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Uganda: Cement Prices to Decline

Uganda: Cement Prices to DeclinePhoto: Daily Monitor
A worker arranges cement bags inside one of Hima Cement stores. The company is investing $40m (Shs143.6b) in a new plant in Tororo District, eastern Uganda.

By Mark Keith Muhumuza

In January this year, Hima Cement started construction of a $40m (Shs145 billion) grinding plant in Tororo District that will increase their cement production from 0.9 metrictonnes a year to 1.9 million metric tonnes by June 2018. There are also new players in the market such as Simba Cement and Kampala Cement. Daily Monitor’sMark Keith Muhumuza talked to Mr Daniel Petterson, the country chief executive officer, Hima Cement Uganda, on what this increased production means to the economy. Below are the excerpts:

You are making an entry into Tororo District where there has been one major producer, Tororo Cement. What does your entry signal to the competition?

I believe that we work in a robust way. We develop our people and run a company with Ugandans. We believe in working with Ugandans to increase our production. We know the trade as a leader of cement production and concrete in the world. So I think we are strong. For me, I know what we need to do here.

The competition must talk for themselves but we do believe that they are strong. Why would you increase the production capacity considering the slowdown in economic activity that has affected the construction sector?

This new grinding facility will bring on board about 1 million tonnes, which is doubling our capacity. The construction sector in Uganda is rebounding as shown by the sustained increase in demand for cement; currently at 10 per cent per year.

Our capacity expansion drive aims at meeting this demand not only within Uganda but the regional market as well. The construction sector is expanding and we are also ready to supply cement to the Standard Gauge Railway. All these needed increased capacity.

But why the choice of setting up in Tororo?

We have a strong position in the west so now we are taking a strong position in eastern Uganda. This would give us a good footprint in this country. The second most important factor is that there are raw materials here such as the pozzolana, which we also have in the western part of Uganda.

This is also a strong base for us to export to South Sudan. It is close to where we have our limestone exploration licences in Karamoja.

How much limestone have you so far discovered and when will the mining process begin?

This is a grinding station. So it is the end face of the industrial process. The clinker is where you take the limestone and burn it. For that, you have to invest about $150m (Shs536 billion). So you need to make sure that the limestone you need is available.

That is why you have to do heavy exploration before you can set up a clinker line and then you realise that there is not enough limestone. The process of limestone exploration has been ongoing for over a year.

We are now in the final stages of our exploration process. I am optimistic when it is done we will take a final decision and move forward.

Importing clinker is still ongoing by several companies in the market. Also, you have been on the record saying that the clinker imports are making locally produced clinker not competitive. What is your proposal to the government?

For us, this is our business model. If you go to Hima plant, we do not import clinker. That is not how we operate. We believe in value addition of limestone. We take limestone and then we add value to it and get clinker. Unfortunately, there is no limestone in Tororo.

The limestone is in the northeast, which is why we are exploring for the limestone in that area. Our view as LafargeHolcm is to add value to all raw materials.

We are having discussions with the government on the issue of clinker imports.

What is important is that if the government has a policy of value addition, it is important that the policies are supporting that ambition so that you are not supporting imports while you are placing royalties on the limestone and kaolin that is mined. You have to look at that very carefully, otherwise you will discourage the heavy investments that support value addition.

How will this new investment impact the final price of cement?

We will almost have double the capacity of what the demand is in the market. We are now about four players in the market, Kampala Cement came in last year and Simba Cement.

We also have imports coming into the country. That means there is more competition and more capacity than the demand.I can only say that prices will definitely go down.

Cement prices in Uganda still remain relatively high compared to Kenya and Tanzania. Why is that so?

It is a cost factor because this is an inland market. Whatever you are bringing in like some of the competition bringing in clinker they have to transport that from Mombasa all the way to Uganda. At the Hima plant where we use 40 per cent petroleum products, we have to transport it all the way from Mombasa to Kasese. That is about 1,500 kilometres.

The costs of production are high in Uganda and that for sure is a key factor in the final price. I was very encouraged to hear from the government for the policy of lowering tariffs on electricity for the heavy industry. This is brilliant.

At the end of the day, the competitive advantage that Uganda has is water. There is a lot of water and rightly dams being built but the costs of power is still high.

A lower tariff will encourage investments that will need the power. So that is a great policy. On average this grinding facility alone will need 10MW.

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