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Crown Paints banks on satellite plants; finally begins to light up rural Kenya

By Paul Wafula | July 26th 2016

Crown Paints plans to open satellite plants in Tanzania and Rwanda as it moves to deepen its footprint in the regional market.

The paint maker, which recently opened a Sh400 million factory in Kisumu, said the plants would help lower transport costs and boost production efficiency in the East African market.

The economies of Kenya, Rwanda and Tanzania have been expanding by an average of 5 per cent the last three years, growth that has seen increasing activity in real estate and construction.

“We are looking at putting up the satellite plant in Rwanda by the first quarter of next year. We have ordered machines for the one in Tanzania and we are looking at setting up in Arusha,” Crown Paints CEO Rakesh Rao said.

Satellite plants are usually the first steps in starting manufacturing, and are often used by companies to test the viability of a location before investing fully in a complete manufacturing entity.

Mr Rao added that the new plants would be funded through internally generated funds, and are estimated to cost about Sh100 million each.

“They will save us at least $30,000 [Sh3 million] every month in transport costs alone,” Mr Rao said.

Sustainable materials

The firm, which is listed at the Nairobi Securities Exchange, is counting on its latest product line to endear itself to environment-conscious consumers. It recently rolled out the Zero VOC range of eco-friendly paints in response to the increased use of sustainable construction materials. Rao added that the new paints would support its efforts to penetrate the regional market.

The firm has in the past complained about a difficult operating environment in neighbouring countries, especially in moving its products.

“There are times we take more than 10 days to get our products cleared ... and this is hurting our business,” he said.

In its latest annual report, the company noted that Crown Tanzania had a difficult first full year: “With many well established players in the market, it has been a challenge to enter into the market and gain a foothold competing against the major paint companies that have been established for many decades in Tanzania.”

The company said high interest rates and a difficult economic environment were the biggest challenges for the paint industry last year. This year, it is counting on the new plants to boost sales and grow market share as it moves closer to the people.

“[The] project is on course and is expected to gain traction this year. We aim to complete the initial phase of the project by the end of this financial year [June 2017],” the emailed statement continued.

“Contractors ... are currently doing pole erections in preparation for stringing and final connections to the customers. All the meters to be used under this phase have been procured by the contractors.”

The works under this phase will be carried out across all 47 counties by 10 contractors, who will use an estimated 319,203 poles.

Kenya Power also started procurement of 195,299 wooden poles in readiness for the second phase of the Last Mile project.

The second phase is financed by the World Bank to the tune of Sh15 billion, and targets to connect 312,500 households to the national grid.

Second Phase

A total of 44,701 concrete poles will also be procured under this phase, said Dr Chumo.

“Implementation of this phase is expected to start later this financial year. We aim to connect over a million new customers every year going forward in order to achieve the targeted milestones,” he added, indicating that the company’s demand for poles will rise in the short term.

Under this phase, Kenya Power will also procure pre-paid meters, cables, conductors and 1,000 transformers for grid extension on behalf of contractors, as per the World Bank’s procurement guidelines.

Other components of this second phase entail the construction of low-voltage distribution lines, supervision and management, and capacity building activities in targeted areas.

Feedback Infra Pvt Ltd and Maknes Consulting Engineers Ltd won the tender to supervise and manage the project.

AfDB has committed an additional Sh13.3 billion in funding to maximise another 5,320 transformers to connect 310,850 households.

Of this amount, about Sh10 billion will be a concessional sovereign loan from the French government, and the rest a grant from European Union.

Negotiations with the French Development Agency (AFD) are ongoing for 100 million euros (Sh11.2 billion) in funding for implementation of the third phase.

This will target maximisation of 3,830 existing distribution transformers and installation of 400 new transformers to benefit 230,000 households.

Other development partners, including the German, Danish and Japanese ones, have expressed interest in supporting the project.

The backers of the project reckon the cost of extending the power supply network remains the biggest challenge to electrification, especially in Kenya’s rural and low-income areas.

It is compounded by the land tenure system, which has led to sparse population settlement patterns, making it expensive to extend utility services.

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