Dangote Group shuts down Benue Cement Company, Gboko, citing glut in the cement market but its competitors dismiss the claim insisting the decision is political
| By Pita Ochai | Feb. 4, 2013 @ 01:00 GMT
IN the last five years, the cement sub-sector of the economy has been one of the areas Nigeria has attained self-sufficiency in production capacity. While other industries were closing shops due to harsh operating environment, more cement manufacturing industries like the Obajana, and WAPCO cement industries came on stream with millions of metric tonnes of cement and clinkers added to local production. But the recent closure of the Benue Cement Company, BCC, Gboko, Benue state, owned by the Dangote Cement PLC, has raised fears of uncertainty in the cement sub sector of the economy.
The plant has shut down about two months ago. But Nigerians are skeptical about the exact reason that led to the closure. The Dangote group had attributed the problem to glut, its attendant low demand for cement and its inability to compete with the low-priced imported cement. Its competitors dismissed the reason given for the closure and insist that the plant was shut down to allow for Turn Around Maintenance, TAM.
Anthony Chiejina, group head, Corporate Communications, Dangote Group, said that the BCC was closed after inventory in the company increased to 950,000 metric tonnes of cement and clinkers. He refuted the claim by competitors that the plant was closed for TAM. Joseph Makoju, special adviser to Aliko Dangote, president of Dangote Group, and chairman of cement manufacturers’ association of Nigeria, confirmed the glut which he explained, resulted from excess supply of the product in the market. His worry is that more than a month after the plant’s shutdown to reduce local production and erase the glut, the inventory has not depleted much due to persistent low demand.
According to Makoju, the cement industry has been grappling with product glut amid skyrocketing cost of production and increased importation. “While the Dangote Group had reduced local production that might overcome the glut, importation of the product is yet to be reduced. Not just that, the product is also witnessing low demand in the country,” he said.
He disclosed that the production figure for the first 11 months of 2012 showed increased local production level with supply surpassing demand. Total supply of cement to the market at the end of November, according to him, when compared to the same period last year, shows an increase of 11.4 per cent which is the highest ever.
A random market survey in Lagos shows that the retail price of cement has remained unchanged in spite of the glut in the market. In most of the retail cement markets in Lagos the average price per 50kg bag is still between N1,600 and N1,750. Michael Uzochukwu, a cement retailer, said if the claim of glut was to be based on the simple demand and supply factor, many people would have expected the price to have at least reverted to N1,200, the price at which the major building material was sold about two years ago. During a period of scarcity in the past, the price of 50 kg bag of cement rose to N2, 600.
However, James Salako, the executive secretary, Cement Manufacturers’ Association of Nigeria, expressed a contrary opinion. To him, the price of cement has crashed significantly, and would still come down. He agreed that there was a glut in the market, which, he noted, was a great disincentive to local manufacturers.“It is the height of the dry season and demand is supposed to be higher, but that has not been the case. I must say that it had taken manufacturers a lot of sacrifice to stay within the current price bracket in the past four years,” he said. According to him, cement manufacturers have been making presentations to the federal government that they want some form of protection especially against importation but the government has refused to consider their request.
Bismark Rewane, chief executive, Financial Derivatives, expressed worry that government was yet to stop importation of cement despite the increased local production. He expressed concern over the situation and asked for concerted efforts to save the local manufacturers.
However, Ben Aghazu, executive director, Ibeto Cement Company Limited, has dismissed the claim of cement glut in the market. He described the claim as the tactics of monopolists who will do anything and go to any length to choke out competitors in order to dominate the market. He also dismissed the closure of the BCC on account of glut, describing it as dishonest and false. According to him, “time and unfolding events will show that Dangote Group is being economical with the truth. We have it on good authority that the Dangote plant in Gboko, BCC, is programmed to shut down for a TAM only and will resume production when the maintenance has been completed.”
Aghazu described glut as an economic phenomenon that results when a market is excessively supplied with a particular product and the first evidence of such a situation is the drastic reduction in the price of the product and this has not been the case of cement which is still more expensive in Nigeria, than in any other nation in the world.
On the allegation that importation of cement was responsible for the glut, Realnews learnt that the federal government and Ibeto Cement Company had to entered a consent judgment at the Federal High Court, Abuja in 2010, to settle a dispute stopping the company from importing cement into the country. Ibeto Cement Company Limited is currently the only authorised importer of bulk cement in the country. Explaining how the consent judgment came about, Aghazu said that the federal government had issued a guarantee to the company that its proposed cement bagging plant in Bundu Ama, near Port Harcourt, should operate for a minimum period of 10 years from commissioning so as to meet the strict funding requirements of the lending institutions. The federal government had also encouraged the company with appropriate incentives such as reduced duty on imported equipment and waiver of Value Added Tax, VAT.
The administration of former President Olusegun Obasanjo in 2005 shut down the Ibeto factory in Port Harcourt. It alleged that Ibeto cement did not comply with an existing policy which stated that unless an importer owns a cement milling plant, he cannot engage in the business of bagging bulk cement. It was alleged that Ibeto had no milling plant at the time Obasanjo took the action, but now that its milling plant is about to be completed. Perhaps, this may be one of the reasons the federal government agreed to settle out of court with Ibeto. According to Ibeto cement company, after various appeals to the federal government failed, the company went to court in 2006, to seek justice and the dispute was finally settled out of court after extensive negotiations involving all relevant federal ministries and MDAs.
“In the judgment order, the federal government acknowledged that the Ibeto Cement Company Bagging Plant was unjustifiably closed down. The government also acknowledged the enormous losses suffered by Ibeto Cement Company from the unjustified closure from 2005 to October 2007.” Part of the judgment order states that Ibeto Cement Company Limited should be allowed to import 1.5 million tonnes of bulk cement per annum for the period October 1, 2007, through 30 September, 2017, in line with the government guarantee.
Following that judgment, Ibeto Group is allowed to imports 1.5 million tonnes of cement annually, which is less than five per cent of the annual cement supply to the Nigerian market. “We do not believe that the federal government should be misled into doing this because doing so will go against the spirit of the out-of-court settlement agreement between the federal government and Ibeto Cement, especially since Ibeto Cement, as stated, is currently the sole importer of cement,” Aghazu said.
The company also alleged that: “in order to position its proposed cement plant to be built in the South-South zone to operate monopolistically, the Dangote group is also trying to get the federal government to ban the importation of clinkers or in the alternative, drastically increase the duties and taxes on clinker imports so as to rattle and destabilise a cement manufacturer in that area and thus complete its strategic monopolistic domination of the Nigerian cement market. We believe that the Dangote Group has positioned its factory to dominate the South-East cement market and to ensure that no other cement manufacturing company operates in the south east zone.”
A report published in 2006 shows that Dangote holds 81 percent of the Nigerian sugar market, 40 percent of the cement market; 33 percent of flour; 54 percent of pasta and 72 percent of salt. The latest figure indicates that the Dangote Group still maintains the first position in each of these commodities. It is now controlling about 93 percent of the sugar market, 86 percent of cement, 73 percent of flour, 74 percent of pasta and 89 percent of salt.
While the Gboko plant remains shut down, about 920 workers are currently out of jobs. Jeremiah Marcus, head of human assets management and administration, BCC PLC, Gboko plant, said that the workers were placed on compulsory leave until the plant resumes production again. Marcus said 890 Nigerians and 30 expatriates were affected by the shutdown. More than 1500 people who are involved in providing different services to the company were also affected by the shutdown.