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Thursday, 14 November 2019

Egypt's National Cement dilemma

The National Cement Company may soon be forced to exit the public sector after damning reports on its performance

Safeya Mounir , Tuesday 25 Sep 2018
File Photo: Egypt's cement (Photo: Reuters)
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Views: 4500

A report on the public-sector National Cement Company has concluded that “closure is highly likely to occur,” said Hisham Tawfik, the minister of public enterprise, in a press conference on Monday.

He was describing a report delivered to the ministry three weeks ago investigating the company and whether it could continue functioning.

The company board is to convene to discuss the report, he added.

“The company lost LE1 billion in fiscal year 2017-18 and LE971 million the year before,” said Tawfik. “The closure of the National Cement Company has become necessary because it is losing huge amounts of money.

There is no way to revive it. If the state provides funds to develop its factories this will cost LE4 billion. Even then, the company’s losses will stand at LE500 million,” he added.

Tawfik earlier stated that “the company owes the Egyptian Gas Company LE4.47 billion.” According to a ministry statement, it has debts of LE3.7 billion to the petroleum and electricity sectors.

It has lost LE1.5 billion over the past four years and is considered the biggest loss-maker among the public-sector companies.

Company numbers say it achieved a net profit of LE280 million in fiscal year 2006-07, a figure which decreased to LE93.5 million in 2012-13. From then on, it has suffered huge losses, losing LE138.3 million in 2013-14, for example.

The company halted production in November 2017 because it was consuming 40 per cent more gas than the international average.

Out of 80 million tons of annual national cement production in Egypt, the National Cement Company produced around 3 million tons.

However, it had embarked on a project to decrease emissions and increase production, said a member of the National Cement Company’s Workers Syndicate.

The project should have been completed in eight months, but it was extended to three years, and the cost rose from LE400 million to LE1.116 billion.

It was then handed over to ARESCO, an affiliate of ASEC for Manufacturing and Industrial Projects.

The National Cement Company was established in 1956, with a second factory built in 1974. The first and second factories use the “wet process” for the manufacture of cement.

In 1978, a third factory was constructed, and 10 years later a fourth was built, both using the “dry process” for cement production.

Because of the high costs of the gas used in the wet process, the company’s board decided in 2015 to halt production at the first and second factories and to upgrade the third and fourth in a way that would be environmentally friendly and increase production from 3,500 tons to 5,200 tons per factory per day.

The upgrade was scheduled to be completed within 163 days. Instead, it took three years at a cost of LE1.1 billion.

The Ministry of Investment has stated that the National Cement Company losses are the result of “an increase in the production cost of a ton of cement of 60 per cent more than the average production cost at competing companies”.

Wages at the company in 2016-17 stood at LE355 million, “a figure which is double that at sister companies in the public sector,” the ministry statement continued.

The National Cement Company employs more than 2,300 workers.

In April, it announced it was planning an early retirement scheme for workers in the next fiscal year.

“The company’s factories use gas, which is better than some of its counterparts such as the Helwan Cement Company, affiliated to the Suez Company for Cement, which uses coal and waste materials,” said the syndicate member.

“The upgrade should have increased production and decreased the consumption of gas, rendering the product less costly. But this didn’t happen.”

He accused former leaders of the company of not properly supervising the upgrading project.

The ministry said it had observed “grave violations on the part of former company management, foremost among which was contracting a foreign company to run operations and maintenance in spite of the availability of domestic expertise.”

“This measure cost the company LE360 million annually. That was in addition to the clear flaws in the contract for the production lines development, which did not specify the standards, conditions and obligations of the contractor, leading to unsatisfactory results and vast increases in gas consumption,” it said.

 “The company referred these violations to the prosecution-general for investigation on 4 March 2018,” the ministry statement added.

According to a Central Auditing Organisation (CAO) report seen by Al-Ahram Weekly, the reasons for halting production at the company without a study stating that a complete stoppage of production was the best option are also under question.

The halting of production decreased the losses expected for fiscal year 2018-19 to LE359.5 million, down from LE791.3 million in 2016-17, it said.

On 24 May, it was recommended that company shares be withdrawn from the stock market due to LE1.5 billion in losses shouldered from 2013 to 2017.

Emadeddin Mustafa, chairman of the Holding Company for Chemical Industries, said “the extraordinary general assembly meeting of the National Cement Company also approved amending articles concerning the convening of the managerial board to make it possible to meet at the factory or the Downtown Cairo headquarters of the company.”

However, one member of the Workers Syndicate told the Weekly that this had been done in order to help the company make decisions without the approval of the workers represented by the syndicate.

* A version of this article appears in print in the 20 September 2018 edition of Al-Ahram Weekly under the headline: National Cement’s dilemma

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