Kenya planning to force Lafarge to downsize

Kenya planning to force Lafarge to downsize
Published: 18 January 2006

A major battle is reportedly looming between French investor Lafarge and the Kenya government as it emerges that the latter plans to force the cement conglomerate to sell part of its shares in the Athi River-based East African Portland Cement Ltd. 
The leading player in the cement industry in East Africa, Lafarge dominates the cement industry in Kenya, with a majority shareholding in Bamburi Cement Ltd - by far the largest producer in Kenya - while holding sizeable chunks of shares in both the smaller Athi River Mining Ltd and East African Portland Cement.  The French group also controls the Hima and Tororo cement companies in Uganda. 
Currently, the government has a 25 per cent stake in Portland Cement, which, when added to another 27 per cent stake owned by the National Social Security Fund (NSSF) leads it to claim a majority 52 per cent in the company. Lafarge, with a 41 per cent stake, is represented on the board of the company.
The first indication that the government wanted to force the French company to relinquish control of the company came towards the end of last year with reports that public service head Francis Muthaura had written to the Treasury seeking technical advice on how Lafarge’s influence in Portland Cement could be reduced.  According to well-placed sources, the unanimous view of both the Treasury and the Office of the President at that time was that the best way of reducing Lafarge’s influence in Portland Cement was to get the Treasury to convert a huge government-guaranteed Japanese loan on the company’s book into equity.  In such a case, the government shareholding in the company would increase while Lafarge’s would be diluted. 

Journalists at the EastAfrican have learnt that a completely new proposal has been forwarded to the Office of the President - namely, that Lafarge be tamed in the context of the Restrictive Practices, Monopolies and Price Control Act.  Consequently, the Commissioner of Monopolies, Dr P.M. Njoroge, has reportedly written to Finance Minister David Mwiraria, advising him to force Lafarge to dispose of its shares in both Portland Cement and Athi River Mining on the grounds of monopolistic behaviour and concentration of economic power. 
Without doubt, Lafarge maintains a firm hold of the cement industry in Kenya. In Bamburi Cement Ltd, by far the largest cement manufacturer in East Africa, the French company and its offshore subsidiaries control 73 per cent of the shares. In Portland Cement, Lafarge owns 41 per cent of the shares, and in Athi River Mining it owns 15 per cent.  But whether or not Lafarge is guilty of restrictive practices remains an open-ended question because being dominant does not necessarily equal practising restrictive practices.
In any case, history shows that Lafarge did not end up in its dominant position by design. In the case of Portland Cement, for instance, Lafarge only managed to assume a dominant position because the government failed to take up its rights when the company launched a rights issue to raise money for expansion. 
In the case of Athi River Mining, Lafarge only became a major shareholder after lending the former money in the form of a bond.  The company was reportedly going through rough times when it entered into a deal with Bamburi to supply clinker that in turn required Lafarge to buy a bond worth Ksh189 million (US$2.55m) which were to be convertible to shares. 
Bamburi Cement was founded in 1951 by Felix Mandle, a director of Cementia Holding AG of Zurich.  Cementia later went into partnership with Blue Circles plc of the UK. In 1989, Lafarge acquired Cementia and thus became an equal shareholder with Blue Circle.  In 2001, Lafarge bought Blue Circle and became Bamburi Cement Ltd’s principal shareholder.  Today, the company has the capacity to produce 1.1Mt of cement at its Mombasa-based plant. 
East Africa Portland Cement started operations as a trading company importing cement into Kenya. It was formed by Blue Circle Industries of the United Kingdom. In February 1993, Portland was incorporated in Kenya and opened a factory in Nairobi’s Industrial Area concludes the East African news report