KENYA: Kenyan cement firm takes on Nigerian giant

ARM Cement is set to build Kenya’s biggest plant in Kitui County, setting it up for a fight with Africa’s richest man Aliko Dangote who plans to open a $400 million plant in Kenya.

The Nairobi bourse-listed firm will raise up to $300 million to fund new plants including the planned unit in Kitui that will produce 8,000 tonnes of cement per day. This will make it the single largest cement factory in the country and places the unit ahead of the planned Dangote plant that will have a daily capacity of about 5,500 tonnes.

“We plan to start construction of the Kitui plant late next year. It is a major development for us,” Pradeep Paunrana, ARM’s chief executive told the Business Daily in an interview.

This will re-open the fight for Kitui mines, which three years ago locked Bamburi Cement and ARM in a court battle for control of a 180-square kilometre piece of land endowed with limestone.

The East Africa Portland Cement Company (EAPCC) has also directed its management to strike a deal with Kitui County to secure key raw materials to counter Dangote and local rivals.

“It was agreed that the board would take urgent steps to get in touch with the Kitui County officials and ensure that the raw materials reserves are secured and purchased by EAPCC,” said Portland’s board minutes seen by the Business Daily.

Kenya produced 4.7 million tonnes of cement last year, up from 2.8 tonnes in 2008, according to the Kenya National Bureau of Statistics.

Players expect double digit growth in coming years on the ongoing construction boom.

These are the numbers that have caught the eye of Dangote Cement and new entrants National Cement and Mombasa Cement as well as the established players who have announced expansion plans, deepening competition.

As a result, management of production costs is dominating the cement makers’ strategy sessions in an environment where prices have remained unchanged over the past two years. This is expected to turn Kitui into a battleground due to its huge limestone deposits and proximity to the Mui basin, which has large coal reserves.

The manufacture of cement involves mixing of clinker, a key raw material, and limestone or coral rock mainly from the Coast, with pozzolana, an ash-based product mainly found in the Rift Valley.

Most cement firms are also turning to coal to power their machines as opposed to expensive oil fuel, which is prone to price volatility. Kenya imports the bulk of its coal from South Africa.

Mr Paunrana say the firm will raise up to Ksh25.5 billion to fund the Kitui plant and other planned factories over the next five years.

The fund raising will be done through a mix of bank loans, corporate bonds and rights issues, said Mr Paunrana, adding that the cement maker’s board is yet to arrive at the share of debt and equity.