Since former managing director Zakayo ole Mapelu left the East African Portland Cement under a cloud of unsubstantiated allegations, the company has made business headlines-more often than not for the wrong reasons.
The company, whose share price a while ago went for nearly Sh200, closed last week at Sh117, thanks to incessant squabbles over a tender for clinker.
Management assurances that the company had reached a deal with Bamburi Cement for clinker supply have not helped investor worries about an earlier profit warning of a Sh200m loss, arising from the cancelled clinker supply tender.
Neither the genesis of Portland’s tribulations, nor the solutions for firms facing similar problems, are easy to trace or fix. However, the goings-on at the Athi River-based cement producer bring into sharp focus the dual - and often conflicting - role of Government as an investor as well as a regulator and protector of public interest.
If recent media and investor reviews of Portland Cement are anything to go by, the Government, seems to want to have its cake and eat it too.
On the one hand, the Government is a majority shareholder in Portland, with a 47 per cent stake. The listed company’s other corporate owners are Lafarge (14.6 per cent), BCI (14.6 per cent), Bamburi (12.5 per cent), and 6.3 per cent held by individuals.
Like all shareholders in the company, the Government expects a fair return on its investment. This it enforces through its nominees to the board, where performance targets are negotiated and set.
On the other hand, the Government expects the company to operate in public interest.
Due to its substantial shareholding, the company is a State corporation that must also comply with all the statutes that guide operations of public entities.
These include the State Corporations Act, the Exchequer and Audit Act, the Public Procurement and Disposal Act, the Anti-Corruption and Economic Crimes Act, the Public Officer Ethics Act, and a host of other legislations.
Granted, the aim of these laws is to foster transparency and accountability that has for a long time been lacking in public enterprises.
However, Portland, together with the Kenya Electricity Generating Co (KenGen) and Kenya Power and Lighting (KPLC), just to name three, are not your ordinary State corporations; they are listed companies with other risk-averse shareholders, besides the Government.
Whereas strict adherence to statutory measures would have minimal negative impact on the stock prices of KenGen and KPLC, the same cannot be expected of Portland.
The former are virtual monopolies that dictate terms in their respective segments of power utility business. The latter neither monopolises the cement commodity market, nor enjoys statutorily guaranteed market privileges.
The stock exchange is arguably the best barometer of corporate performance for listed companies. Other factors being constant, investors will put their money in stocks that promise high future returns based on evaluations of current and future industry-- and company-specific -- risks.
To an investor, the Government’s insistence on Portland adhering to all statutory requirements amounts to heightening risks, especially those associated with the efficiency of internal processes.
However, the Government, wearing a regulatory hat, sees adherence to statutory requirements as a mark of probity on the part of Portland’s management. This presents a conflict of interest.
An example will suffice. As it is for its rivals, Bamburi and Athi River Mining companies, Portland’s cost of inputs is ultimately reflected in the price at which it offers a bag of cement in the market.
However, unlike its competitors which can tender, award the best evaluated bidders and go on to negotiate further for price reduction in inputs, Portland does not have such leeway.