Lafarge’s Kenyan unit said on Monday a dispute with the government over control of the cement company is hampering plans to more than double its production capacity in the next five years.
East African Portland Cement has been embroiled in a disagreement with the government for at least the past two years over ownership of the company, chairman Mark ole Karbolo said in an interview on Monday in Nairobi, the capital. That might stall plans to increase its output of clinker, the main ingredient in cement, to 5,000 metric tons a day from 2,000 tons.
The government is concerned that Lafarge may have a dominant position in Kenya’s cement industry.
"The core problem is political interference where the ministry of industrialisation wants to usurp and directly influence the role and power of the board," Mr Karbolo said. "Should the situation remain this way, it’s going to create difficulties in maintaining a united board."
Cement-production capacity in East Africa is forecast to surge 89% to 17-million tonnes per annum over the next four years, as growth in the construction industry outpaces economic expansion in the region, Cardinal Stone, a Lagos-based investment bank, has said in a research report.
Cement supplies in Kenya, Tanzania and Uganda are forecast to grow at a compound annual growth rate of 6.4% to 14.6-million tons by 2018, driven by infrastructure projects, according to a report published by Frost & Sullivan’s Cape Town office in November.
Lafarge owns 42% of the Kenya unit, while the Kenyan Treasury holds 25% and the state-controlled National Social Security Fund has 27%. A task force President Uhuru Kenyatta appointed last year found that the cement producer does not qualify to be labelled as a state-owned company because the National Social Security Fund shares belong to its members and not to the government.
Kenya’s government wants Lafarge to dilute its shareholding in East African Portland Cement. This was because the "government cannot allow a foreign company, or even a local (one), to hold a monopolistic stake in an industry because this will be detrimental to consumers," Wilson Songa, permanent secretary in the Industrialisation and Enterprise Development Ministry, said last week.
Lafarge, which is the world’s second-biggest cement producer and is based in Paris, also controls 59% of Bamburi Cement, the country’s largest cement producer by market volume, which in turn owns 12.5% of East African Portland Cement. The Competition Authority of Kenya was preparing a report on whether Lafarge had a monopoly in Kenya’s cement industry, Elizabeth Ntonjira, head of communications at the Nairobi-based agency, said in an interview yesterday.
"We will present a report on whether or not the cross directorship in Lafarge leads to unwarranted concentration of economic power."
Ms Ntonjira did not say when the report will be released.
Mr Kenyatta announced earlier this month that he had removed Mr Karbolo as chairman of East African Portland Cement and replaced him with Bill Lay, the former CEO of General Motors East Africa.
Kenya’s High Court reinstated Mr Karbolo three days later, finding in favour of the chairman’s assertion that the president had no mandate to fire him.
The High Court said neither Mr Karbolo nor Mr Lay can serve as chairman pending a further ruling tomorrow. Former president Mwai Kibaki tried to remove Mr Karbolo from office in February 2012, before that decision was overturned by the High Court two months later.
East African Portland Cement, founded in 1933, is East Africa’s third-biggest cement producer, after Bamburi and ARM Cement, which are both based in Nairobi.
"The company is worth a lot of money and it has the potential to become the leading cement manufacturer within the East African region," Mr Karbolo said. "That’s the reason they are interested in taking over the management."
Shares in East African Portland Cement rose 2.1% to 73 shillings in early Nairobi trading, bringing the stock’s gain so far this year to 5.8% and giving the company a market capitalization of 6.57-billion shillings ($76.2 million). Bamburi is valued at 75-billion shillings and ARM at 44-billion shillings, according to data compiled by Bloomberg.
Didier Tresarrieu, Lafarge’s representative on East African Portland Cement’s board, declined to comment on the dispute with the government.
Mr Songa said the state’s interest in the company was aimed at making East African Portland Cement more efficient. "There is no reason why East African Portland Cement should not be the leading cement company in the country and indeed within the East African region.
"We are only interested in making the company more robust and more efficient. And a change in management is certainly the panacea."
East African Portland Cement posted a profit of 1.7-billion shillings in the year through June 30, compared with a loss of 972.7-million shillings a year earlier, as sales grew 8.3% to 9.21-billion shillings, according to results posted in October.
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