Lafarge reaches agreement on Algeria project

Lafarge reaches agreement on Algeria project
Published: 17 November 2011

Lafarge appears to have finally reached agreement with the Algerian authorities on the commercial structure of a project that it inherited as part of its acquisition of the global cement interests of Egypt’s Orascom Construction Industries (OCI) at the end of 2007.

Responding to a question in the upper house of parliament on November 10th, the Algerian industry and investment promotion minister, Mohammed Benmeradi, said that the French company had agreed to undertake the project as a minority partner, owning 49%, in accordance with a law passed in 2009 setting this percentage as the ceiling for foreign ownership in investment projects. This law and a regulation restricting the rights of foreign investors to divest their Algerian interests were introduced in the context of sharp criticism from the president, Abdelaziz Bouteflika of the Lafarge acquisition, which was worth about US$15bn in total (including US$2bn in debt; the Algerian operations accounted for about one-fifth of the total 35m tonnes/year of OCI’s cement production capacity at the time of the deal).

OCI entered the Algerian market after Mr Bouteflika was first elected in 1999 and set up the Algerian Cement Company as a wholly owned subsidiary. It invested in plants at M’Sila (south-east of Algiers) and near Oran, and had secured licences for a new plant at Oum El Bouaghi, in the east of the country, shortly before the Lafarge deal was announced. The Oum El Bouaghi scheme stalled, ostensibly owing to questions raised by the Algerian authorities over the legality of including such licences in a divestment.
Mr Benmeradi said that all of the studies and designs for the new project were completed in 2008, and that negotiations about the remaining elements commenced at the beginning of November. Algerian press reports indicate that Lafarge had expressed a preference for a private sector Algerian partner, but that the state-owned Groupe industriel des ciments d’Algérie (GICA) was likely to hold the 51% share reserved for local interests. Lafarge already works with GICA on another cement plant, Meftah, for which the French company signed a 10-year management contract that included the acquisition of a 35% stake. Lafarge has not commented on the Algerian reports.

Mr Benmeradi said that the Oum El Bouaghi project would cost €360m (US$500m) and would take 12-16 months to complete. He said that Algeria is currently self-sufficient in cement, producing 17Mta, of which 5.5Mta comes from privately owned plants (the latter figure roughly corresponds to the former Orascom capacity). The government has a huge capital spending programme, which points to a steady increase in demand for cement. Moreover, most of the state-owned plants are in a poor state of repair. The delay in getting the Oum El- Bouaghi project started is a clear indication of the cost that the Algerian economy has incurred from the shift in official sentiment against foreign investors after the Lafarge acquisition.