Nairobi — Faced with high elecricity costs, local cement manufacturers are finding it difficult to compete with Egyptian imports.

They have appealed to the government to impose duties on Egyptian imports on grounds that the cost of electricity had pushed their consumer prices 25 per cent higher than international figures.

The views are contained in a lobby document prepared by the industry.

The local manufacturers are are lobbying the government to fight to have cement included on the "sensitive product list" under which Kenya can charge duties to cover high energy costs as long as it is less than the top rate.

Comesa rules allow for these actions to be taken where satisfactory conditions exist.

The local cement makers have also been hit by low capacity utilisation rates.

Although the domestic market size is 1.2 million tonnes, the installed capacity for the local companies is 3 million tons, which means that the capacity utilisation currently based on domestic demand is 40 per cent.

The current situation is attributable to the the mid 1990's when, buoyed by bullish attitudes and over-optimistic growth projects, the three cement producers invested $140 million both in new plant, and in revamping operations.

This projected growth did not come, however, and the manufacturers have had to operate in a stagnant market.

The industry is also taxed at 15 per cent on average for most spare-parts used in cement manufacture and certain fuels.

In 2000, the cost of power in Kenya was $74 per MWh compared to $25.6 per MWh in Egypt. The international average was $40 per MWh.

As evident, power costs have afforded Egyptian producers a major competitive advantage.

Cement production requires three forms of energy - electricity, fuel oil and coal. Energy costs amount to about 40 - 45 per cent of total production cost of cement.

In the same year, companies operating in Mombasa paid on average 7.43 US cents per Kilowatt-hour, while those in Nairobi paid 6.6 US cents.

These figures compare very poorly with what obtains in other Comesa countries.

Worse, concern still exists that the prevailing high prices may increase if a major drought were to erupt, as was the case in 2000 when prices peaked at 12 US cents per kilowatt-hour.

The situation is compounded further by the fact that while electricity prices remain high in Kenya, the trend in the rest of the Comesa countries is that rates have continued to come down due to concerted efforts to make power more affordable.

An example is Uganda where the tariff has dropped to less than 4.8 US cts/Kwh recently.

In Kenya, the Association of Large Electricity Consumers has recommended that that measures be initiated to bring down electricity tariffs to less than 5 US cts/Kwh.

It must also be noted that over and above the impact of high tariffs, frequent outages and poor quality of supply also adversely affect the competitiveness of our companies.

With most of the operations going on for 24 hours, regular and uninterrupted power supply is a must.

Poor power quality results in unplanned shutdowns, damage of equipment damage to work in progress.

What this means is that without major investment in equipment which allow the Kenya Power and Lighting Company to reduce transmission and distribution losses, currently at about 21 per cent, the competitiveness of cement companies are bound to remain poor.

Another factor hampering the competitiveness of the local cement manufacturers are fuel costs.

The Mombasa-based plant which uses coal is better placed. In Nairobi the plants which use fuel oil have had to live with the high costs.

Still, Kenya is unlikely as a country to reach international averages for energy costs because all fuels are imported.

The cement industry in Egypt which is the biggest threat to Kenya, is in a strong position indeed, considering the fact that market is currently in an estimated excess of 8 million tonnes.

Annual cement consumption is 27.5 million tonnes while production capacity is 35.5 million tons.

With a utilisation rate of 77 per cent - a market size which is 23 times that of Kenya, and 10 times that of East Africa - producers in the Comesa member state have a strong competitive advantage-indeed.

In addition to the problem of overcapacity, cement consumption per capita is low in Kenya, partly because the level of spending by governments on infrastructure and public works is low compared to Egypt.