Lafarge, ARM Cry Foul as China Road Imports Cement to Kenya

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Kenyan cement producers say they are being left out of a $3.8-billion railway project that China Road & Bridge Corp. is building, after the company gave an assurance it would source all of the material domestically.

Companies including Lafarge SA’s Kenyan unit and ARM Cement Ltd. asked Kenya Railways Corp., the implementing agency, to provide clarity on CRBC’s local procurement plans, five months after work on the project started, according to ARM Chief Executive Officer Pradeep Paunrana. Kenya Ports Authority data show CRBC imported at least 7,000 metric tons of the building material so far this year.

“There was an assurance that all cement would be supplied by local producers,” Paunrana, who is also chairman of the Kenya Association of Manufacturers, said in a July 6 interview in the capital, Nairobi. “There has not been transparency on how much we will supply, and we surely don’t understand why they are importing cement when we can clearly supply all cement to their specifications.”

The so-called Standard Gauge Railway Project is Kenya’s biggest investment in infrastructure since it gained independence from Britain in 1963. The Treasury is pinning its 7 percent growth target for this year partly on “activities” generated during construction of the 609-kilometer (378-mile) link. Last month, Treasury Secretary Henry Rotich allocated 143.9 billion shillings ($1.46 billion) to the project for the 2015-16 financial year.

Million Tons

The SGR project requires 1 million tons of cement, all to be sourced in Kenya, according to a master list of supplies that the manufacturers’ association says it was given by CRBC. Kenya is a higher cost producer of cement than China and imports for the project are duty-free, Paunrana said, without providing details.

A communications officer at CRBC said questions about the project should be directed to KRC. Kenya Railways isn’t importing cement because the material is available locally and ARM and Bamburi are already supplying the project, spokeswoman Mary Oyuke said by e-mail.

ARM and other producers including Lafarge’s unit, Bamburi Cement Ltd., say they’ve upgraded their factories to produce the so-called I 52.5 grade of cement required by the contractors, according to Paunrana. The enhancements cost “several million dollars” and were commissioned on the understanding that CRBC would buy the cement from domestic manufacturers, he said.

‘Significant Investments’

“We undertook significant investments in an endeavor to seamlessly supply cement to the project,” including long-term agreements with transport companies to make deliveries, Bamburi CEO Bruno Pescheux said in a May 21 letter to CRBC, a copy of which was given to Bloomberg by one of its recipients.

“It is our hope that the project will continue to purchase cement locally rather than import in light of the above investments,” Pescheux said. Bamburi “effortlessly” supplied 20,000 tons in April, he said in the letter.

Pescheux wasn’t available when Bloomberg called his office and didn’t respond to an e-mailed request for comment. Bamburi Corporate Affairs and Communications Director Susan Maingi said the request for comment was forwarded to the company’s head office in Paris, which has yet to respond.

The Export-Import Bank of China is funding 90 percent of the railroad, which will connect Nairobi to Mombasa, East Africa’s biggest port. It’s scheduled to be completed by 2017.

Domestic Supplies

The use of domestically acquired materials for the first phase of the project costing $2.8 billion currently stands at about 18 percent, compared with the government’s target of 40 percent, according to Paunrana. The second phase of the project will involve buying more locomotives and other equipment, most of which will be imported.

Details of supplies imported and obtained from domestic companies are contained in the master list, which was shared with manufacturers and the KRC earlier this year, Paunrana said.

Kenyan companies may produce 6.8 million tons of cement this year, of which 5.2 million tons will be sold domestically, while the rest will be exported to neighbors including Uganda and South Sudan, according to London-based Oxford Business Group. Domestic producers face competition from imports of cheaper cement from countries such as China and India, it said.

(An earlier version of this story was corrected to reflect the correct company name in the headline and first paragraph.)

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