Energy shortage hits Ugandan cement

Energy shortage hits Ugandan cement
Published: 14 February 2006

Despite donor aid cuts, the Ugandan economy continues to grow, riding mainly on the construction sector. Business & Finance’s Muhereza Kyamutetera asks Mbuvi Ngunze, Hima Cement boss - one of the sectors leading players - about the opportunities and challenges of the sector. Below are excerpts:

There appears to be a construction boom, which I guess reflects well for the cement industry. Can you give us a snapshot of Hima’s performance in 2005?
Our estimated growth is in the region of 8-10 per cent, which ties with our past growth.

About the boom, I really must say that there is still a lot of developmental work to be done. If you take the scenario of Uganda, there is the growth in construction but we still have a long way to go in terms of government and donor projects. To get a clear picture you have to look at our cement consumption per capita, which is only 27 kilos per head. This is too low, but for me this presents an opportunity for improvement. There is opportunity in terms of improved demand from the average person as the economy develops. This can be enhanced if the government and the donor community participate in big projects to drive the numbers.

Manufacturers are expanding into the region mainly through exports, the latest being to southern Sudan. What is Hima’s experience in the region? These days when you talk of new markets everybody seems to be eyeing Southern Sudan but I think it is still too early to talk about Sudan; they are yet to establish a clear system of government and several other things are not yet straight. What we are seeing in terms of demand from Sudan today is a little trade that is probably supplying into emergency projects, but the real demand is still a while away. However, it is very clear that once total peace returns to Sudan then we shall have a good share of the peace dividend like we have done in Rwanda and Eastern Congo and then Burundi, where we see a strong new demand that has enabled us to expand our exports.

What are the forecasts?
In the domestic environment I think we should see growth probably somewhere within the same region 8-10 percent because the economic fundamentals have not changed. In the export markets, I do not expect the same sort of growth like we saw last year because the big growth was mainly due to certain emergencies in our export markets. I expect the markets to stabilise this time. All the same, I have no reason not to say that the future for Ugandan exporters in these markets is bright, provided the peace dividend is maintained.

How is Hima being affected by the energy crisis?
The power challenges, to us are threefold and that is: quality, cost and reliability. And I think generally all manufacturers have been affected by all these three. The quality of the power is so poor; it fluctuates because we are at the end of a bad line. At the beginning of last year, they just completed the rehabilitation of three sub-stations on the line going to the west on which we are and this has helped a bit on quality but the transmission line has not been rehabilitated. This will take another two or three years before it is rehabilitated. We get at least one power interruption a day and the interruptions are so destructive because this means you have to slow down the kiln and then start all over gain. The economy will have to absorb the power costs in the near future in order to survive. What I mean is that if Hima pays it you will pay it as a cement consumer unfortunately. It is a reality.

Operationally, we had the highest number of power interruptions than we have ever had. We had days when we went without power because of the sub-station rehabilitation. Then we also had the global pushes on the prices of oil, which led to significant increases in the cost of our own fuel costs, so our overall cost of production went up and this meant that we had to go back to the market place and ask our customers to pay more.

Cement producers across the region have been advocating for increased usage of cement in road construction. Have you made any headway in Uganda? Use of cement in road construction can be looked at in two contexts. One is in what I call soil stabilisation- using cement to compact the soils and the other is having certain sections of roads concrete-made, not the whole road.

Last year, we were very successful with testing the use of cement in soil stabilisation in western Uganda. And today there are road projects in western Uganda that are currently using cement for soil stabilization, which is a very positive move because we are moving from zero stabilisation. Road Agency Formation Unit and ministry of Works are becoming more confident in the use of cement in soil stabilisation which I can say from the industry perspective, is a very positive move. We are hoping to use the project in western Uganda to showcase and build confidence about cement use in road building.