoeuvring is Bizuayehu Tadelle, an established businessman with dominant ownership in East Africa Holdings and all its subsidiaries, including the East African Mining Corporation. Having a background in commodities trading back in the military period and during the first decade of the current administration, Bizuayehu proved to stand out from many of his peers by transforming himself into an industrialist. His first tinkering, which gave birth to the industrial mogul he is today, came after he installed a series of packaging plants near the Town of Dukem, where the Chinese are now erecting an industrial park.
Indeed, his decision to acquire Dire Dawa Cement plant was seen by many as a mistake, for the company had been on the auction bloc for over a decade with hardly any interest from buyers. It was also a period when the state-owned Mugher and Messebo, owned by the EFFORT, were in cutthroat competition, unable to sell their products for lack of demand in the market..
That had changed soon after East African acquired Dire Dawa Cement. A sudden surge in demand, fuelled by state-driven public infrastructure projects escalated prices of cement in the country from under 100 Br a quintal in 2005 to close to 500 Br in 2010.
An estimated gap of 6.5 million tonnes between demand and the nation’s productive capacity in 2010 (this figure goes down to 690,000tn in a study by the Africa Development Bank) and growing by an annual 16pc had compelled the country to import millions of tonnes of cement from abroad, while it prompted the coming into the industry of no less than 20 small and medium sized plants in the market. But, none are as large and complex as Derba MIDROC and the green field development of National Cement.
Located three kilometres north of the existing plant in Dire Dawa, the new plant that National Cement is erecting on 40ht of land, including the quarry, in Ija Aneni Kebele, off the highway towards Dire Dawa, will have the capacity to produce 3,000tn of cement a day, a volume equal to the expansion plans of both Mugar and Messebo. It is planned to be commissioned in April 2012, after consuming a projected cost of 1.9 billion Br, largely financed by loans from the Development Bank of Ethiopia (DBE).
Back in November 2011, the plant was through with its civil works of building the mills; storages for clinker, limestone, and clay; as well as silos for clinker and cement. There were close to 200 Chinese expatriates hired by the company, supported by 314 local professionals, semi-professionals, and labourers, preparing to install the mammoth machinery that a cement plant of its size requires. Nonetheless, the kiln, a rounded shape and rotary chimney vent that determines everything in the cement plant has been installed, although the electromechanical part was yet to be worked out.
“To produce cement is to produce clinker,” said Busa Assefa (Eng), an old hand in the cement industry who had served as general manager of Mugher, and now chief executive officer of National Cement S.C.
And clinker comes after the kiln burns limestone and clay with a heat that reaches 1,500 degree centigrade, using coal generated power, while grinding the raw materials inside it.
Whether in the old plant of Mugar or the recent Messebo and the newly built Derba and National, most cement plants process limestone and clay to produce clinker, according to specialists in the field. Cement is thus manufactured after grinding and mixing the clinker with a small quantity of gypsum, designed to control hydration of the product.
Such is a process that leads to the manufacturing of Ordinary Portland Cement (OPC), which is largely preferred by construction workers in Ethiopia, for its stays without drying a little longer than Portland Pozzolana Cement (PPC), a product that needs an additional input of pumice.
All of these deposits are readily available within kilometre from where the new plant of National Cement is erected. Indeed, next to the Abay Gorge, where Derba MIDROC has made a strategic decision of erecting its plant, the barren and rock-strewn mountains encircling the Town of Dire Dawa are known to have rich deposits in limestone. Large limestone deposits are found in Harar-Hakimgara areas, according to a study by Haileyesus Walle, Sintayehu Zewde, and Tom Helda, published in a trade journal 10 years ago.
Senior managers at National Cement project that the limestone lying in their backyard will be sufficient for 70 years. But, this estimate is cut by half in a study conducted by MIGA’s expert, a World Bank investment guarantee agency involved in the project to insure a four million dollars investment by SGI.
If comparison should be made on nature’s bounty with limestone reserves, the belt in the Abay Valley appears to have no parallel.
“The best exposures and the most interesting deposits of the Antalo Limestone are found in the central part of the Abay Valley, and side valleys such as the Jema, Wonchit, and Mugher valleys,” the geologists who conducted studies on Ethiopia’s building stone deposits discovered.
Derba’s plant is built on a commanding hill, looking down the imposing mouth of the Abay Gorge. It has a daily capacity output that is 16 times larger than the first plant in Dire Dawa and almost twice the size of Messebo and the state owned Mugher Cement Enterprise, whose quarry is a few kilometres away from Derba.
“We can exploit the reserve for over 1,000 years,” Haile told Fortune.
But, the limestone deposits in this area have not been exploited for so long, due to difficult access and locally closely spaced joints, according to the three geologists.
Indeed, if the Town of Derba is far-flung, it is less due to the distance it is from Addis Abeba as it is the inaccessibility of its terrain with its valleys and gorges.
“Some of the farmers here had not seen cars in their entire lives when we first started building this road,” said a senior official of Derbe, recalling what it was like talking to people in the community back in 2008.
It is a 17km gravel road and a rather rough decent of 800 metres to the quarry seven kilometres (as the crow flies) from the plant, in Aanda Weizero Peasant Association. It cost the company 230 million Br, an issue Derba MIDROC still tries to resolve with the Ethiopians Roads Authority (ERA), claiming reimbursement. Nonetheless, the road is an engineering marvel on its own.
The plant itself is erected at a breathtaking location eight kilometres from the village of Derba, a gravel road, off the highway from Addis Abeba to Goha Tsion. It was built decades ago, and ends at the gate of a previous crushing site for Mugher, first built by the Italians.
To date, there exist the fingerprints of the Italian presence, with an aerial ropeway still intact, serving to transport raw materials from Mugher’s quarry to the crushing site in Derba Town. It passes over the 2.5sqkm quarry of Derba MIDROC, which has a capacity to crush 1,250tn of stone in an hour. It is from this quarry that Chinese engineers took the rare challenge of transporting limestone and clay to the plant 12km up the hill, using a conveyer belt, stretching for 6.3km. It is the largest in Ethiopia, but five and half times shorter than the largest conveyer belt in the world, between India and Bangladesh.
However, successfully digging tunnels of 370 metres through the slapdash mountains was an engineering nightmare for the Chinese, thus dragging the project on for much longer than the 36-month project period meant to end in March 2009.
Its plant has the largest single kiln of any factory in the country. Compared to the largest kiln in the world with 10,000tn per day, located in Hoffuf, Saudi Arabia, Derba’s capacity is less by only 2,000tn per day.
“If you make a single line, you have several advantages,” says an industry expert by the name Karma, commenting on a trade website, cemweek.com. “Lower investment cost, less building area, and less manpower.”
Derba MIDROC, designed by Universal Consultants in August 2006, is today a grand private project whose plant alone is worth 351 million dollars, although other accessories built alongside has increased the total cost to as high as 600 million dollars.
Owned by Al-Amoudi (90pc) with his wife Sophia Salah Ahmed Al-Amoudi owning the remainder, Derba MICROC is a subsidiary company of Al-Muwakaba for Industrial Development & Overseas Commerce. The company has mobilised resources, securing loans from the African Development Bank (AfDB); International Finance Corporation (IFC), a private sector lending arm of the World Bank; the European Investment Bank; and the Development Bank of Ethiopia (DBE).
Long before the loans were disbursed from these international financiers, Al-Amoudi had deposited 52 million dollars three months after the project was signed with CNBM in June 2008, from his private account at Nordea Bank AB, in Sweden.
Al-Amoudi had said four years ago, at the peak of the price surge in the cement market, that he would want to see cement become a product abundantly available for “Ethiopia’s development.”
“My main objective in building this project is to reduce dependence of on imports,” he had said after signing the turnkey contract over to CNBM. “It is my belief that the price of cement will come down to an acceptable level so that buildings will be affordable.”
The acceptable level of prices is very debatable, although Al-Amoudi’s wish to see the country be self-sufficient in its cement consumption appears to be within grasp. Haile announced last week that Derba MIDROC would flood the market with prices for a quintal at 170 Br, an unprecedented drastic cut compared to what the market now offers: 270 Br from Mugher and 230 Br from Capital Cement.
Indeed, Derba MIDROC is positioning itself from the start to claim 37pc of the nation’s cement market in its first year of operation and increase this to 41pc when it begins to operate with full capacity in four years. Haile and his team of marketing staff have developed an aggressive strategy beyond declaring a price war with the others factories. They have promised to offer any contractor, worth his name, cement on credit against collateral of contract agreements, while also pledging to deliver door-to-door to homes, warehouses and projects within a 600km radius of Addis Abeba.
The company has brought in 1,000 Volvo trucks, largely seen on the nation’s highways with the brand name “Muma” printed on the backs of their trailers, transporting food aid for the time being.
If and to what extent Buzuahehu’s National Cement cuts prices further when it begins supplying the market in April 2012 is not clear. But, industry experts see an opportunity there, should its marketing strategists chose to do so. Average production cost of cement in Ethiopia is around 80 Br per quintal, although the economy of scale at Debra could make the company more competitive, while National Cement can bank on efficient use of energy to beat the market.
Bizuayehu has chosen to give the semi-turnkey project to various Chinese companies, claiming that it is much more cost-effective than the turnkey model followed by Derba or the expansion projects at Messebo and Mugher.
“Our investment cost is lower than all of the others while we all have more or less the same machinery,” Bizuayehu told Fortune. “The difference comes from the way we manage the contract.”
Certainly, the two largest privately-owned cement plants have a lot more in common in putting up a fight against the state-owned Mugher or the party-affiliated endowment company, Messebo. For instance, both have installed dual furnaces that burn fuel and coal, while Mugher has a furnace that burns only fuel, which makes them 45pc cost-effective. That, no doubt, could trickle down to the market, thus making them competitive.
“If you save energy, you can no doubt cut your costs,” Busa told Fortune. “On top of this is the issue of ensuring quality, altogether making an enormous challenge for a cement plant.”
However, industry observers see a significant change in the nature of the market since last year. A sudden and largely unexplained drop in demand for cement has transformed the market advantage from sellers to buyers.
“We will have to be buyer-friendly both in product quality and services,” Chanyalew Yilma, former president of the Bank of Abyssinia and now board director of National Cement in charge of strategic and financial management, told Fortune.
National cement plant which is going through a massive expansion process will enter into the market having a staggering production capacity of3, 000tn daily equal to the combined expansion plan of both Mugar and Messebo.
Beyond labouring on the front of saving energy, an area National Cement hopes to capitalise on is using their concession at Yayu Coal Mine in Illubabur Zone, Oromia Regional State. Senior executives in the company such as Chanyalew are hoping to develop a marketing strategy of product diversification in a bid to take on the onslaught from the most resourceful company, which is out there to overwhelm its contenders. National Cement will continue manufacturing lime, dedicating the old plant fully to this line, and enter into manufacturing building materials.
“There is also the possibility and opportunity of exporting to Djibouti and Somalia,” Chanyalew told Fortune. “It is the plant closest to port infrastructure.”
He believes, however, the current drop in demand will stay there for long and force cement plants to enter into a price war.
“A lot will depend on the demand side, which comes from the government,” said Chanyalew. “I believe the current clutch is temporary.”
Indeed, projections have it that the 35kg per capita consumption now will grow to 400kg in five years. This means the country would demand 27 million tonnes of cement, against the 13.2 million tonnes that all of the plants, including National Cement and the expansion planed at Derba MIDROC are projected to manufacture in 2014/15.
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