Lafarge May Face Censure in Kenya After Competition Probe

Kenya’s antitrust authority may force Lafarge SA (LG) to sell some of its interests in the East African country if the cement maker is found to be flouting domestic competition rules, the head of the agency said.

The Competition Authority of Kenya is investigating Lafarge’s influence on Kenya’s cement industry through its 59 percent stake in Bamburi Cement Co. and 42 percent shareholding in East Africa Portland Cement Co., or EAPCC. The findings will be published next month, Director-General Francis Kariuki said in an interview on May 9.

“The current arrangement between Lafarge and EAPCC from the face value of it may be deemed to be an unwarranted concentration of economic power because of the close directorship Lafarge is having in EAPCC and Bamburi,” he said. Didier Treasarrieu, Lafarge’s representative on EAPCC’s board, declined to comment when contacted today and said he may respond to questions tomorrow.

The authority is investigating pricing in the Kenyan cement industry amid a dispute between shareholders and the government over ownership of EAPCC, the country’s third-biggest producer by market value. Kenya’s Treasury holds a 25 percent stake in the company, while the state-owned National Social Security Fund has 27 percent.

The government wants Lafarge to dilute its shareholding in EAPCC because no company should hold a “monopolistic stake” in Kenyan industries, Industrialization and Enterprise Development Permanent Secretary Wilson Songa said Feb. 12.

Changing Incentives

Cross-shareholdings are “widely recognized to dampen competition,” the competition authority said in a report published last month. Bamburi Cement, in which Lafarge has a controlling stake, owns 12.5 percent of EAPCC.

“Even passive shareholdings change the incentives to set prices, as some of the earnings from sales diverted to a rival are now internalized,” according to the report.

Kenyan cement prices were the second-highest out of six southern and eastern African countries, including South Africa, Zambia and Tanzania, studied between 2000 and 2012, according to a report published last month on the website of the African Competition Forum. The cost of a 50-kilogram bag currently ranges from 700 shillings to 750 shillings ($8 to $8.60), according to TradeMark East Africa, a Nairobi-based research group.

Lafarge, based in Paris, is the world’s second-largest cement producer with operations in 64 countries.

Jail Terms

If the company is found to have a monopolistic position in Kenya, the authority may force Lafarge to sell its stake in one of its businesses in the country, Kariuki said. Kenyan law also stipulates that anyone found guilty of price fixing faces a $115,000 fine or a five-year jail term.

“We have seven players but the prices of cement do not reflect that sort of scenario,” Kariuki said. “South Africa, for example, has fewer players but the price of cement there is cheaper. Here the price of cement continues to rise and Kenyans are paying a damn high price. This is certainly a red flag.”

EAPCC Chairman Bill Lay declined to comment when contacted today.

To contact the reporter on this story: Charles Wachira in Nairobi at cwachira@bloomberg.net

To contact the editors responsible for this story: Paul Richardson at pmrichardson@bloomberg.net Sarah McGregor

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