Media coverage in the last one week has revealed the intense relationship between cement production and infrastructure development in Kenya. There’s stiff competition between the leading cement producers in Kenya: East African Portland Cement (EAPCC), Bamburi Cement, ARM Cement and Savannah Cement.
Standard Gauge Railway (SGR) Cement Supply
The SGR project kicked off early 2015 and it is scheduled for completion around mid-2017. Kshs 118.2 billion in the financial year 2015/2016 has already been allocated to the 427 kilometre long railway.
Infrastructure projects such as the SGR project create demand for cement. In the period prior to the launch and commencement of the project, China Road and Bridge Corporation (CRBC), the contractors, signed deals with local cement companies. As of November 24, 2015, CRBC had already signed contracts with Bamburi Cement and ARM Cement. At the time, there were ongoing negotiations with EAPCC and Savannah Cement. The companies are to supply cement that meets the stipulated standards. CRBC required the suppliers to provide the Grade 52.5 cement.
The sourcing of cement from local producers was a condition set by the 40% local content requirement set by the Government of Kenya. It is estimated that 1 million tonnes of cement will be required to complete the US$ 3.8 billion railway project. From the foregoing, this cement is to be sourced entirely from the local companies.
This directive saw many manufacturers “make minor adjustments on some lines” in order to meet the quality required for the project. The adjustments cost the producers millions of dollars. Other manufacturers indicated that they had entered into long-term agreements with cement delivery companies. Savannah Cement has invested at least US$ 200 million in order to meet the growing demand for cement. However, data from the Kenya Ports Authority (KPA) indicated that CRBC had imported approximately 7000 tonnes of cement, 5 months into the project. CRBC has, in their defence, denied the allegations of importing cement and has indicated that they have bought 150,000 tonnes of cement from the companies.
Earlier this year, CRBC had raised concerns over the quality of cement and steel by local suppliers and highlighted that this may impact the quality and safety of the entire project.
Manufacturers have cited lack of transparency on the quantities that they are expected to supply. It is estimated that local materials that have gone into the US$ 2.8 billion phase one of the project stands at 18% as opposed to the 40%. According to Global Cement, if CRBC maintains the 7000 tonnes importation, the entire project will end up utilizing 42000 tonnes of imported cement.
What they said
ARM Cement’s CEO Pradeep Paunrana: “There has not been transparency on how much we will supply, and we don’t understand why they are importing cement when we can clearly supply all cement to their specifications.”
Savannah Cement MD, Ronald Ndegwa: “Local industries have been suffering from competition from imported products purchased by public institutions at the expense of local manufacturers”
ARM Cement Commercial Director, Bipin Bhatia: “Getting involved in the SGR project is a matter of great pride for our company. There is more than enough capacity, both in terms of quality and quantity for production of all cement that may be required during the construction of the railway”
Bamburi Cement CEO Bruno Pescheux: “We undertook significant investments in an endeavour to seamlessly supply cement to the project, including long-term agreements with transport companies to make deliveries. It is our hope that the project will continue to purchase cement locally rather than import in light of the above investments”
China Road and Bridge Corporation (CRBC) Julius Li: “We have a principle where we first source for materials from the Kenyan market and only resort to international market when these are not available locally… it is cheaper to buy materials locally as opposed to importing the same due to inflation of the costs that come with the logistical rigours of importing goods”