Fresh row erupts over cement importation

Fresh row erupts over cement importation
Published: 12 June 2008

The Nigerian Federal Government’s decision to allow the importation of bagged cement into the country has continued to generate controversy, with stakeholders in the industry querying the criteria adopted in selecting beneficiary companies and awarding licences to them.
 
Five companies - Bua, Madewell, Minaj, Lababibbi and Regan - have reportedly been selected by the Ministry of Commerce and Industry to import the cement in 50kg bags, although they are not known to have any investment in the sector.
 
The general belief among players in the industry is that the import allocations were not given in accordance with government policy which gives priority to only companies with proven local investment in cement manufacturing.
 
"Instead, allocations were mostly given to people close to government top shots, some of whom also benefited from crude oil lifting and fertilisers importation contracts," an industry source complained to THISDAY yesterday.
 
The Federal Government, as part of its plans to bring down the price of cement, had earlier this year given a go-ahead to companies investing in local manufacturing to import bulk (as opposed to bagged) cement in order to improve supply. This was conceived as an incentive for local investors.
 
"We are alarmed at the absence of transparency and consultation in arriving at the decision, which clearly negates government’s inclusive approach in taking a decision on bulk cement importation last year.
 
"This time around, the criteria for selection are unknown. The cement stakeholders forum is not aware that these firms [who just got the go-ahead] have verifiable investments in local cement manufacturing. Besides not spelling out the basis for selecting the chosen firms, cement manufacturers are displeased that the government seems to place little value on their investments.
 
"If the supply shortfalls absolutely required imports, the government was expected to act within the consensus negotiated last year whereby only real investors in local cement capacity could benefit from any import licences," said a manager of a cement manufacturing company.
 
Another executive told THISDAY that the latest move was a reversal of government policy to allow only companies with proven investment in cement manufacturing to engage in product importation in order to supplement production.
 
"The belief in the industry is that the intended beneficiaries of these licences for bagged cement are linked to close associates and cronies of senior officials in government," he said.
 
But in a letter dated March 28, 2008, which was sent to President Umaru Musa Yar’Adua by the Minister of Commerce and Industry, Chief Charles Ugwuh, he said the principle of "segmentation of supply" was the criterion for importation allocation.
 
In the letter, which was obtained by THISDAY, the minister said a major lesson to learn from the current cement crisis is that segmenting the supply sources of the product would be effective in avoiding future acute shortage in cement.
 
"A major lesson to learn from the current crisis is that in order to avoid future acute shortage in cement, it is necessary to segment supplies so that at any given time, there will be alternative sources of supply to forestall the type of distress we are now going through. The aim here is to promote competition and foreclose group monopoly, therefore we recommend that supply of the product to the market should be approached from three platforms namely: Manufacturers/Stake-holders, Big Construction Companies and New Entrants," the minister said in the letter.
 
He said priority should be given to manufacturers/stakeholders who have shown evidence of commitment to "backward integration".
 
He added that the new entrants would help to check any monopolistic cartel among major stakeholders, while the construction companies should be allowed to import the product in Jumbo bags.
 
The minister however concluded his letter to the President by stating that even though the bagged cement importation would enhance availability of cement in the country, it might not drive down the prices.
 
He said while the local production cost of bagged cement stood at about N800 per bag, imported bagged cement would land the Nigerian ports at N1,192.45 per bag.
 
According to the letter, "based on the current cost elements outlined above, import of bagged cement besides ensuring availability, does not offer any cost advantage. To the contrary, it is most likely that the cost of imported bagged cement will provide justification for local manufacturers to move their prices upwards in tandem with the price of imported cement."
 
The minister concluded the letter by advising the President to consider local manufacturing as the real solution to the problem while using importation as a short-term measure.
 
However, his argument was countered by a company executive who said: "The minister argues correctly that there is no cost benefit to Nigeria to import 50 kg bags, but why does he still recommend importation? What is his interest?"