’Government responsible for soaring cement price’, Nigeria

’Government responsible for soaring cement price’, Nigeria
Published: 29 February 2008

The skyrocketing market price of cement has been blamed on recent government pronouncements on cement importation which dealers are believed to be cashing in on.

Bayo Akinola, chairman, Lafarge WAPCO Plc told journalists at the presentation of the company’s audited financial results for the year ended 31st December 2007 that government’s pronouncements on cement importation had led to speculations on pricing, with some dealers capitalising on it to make money.

Believing that cement price might drop in the next few weeks, when cement imported by the traders empowered recently by government to import bulk cement would start arriving the ports, cement dealers are suspected to have pushed up the price of the commodity to make short term gains.

It is also being speculated that the dealers might have gotten wind of the intended market price of the cement being imported by the new entrants and have raised prices to match same. The feeling is that even the consignments by the new importers may not be cheap, after all, in view of high freight cost coupled with the high cost of distribution locally.

Also, taking advantage of the fact that the available volume in the market is not enough, and that they also have low periods when margin could be so low, for instance, last year when there was excessive rainfall, dealers are likely to latch on any opportunity to up their margin.

Industry wide, they are believed to be at liberty to sell at whatever price, once they take delivery from the manufacturer. In some cases, they have been found to sell at a price 65 per cent higher than the manufacturer’s price.

But Akinola’s major worry is that government had failed to reduce the negative impact of infrastructure on manufacturing.

“Our core business is to produce cement with the best technology at affordable cost,” he said, indicating that investments in gas production, LPFO facilities, transport etc tend to negate that objective and limit a company’s ability to expand productive activity.

George Lourandos, managing director/CEO, disclosed that energy constituted 30 per cent of the company’s production cost.

According to him, in 2007, for example, WAPCO did not receive gas supply from the Nigeria Gas Company Limited (NGC) for eighty two days and this contributed significantly to a drop by N1bn in the company’s profit margin.

Akinola, the Lisa of Ondoland is of the opinion that rather than increase gas price by 10 per cent every year, government should start thinking of giving cement manufacturers a kind of incentive by, for example, putting on hold the annual increase on gas price.

For Lourandos, increasing gas price by 10 per cent is another way of increasing inflation rate by 10 per cent, which rarely happens in developed economies where inflation rate is about 3.6 per cent.

The company’s financials for 2007 as presented by finance director, Wole Adeleke showed that Lafarge WAPCO’s operating profit dropped by about N1
bn compared with the 2006 result, from N13.466bn to N12.496bn. Turnover declined from N39.647 billion to N38.665 billion. Interest expense fell from N1.347bn to N831m while profit before exceptional items and taxation stood at N11.665bn from N12.119bn in 2006.