Regulator fights tycoon’s plan in cement price war

Regulator fights tycoon’s plan in cement price war

The Competition Authority of Kenya (CAK) has warned the government against implementing a proposal by billionaire industrialist Narendra Raval to raise the import duty on clinker, a raw material used in cement production, from 10 percent to 25 percent.

Mr Raval whose Devki Group owns four cement firms has been lobbying the government to raise the taxes, arguing that the country now has enough capacity to meet its clinker needs.

But the competition watchdog says the proposal is a self-serving move on the part of Devki which has a near-monopoly on the means of manufacturing clinker, adding that it risks shutting down rival plants and raising cement prices

In an advisory opinion to State House, the Treasury and other government departments, the regulator noted that imported clinker is cheaper and that the window to import or produce it locally should be maintained to ensure healthy competition.

The State has been considering increasing the import duty, drawing protests from Raval’s rivals — Bamburi Cement, Savannah and Rai. The watchdog says expensive imported clinker will make it easier for Raval to control cement prices through influencing rivals’ production costs, killing them by controlling supply of the critical raw material.

"Increasing the current import duties will therefore distort the market, entrench National Cement’s position as a cement manufacturer and a clinker supplier and placing it at a position to foreclosing competitors and barring entry into the market," the CAK wrote in the letter.

"Further, increasing duty will make it more costly [sic] for firms to import clinker yet sourcing from local manufacturers is even more expensive.The proposal seems not to be attending to an existing market/consumer problem but a private/shareholder investment strategy.

The billionaire, 59, who made his initial fortune in the steel industry, has spent billions of shillings in recent years to build a cement empire. Devki has annual revenues of more than $800 million (Sh88 billion), producing steel products, roofing sheets and cement among other items.

The conglomerate now owns National Cement, Simba Cement, ARM Cement and Cemtech, fuelling the expansion through its own resources and loans from banks and the International Finance Corporation (IFC).

The CAK’s analysis shows that the Devki entities control a combined 84 percent of limestone mining allocation, giving them excess power in the extraction of the mineral which is a key component in producing clinker. Limestone is mixed with clay soil and iron ore to make clinker which is then ground with gypsum to […]

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