Savannah Cement plans to put up a Sh17 billion factory to manufacture clinker, a key raw material in cement making.

The firm currently imports clinker — which is made using limestone — for its Athi River plant. It is still in the early stages of planning for the clinker plant, including the modalities of financing it, but expects to have set it up by the end of 2017.

Mr Ronald Ndegwa, Savannah Cement’s managing director, said the company is at the moment prospecting for limestone in four locations in Eastern and Coastal regions, and expects to put up the plant in the region with the largest quantities of the product.

He added that the funds would likely be sourced through a mix of debt and equity.

Cut costs

The investment will be in the range of $300 million (Sh25.8 billion), with Sh17 billion being used for the clinker plant, while the rest goes towards scaling up the company’s production plant.

“We expect to take three years from inception through to the design and construction of the clinker plant,” Mr Ndegwa said.

“We will put up the plant where we find the largest quantities of limestone, and the clinker will then be transported to our Athi River plant.”

There are huge limestone deposits in the country, but none of the local cement manufacturers with clinker plants has been able to produce enough to meet the demand.

Ndegwa expects his company’s plant to significantly cut costs as the product, on average, accounts for upwards of 20 per cent of operating costs for cement makers.

The other major cost component for industry players is electricity, which accounts for another 20 to 30 per cent of expenses.

“Electricity is a huge concern for cement makers, but we have been able to reduce our costs by using roller press technology. This has enabled us be about 15 per cent more efficient than our competitors. We are the only cement firm using this technology in the country, and among the few in Africa,” Ndegwa said.

The new clinker plant is expected to enable the firm tap into the boom in the real estate and infrastructure segments of the local and regional economies.

It may also sharpen Savannah’s edge in an industry expected to get more competitive as existing manufacturers increase capacity and Dangote Cement plans to enter the Kenyan market.

Dangote Cement, owned by Nigerian magnate Aliko Dangote, is planning to invest $400 million (Sh35.1 billion) in a cement plant in the country.

The firm’s entry is expected to intensify market share wars and heighten the legendary scramble for limestone quarries in the country.

Market share

Savannah, however, believes it is still well positioned to grow its market share.

“We have been in operation for two years now and already have 11 per cent market share. This is quite an achievement, especially when you consider the market leader in the cement industry in Kenya has a market share of slightly over 30 per cent. We are on a growth trajectory and are still able to meet our financial obligations,” said Ndegwa.

The firm’s Athi River plant has the capacity to produce 1.5 million metric tonnes of cement annually. The company is utilising 50 per cent of this, but expects to be operating at full capacity within three years.

“Our strategy was to get to the market with a great product and then grow our capacity. We have the product in place and now we are looking at enhancing capacity,” said Ndegwa.

Further, the company last week said it had developed a product that would cut the country’s Sh25 billion road construction budget by 30 per cent.

The product, a cement blend known as Hydraulic Road Binder (HRB), is specially formulated for use in stabilising road surfaces.

Regional opportunities

Savannah is also eyeing the regional market, noting that the ongoing and planned property and infrastructure projects offer the cement industry major opportunities. According to Ndegwa, his firm already controls 98 per cent of the South Sudan market.

It, however, plans to retain a heavy presence in Kenya, which consumes 50 per cent of the cement produced in the region.

Statistics from the Kenya National Bureau of Statistics show a steady rise in both production and consumption of cement this year.

According to the bureau, the quantity of cement produced increased to 476,959 metric tonnes in May from 460,758 metric tonnes the previous month. Consumption went up to 450,379 metric tonnes in May from 426, 523 tonnes in April.

Further, during the first quarter of this year, cement consumption expanded by 17.2 per cent compared to a similar quarter last year, as the construction industry picked up after a slow 2013.

emacharia@standardmedia.co.ke