Kenneth Kwama
15 April 2008
Nairobi — Bamburi Cement and Athi-River Mining are locked in a vicious row over a Kitui limestone deposit, which is seen as crucial to grow Kenya's economy.
A fresh tussle between local cement manufacturers - Bamburi Cement and Athi-River Mining Limited (ARM) - over interpretation of a court ruling could deny the country Sh12.6 billion in new investment and block the creation of 2,500 new jobs.
French conglomerate, Lafarge, which owns a controlling stake in Bamburi early this year gave the local subsidiary a go-ahead to spend up to $200 million (Sh12.6 billion) to put up a new cement manufacturing plant in Kitui, but has since reportedly grown cold feet following the new development that threatens to scuttle the venture which could otherwise deepen its presence in the regional market.
Although Bamburi remained non-committal about Lafarge's threat to pullout, a director with the company confirmed it had indeed been granted the money for the new plant, but the firm is unable to move forward.
"We don't want to reveal more for now, but it's true Lafarge gave us Sh12.6 billion for the new plant because they understood its importance," said the director.
Lafarge first agreed to give out the money after the High Court ruled in favour of Bamburi after hearing conflicting claims to a limestone-mining site by both Bamburi and ARM. ARM, which the MD, Mr Pradeep Paunrana, spearheaded to become a key player has since gone to the Court of Appeal seeking for a stay of execution of the court ruling pending the outcome of the appeal.
But ironically, Bamburi, which is a major industry player apparently has some equity stake in ARM, the firm that seems to be holding it back. French cement conglomerate Lafarge has a 41 per cent stake in East African Portland and 15 per cent in ARM Ltd and a controlling stake in Bamburi.
In Uganda, Lafarge has a controlling stake in Hima Cement Ltd, while in Tanzania, one of the major producers, Mbeya Cement Ltd, is a subsidiary.
The new location is the focus of a battle between the two firms and tends to offer an ideal harvesting ground to grow their figures. In addition, the limestone site that is close to the Mui basin, Eastern Province, has enormous coal deposits, which makes it economically significant to the investors. With the soaring energy cost - fuel and electricity - coal stands out to be the cheapest as well as most reliable and efficient source of energy that the new plant would heavily rely on to cut on production costs.
Currently, both companies are importing coal from South Africa at exorbitant rates besides the cost of running heavy machinery. This is a major contributor to high cement prices in the country.
High freight charges of importing coal contributes to more than half of the total production cost and is an obviously key determinant that influences consumer prices.
Kitui Council
While acknowledging that the project portends a better future for the inhabitants of the region, Kitui Council Chairman, Mr John MangÌoye, reckons that his council's hands were tied as the matter is being handled elsewhere.
He, however, referred FS to the town clerk, Mr George Wambua, for more information. Wambua only refuted claims that the council was planning to pull out of an appeal it had lodged jointly with ARM.
"I don't want to talk much because the issue is already before a competent court, but I can confirm that as a Council, we have not made any decision to pull out of the appeal," said Wambua.
Bamburi went to Court last year to challenge a decision by the Kitui County Council to allow ARM to prospect for limestone in Mathima and Kanziku locations in the old Kitui District. The council's move was on despite the fact that Bamburi had obtained, early last year, an Exclusive Prospecting Licence (EPL) to mine limestone in the area.
"According to the Mining Act (Cap 306), no entity is allowed to mine without an EPL, yet that is what ARM had been doing. This was illegal. They were also negotiating and buying trust land from individuals at Sh60,000, which is also illegal considering the fact that these individuals don't have title deeds," a Bamburi official told FS in an earlier interview.
But ARM denied the allegations arguing that it had not been mining, but doing what its management referred to as sampling of materials.
"I have no idea what Bamburi is talking about. In Kenya, anyone can apply for an EPL, but it does not cover limestone because limestone is not classified as a precious mineral," the ARM official explained.
Court ruling
The limestone deposits, he reckons, are classified as a common mineral. "But even if we didn't have an EPL, whatever we are doing got the full consent of the landowners," said the ARM official.
Paunrana's counterpart at Bamburi Cement, Mr Michel Purchercos consider the new site as an ideal harvesting ground to grow their figures. PHOTO: FILE
The case was before Lady Justice Joyce Angawa who on February 25 directed the Kitui County Council to issue a Common Minerals Licence (CML) to Bamburi to mine, take and process limestone deposits in the two locations.
The Judge prohibited the Council from granting CML or rights to any other party to deal with limestone deposits in the area. This effectively cut out ARM and dashed any hope of it benefiting from tonnes of limestone worth billions of shilling buried beneath the 180-square kilometre piece of bare land.
Bamburi, which is headed by Mr Michel Purchercos, has already completed prospecting in Kanziku and is convinced both areas have huge quantities of limestone, which accounts for about 80 per cent of the final product. It therefore determines the location of the factories.
The deposits, according to experts, are enough to satisfy combined demands of Kenya, Uganda, Tanzania, Burundi and Rwanda for more than two decades.
This prediction is bolstered by the fact that there are only a handful mining sites and there have been no new discoveries of mining sites in the past decade, and that there is not enough limestone capacity to satisfy existing plants.
This could also be the reason why the companies are fighting to put the new deposits into immediate use.
The area also has pozzolana and gypsum deposits, both of which are used as additives in cement making.
ARM extracts mineral raw materials throughout the country, which it processes in two plants - Athi River and Kaloleni plants.
In most cases, the company owns both the land and the mineral resources or obtains long-term leases to ensure continuity of raw material supplies. Industrial minerals account for approximately 19 per cent of ARM's sales. Approximately 30 per cent of the company's total sales of industrial minerals are exported to neighbouring countries.
The market for industrial minerals, according to ARM's estimates, is growing at approximately eight per cent per annum.
Bamburi produces about 2.3 million tonnes of cement (66 per cent market share) and ARM produces about 200,000 tonnes (seven per cent market share), while East African Portland Cement accounts for the rest of the market.
Glass making
Besides being a major component in cement manufacturing, limestone has a number of other uses. It can be used in glass making - for the manufacture of windows, glasses and mirrors. It can also be used for steel making by using the limestone in blast furnaces, where it mixes with the impurities in the iron to create slag.
Besides, the fine pulverised white limestone is also used to manufacture paints, foam mattresses, adhesives and rubber footwear.
Bamburi officials interviewed by FS say the company had been prospecting for limestone in the area for the past few years and had identified significant deposits on the surface.
Bamburi was about to begin what is called a 'first pass' drilling (prospecting) when ARM showed up, said the official.
Currently, the country is a high cost cement producer partly due to high power costs, exorbitant freight charges, high fuel costs and inefficient railway system.
ARM, which is viewed as a medium producer recently commissioned an additional kiln in Mombasa.
Tororo Cement is also set to move into the Kenyan market with plans to erect a clinker plant in Mombasa and a grinding station in Nairobi.
If developed, the project could also lead to a number of synergies, which could help lower cement prices and improve per capita cement consumption in the country, which currently stands at 54kg.
This is relatively low compared to a country like South Africa, whose per capita consumption stands at 200kg.
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