AFRICA: Portland, National Cement fall out over clinker contract

East Africa Portland Cement Company has turned to its anchor shareholder,Bamburi Cement, for raw materials a year after it severed a four-year supply deal with the firm and inked a contract with National Cement.

Portland fell out with National Cement for breach of contract linked to non-payment and making orders of clinker — a key raw material for cement manufacturing — that were below the agreed quantity threshold.

This forced Portland to beat a hasty retreat and secure a fresh multi-million shilling clinker supply contract with Bamburi Cement in what is set to raise questions over potential conflict of interest due to common shareholding and market rivalry of the two listed firms.

“I’m not supplying them because they are not paying,” said Mr Narendra Raval, the managing director of National Cement in an interview with the Business Daily. “The contract stipulated EAPCC purchase the clinker in quantities of shiploads, equivalent to 30,000 tonnes. However, they were making orders in bits of 5,000 or 10,000 tonnes and delaying to make payments.”

Information on the Bamburi deal is contained in EAPCC’s annual report, which shows it paid its rival Sh134.1 million in the year to June.

Last year, Portland said it turned to National Cement because it was saving Sh270 per tonne of clinker, arguing that Bamburi’s prices were higher than the market average. It’s decision to single source the supply of clinker from Bamburi raised eyebrows when it was signed in 2007. Bamburi Cement and its parent company Lafarge have a 41.7 per cent stake in the firm.

Lafarge also holds nearly 60 per cent stake in Bamburi Cement and until 2009, held a 15 per cent stake in the country’s other cement maker, Athi River Mining (ARM). Cross ownership of the three cement companies has in the past led to accusations of unfair business practices, including collusion in setting prices.

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.

National Cement imports its clinker from Asia 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 the Standard Chartered Bank.

“We import clinker from China, India and Indonesia and because we buy in large quantities, we get good prices of about $2-3 off the price,” said Mr Narendra“I also supply to ARM, Bamburi and the regional market — Rwanda, Uganda.”

EAPCC also plans to set up a clinker plant in Kitui next year after it acquires a limestone-rich parcel of land to ensure self-sufficiency.

The company made a net loss of Sh821.4 million in the year to June compared to last year’s net profit of Sh1.7 million. Its share at the Nairobi bourse has shed 30.3 per cent over the past year to Sh44.75 in a period that saw rivals Bamburi Cement gain 36.23 per cent and ARM gain 45.75 per cent.