Portland Cement hangs by a thread as State watches

Simon Peter Ole Nkeri Managing Director East African Portland Cement: [PHOTO:WILBERFORCE OKWIRI]

Things will have to get worse before they can get any better for East African Portland Cement (EAPCC).

Faced with an ageing milling plant that eats up twice as much as it produces, the firm’s management seems to be fighting a losing battle in getting it back to profitability.

A visit to the plant by Weekend Business recently laid bare the task ahead as the mammoth steel structure slowly ate up some 1.3 million tonnes of raw materials and churned out a paltry 6,000 tonnes of cement.

At half capacity, the cement plant is overstaffed while some lines lie idle and revenues trickle amid piling costs and debts.

There have also been reports of delayed staff salaries and recently the company was forced to lay off 520 workers.

“The company has 133 jobs vis-à-vis 1,600 employees, meaning that it had 10 people per job, hence a lot of idling around,” EAPCC Managing Director Simon ole Nkeri told Parliament recently, adding that 551 unskilled staff had been hired at once by the previous management.

He said to keep the firm as a going concern, there will have to be a further trimming of the fat, although it is not expected to be as drastic as the previous one.

But the company is running out of time. A few weeks ago, Kenya Chemical and Allied Workers Union (Kcawu) hired Moran Auctioneers to make good a Sh1.4 billion liability by the firm.

The auctioneers had instructions to take away over 60 vehicles, 150,000 bags of Blue Triangle cement, compressors, packers, laptops, photocopy machines, office furniture and even three latte machines, a move that would have ripped the soul out of the ailing cement maker.

The firm was, however, saved at the eleventh hour on May 14, with the firm obtaining a conditional stay on the order.

“All we are saying to the court is we need time to sort issues out and sell some assets. Creditors are also knocking on our doors, but we have a plan,” Mr Nkeri said.

The Sh1.4 billion liability is as a result of a negotiated 2012 Collective Bargaining Agreement which the previous management applied differently to permanent staff, long-term contractors of between one and three years and to fixed contractors who served for six months at a time.

When the court ruled that issuing different packages for the same work rendered was unfair, EAPCC’s contingent liability became payable.

“In the previous year, it was a contingent liability, but this year, it will accrue in the financial statements and we will have no otherwise but to pay,” the CEO said.

Erratic prices

Another spot of bother for the firm is some Sh4.5 billion which is a 1978 to 2014 Kenya Commercial Bank loan.

The firm said despite pressure to refinance it, it had not taken any more debt.

Japan International Cooperation Agency (JICA) is owed a balance of Sh1.5 billion while other creditors, including suppliers, are demanding some Sh3.5 billion pound of flesh.

The pioneer cement maker, which was established in 1933 and started manufacturing in 1956, has an old plant that was last refurbished in 1996. It will need Sh2 billion to rattle its machines back to full production capacity.

“We need to get the capacity from 50 per cent to full capacity. We are currently milling 1.3 million tonnes (of cement) but producing 600,000 tonnes,” Mr Nkeri said.

Working capital is also needed to purchase and hedge stocks of coal whose erratic prices as a result of the dollar has been threatening production.

The management said one tonne of coal is currently retailing at $185 (Sh18,500) and yet the cement maker needs 8,000 tonnes each month.

EAPCC also needs to supplement its clinker production to operate in full capacity.

Even as management and the board exude confidence that they have things in control, EAPCC is being held to ransom by State bureaucracy and political intrigues that have held back the trigger on its magic bullet -- the sale of its idle land.

On August 24, Industrialisation Cabinet Secretary Peter Munya was to tour the facility, but an emergency trip to China prevented his visit which has seen the business decision delayed.

The company has also not had a substantive board chair since Bill Lay’s term expired in November last year. In December 2014, Mr Lay was given a three-year term after his tenure expired a month earlier, indicative that such disruptions are commonplace given the appointment is made by the President.

Being a listed parastatal, the company’s Achilles’ heel seems to be the government as it awaits the Cabinet to approve the sale of its land which is expected to relieve them of debt, free their cash flows and make strategic investments.

But they are still waiting for Godot.

Remain liquid

“We have huge tracts of land which we acquired from sisal plantations about 6,000 to 7,000 acres, but because of our unique nature, we need CMA’s (Capital Markets Authority) approval, we need government consent to do the deal,” the presiding chair and representative of LafargeHolcim Kungu Gatabaki said.

“Indicative value from valuers is about Sh10 billion to Sh15 billion, enough to meet obligations and remain liquid,” he added. But the State, which has expressed its desire to buy the land, has its own priorities that shift with each sitting government.

EAPCC hopes to sell 14,000 acres of land for Sh10 billion to the newly established Special Economy Zones Authority.

In 2014, the government embarked on the Standard Gauge Railway and lapped up the idea for a passage for the rail service for Sh836 million.

There are still proposals to build a bulk inland container terminal on EAPCC’s land, but negotiations are yet to kick start. Now, with the Big Four agenda floating in bureaucratic corridors, housing projects and manufacturing jobs may be the new priority.

Laid a claim

“The government expressed a wish to buy, but if they approve, we can then talk to the Chinese or the Japanese to ensure we have a well-planned development of the land,” Mr Gatabaki said.

With renewed liquidity, the firm could make strategic decisions, stockpile, invest and compete for the market share it lost to rival Bamburi Cement.

According to a regional publication, the cement producer at some point this year saw its production halted, cement stocks depleted and staff salaries delayed.

It reported a loss of Sh969.6 million in the second half of last year on account of prolonged political activity which dampened investment decisions.

Players said lack of raw materials, especially imported clinker, and disruption of transportation of limestone due to the rains affected business.

A GFK Bimonthly Retail Report showed that in January and February this year, Athi River Mining’s Rhino Cement and EAPCC’s Blue Triangle brands lost ground to rivals Bamburi, National Cement and Mombasa Cement.

Bamburi grew its market share by 33 per cent while Mombasa and National Cement gained close to 20.3 per cent and 19.3 per cent respectively in February this year.

The proposed sale of the land may also run into more headwinds, with locals having laid a claim to it as well as a political push to have parts of it subdivided among land-buying schemes.

Mr Nkeri said even though land issues are emotive, the firm owned the 26 parcels of the 16 acres, with their titles under lock and key at KCB.