Mr Narendra Raval sat in his car, silently brooding over the unflattering turn of events.
On a dreary October morning, some pesky security guards had uncharacteristically plucked up the courage to block the tycoon from accessing his new property, a cement grinding plant in Machakos County that until recently belonged to Athi River Mining (ARM).
Throughout the 10-minute wait, Guru, as the tycoon is popularly known due to his early days as a priest, maintained the coolness of a man who is in the game for the long haul.
A shrewd deal-maker with an estate valued at Sh75.7 billion, according to Forbes Magazine — and keen to further expand this commercial fiefdom — Mr Raval would not have wished to be distracted by clueless servants who were slow to notice they had a new boss.
He was now in charge at ARM, having beaten other experienced cement manufacturers to add yet another feather to the cap of the Devki Group, Guru’s holding company.
Devki Group, which was already the main steelmaker in the country, was now also the largest cement manufacturer.
Guru was well poised to reap big from the building bonanza, including the affordable housing project under President Uhuru Kenyatta’s Big Four agenda.
Mr Pradeep Paunrana, whose family founded ARM in the 1970s and whose orders the security guards were hell-bent on carrying out, had been ousted a year earlier after the debt-laden cement manufacturer was placed under administration.
He was now clutching at straws. The battle for the control of ARM, which Mr Paunrana sought to extend by blocking Guru and the receiver managers from accessing the plant, had already been won.
Mr Guru, who had paid Sh5 billion for the acquisition of ARM, had his sights on winning the war for the control of cement billions.
He was particularly keen on getting his hands on some Sh8.3 billion that cement manufacturers without clinker plants paid annually for the importation of clinker — a key ingredient used for the production of cement.
Just as he, the astrologer, could accurately predict the future of presidents by reading their palms (as he put in his autobiography), the steel magnate thought he had seen the future of his expansive business empire in the cement industry.
His strategy looked simple - quickly build enough capacity for clinker production, then push for a higher duty on import of clinker by invoking the “Buy Kenya, Build Kenya Strategy,” a route that his critics were quick to notice was the same that is often taken by Nigeria’s cement billionaire Aliko Dangote.
Mr Dangote has over the years been accused of taking advantage of a country’s fiscal policy — taxation and public spending — to outfox his competitors.
If things went according to plans, Mr Guru’s reign over the cement kingdom would have started in either 2020 or last year.
Now, he might have to wait for another four or so years. And even by then, there is no guarantee that he will control a bigger pie of the locally produced clinker market.
In the financial year 2019-20, during a Budget-making roundtable among members of the Kenya Association of Manufacturers (KAM), Guru’s National Cement proposed increased import duty on clinker from 10 to 25 per cent, citing sufficient local capacity to supply the input.
However, the proposal was turned down by KAM’s Trade and Tax Committee, who found that the prevailing rate was adequate and appropriate.
The committee noted that there was need for the sector to adequately invest in clinker production to meet the shortfall that is currently imported before a higher duty could be considered.
But Guru was not done yet. In the next Budget cycle, National Cement and Mombasa Cement came back with the same proposal, a move that saw the KAM cement sub-sector direct the secretariat to constitute a National Independent Clinker Verification Committee to look into clinker production and consumption in Kenya.
The committee, which drew its membership from the Trade and Industrialisation Ministry, Kenya Bureau of Standards, National Treasury, Ministry of Petroleum and Mining, a representative for grinders (Bamburi Cement) and another one for clinker manufacturers (East African Portland) returned the same verdict after five months.
The committee’s findings were that there are seven cement manufacturers in the country with a combined installed capacity of 14 million tonnes.
They have a grinding capacity of 65 per cent. Four companies—Mombasa Cement, National Cement, EAPC and Bamburi Cement—have clinker production plants with a combined annual capacity to produce about eight million tonnes.
The cost of locally produced clinker was also found to be lower by between 15 and 30 per cent compared with the imported one. Some of the challenges in clinker production included supply or availability challenges that cause delays in production, price and quality.
The committee was also concerned by the fact there is neither an international nor national clinker standard.
In the end, the committee recommended a grace period of four years for the other players to build capacity. “I am happy with what I have, and I am happy to sell to Uganda and Rwanda,” said Guru, when we asked him about the turn of events.
But he is certainly not impressed with the decision.
He told Financial Standard in a telephone interview: “In the beginning, I was pushing for local manufacturing because we were exporting foreign exchange and jobs.”
He gave the example of Tanzania where importation of clinker had been prohibited, and in two years, he noted, the country had been able to build capacity. We could not verify this statement independently.
In October last year, around the time when the committee gave the verdict of postponing the implementation of the higher tariff, Guru issued a statement noting that National Cement Company will be sending home at least 860 workers with its clinker manufacturing plant at Emali, Kajiado County, remaining underutilised.
“We had hired additional staff in line with our expanded clinker capacity to satisfy local demand, but imports are eating into this market,” said the Devki Group Chairman, adding that he would be forced to join other manufacturers in importing clinker, regretting the fact that Kenya had “become a duty-free country.”
“Millions of dollar investments are going down because of policy gaps. As a country, how are we going to encourage more investments and industrialisation to create jobs for millions of youth?”
Not only was Mr Guru feared by his competitors for his strong political connections — up against tycoons such as Jaswant Rai of Rai Cement, Benson Ndeta of Savannah Cement or well-established manufacturers like Bamburi Cement.
His critics reckon he might also not have understood fully the art and science (because clinker production is both an art and science) of producing clinker.
According to their critics, the questions that National Cement and Mombasa Cement have been at pains to answer is: why, if they have adequate capacity and their locally produced clinker is cheaper than imported, weren’t cement manufacturers flocking to them?
Moreover, the country is currently experiencing an acute rise in the price of cement amidst the global shortage of clinker, why haven’t the two companies stepped up?
As it is, the entire cement industry, including National Cement and Mombasa, does not seem to have the capacity. Everyone is importing because not all of National Cement’s and Mombasa Cement’s capacity has come on board.
“What they are trying to do is to secure their future by ring-fencing the region,” said the Bamburi Cement External Affairs and Communications Manager, Ms Mary Mueni.
But it is this capacity that Mr Rawal, who said he will be unveiling another clinker plant in 10 days, was building when he took over ARM, whose liabilities far exceeded its assets. A shell.
ARM’s balance sheet had an item that Guru thought he needed if he was to rule the cement kingdom — a licence for mining close to 11 per cent of the country’s reserves of limestone.
“People were not looking at the shell of the company. People were looking at their reserves,” said Bamburi’s Mueni.
Limestone is the main raw material used in the production of clinker. “Cement making, like cooking, is an art and a science,” said Mr Julius Induswe, head of manufacturing at Savannah Cement.
To produce quality cement, he said, you need the right limestone, the right skills, and above all, the right equipment. Earlier in 2019, Guru’s other subsidiary, Simba Cement Company, had fully acquired yet another dormant company, Cemtech Company Ltd.
Cemtech, which is based in West Pokot, had been dormant for almost a decade and had been looking for a strategic buyer. However, Cemtech held licences for substantial limestone and clay deposits. The three companies—National Cement, ARM and Cemtech—controlled 78.8 per cent of limestone mining in the country. National Cement and Mombasa Cement have two clinker plants each.
Building a clinker plant of 2.5 million tonnes per year will cost around $300 million (Sh34.9 billion). It comes with a minimum of 50 years of investment, which is the lifespan of limestone reserves.
Although National Cement and Mombasa Cement claimed to have the capacity, they might not have had the quality needed by such huge contractors as China Road and Bridge Corporation (CRBC), responsible for the construction of the country’s largest infrastructure project — the Standard Gauge Railway (SGR).
Bamburi Cement had to innovate to come up with a clinker with less than one per cent lime to be able to meet the specifications of the SGR contractor. Until then, there is a need for the players to perfect the art and science of producing clinker. And this might take time. The shortage of clinker, which is responsible for the current spike in prices of cement, might also have taught the industry some vital lessons.
That the supply of clinker is too critical to be left to a few players, who will then be the price givers as opposed to being price takers.
Already, and as the KAM report noted, locally produced clinker is priced just below the import price as opposed to the cost of production.
The backlash of Guru’s capture of the cement industry is based on the fear that they might kill compe-tition by overcharging other players for clinker and undercharging consumers on cement.
In deals such as ARM, does it mean Guru has enviable foresight? Whatever he (Guru) has seen is common industry knowledge,” Bamburi’s Ms Mueni, noting that everybody had bid for ARM for its reserves.
Some people point to deep political connections—captured vividly in a photo of him straightening President Uhuru Kenyatta’s tie on one of the many occasions the two have met publicly—for this phe-nomenal growth in fortunes.
Or former Vice President Kalonzo Musyoka revealing, in his autobiography, that it was in Mr Raval’s home that he met retired President Mwai Kibaki, who had been trying to convince the Wiper Party leader to drop his presidential bid and thrown his weight behind him, in the lead up to the 2007 elec-tions.
“I wish I were very connected,” said Guru, adding that if he were, his steel business would not have taken a hit following a ban on dealing in scrap metal, which has disrupted local steel millers.
“If you are more connected, you are punished.”