Jose Magrina: Frankly ... the government is the responsible for increasing cement prices

 

August 2, 2011

 

Tenders: Jose Magrina, ACC CEO, said that the tenders’ system imposed by the Egyptian government does not exist anywhere else in the world, except in the field of new industries that are being introduced to the market for the first time, where all companies are considered new to the market. This does not apply in the case of the cement industry, which is an old industry in the Egyptian market.

 

Jose Magrina is the CEO of one of the Egyptian cement companies, which is strategic product. Although he is not Egyptian, as he represents the Spanish partner owning 60% of the shares of ACC, he knows the market very well and is an international expert in the industry. He seeks to grow the national economy by increasing his company’s investments that have exceeded thus far EGP3 billion. He is also seeking to increase production volume to 5 million tons a year, and has many ambitious plans to expand the business employing thousands of workers. However, some challenges are hindering these plans and the journey ACC started since 1997. Such challenges are mainly revolving around the operation license of a state-of-the-art plant that is established with measurements to preserve the environment and offer the best quality products in the market. The company has been trying to get the operation license since 2006, however the former government of Nazeef has over-priced the license and applied an uncommon system of granting the licenses though tenders. This makes Magrina sad, because the plant is fully established and equipped and they can’t operate it, and on the other hand cement prices and constantly increasing and the market is desperate for any additional production lines to help stabilize the prices. He talked about how his company is trying to solve the issue and proposed an offer to the government to pay EGP8 million a month however they got no response. That’s why AC reverted to local judiciary and international arbitration in order to get its rights and end this problem. He confirmed that the company is still committed to that offer and wants to implement its expansion plans of pumping more investments and employing more workers. Being Spanish made him fearless, going bullfighting against the red tape until he wins. This week’s star is Jose Magrina, ACC CEO.

 

• ACC was first established in 1997 by a group of Egyptian entrepreneurs who build a plant in Suez, however the economic situation did not allow them to complete the project fully.

• In 2004 CLU acquired 60% of the shares of ACC and financed the project in Suez to establish a plant with a production capacity of 5 million tons a year.

• The construction started after getting all the construction permits required from relevant bodies, until we applied to get the operation license in 2006.

• At that time, industrial laws required that we present a complete technical profile of the company including all production processes, and supposedly we should’ve gotten the operation license once we had filed such a profile.

 

Operation license

 

• The biggest surprise was the the MoI and the IDA had stopped our operation license despite the fact that they know we have finished all construction works. The justification was that the IDA announced the tender system in order to determine the amount to be paid for an operation license.

• The tenders’ system imposed by the Egyptian government does not exist anywhere else in the world, except in the field of new industries that are being introduced to the market for the first time, where all companies are considered new to the market. This does not apply in the case of the cement industry, which is an old industry in the Egyptian market.

• In 2007, we have already completed all the construction works of the plant and had to wait until the tender takes place, where all companies had to bid for the highest price.

• This system was to be imposed on new companies, however the IDA told us we cannot participate in the tender because we are an established company and not new. It must be mentioned that at the same time, a new cement producer in Suez paid EGP201 million to get the operation licenses.

• The MoI said that we have to pay EGP560 million for the operation license, which is an unjust amount especially that it is stated in a ministerial decree and not by the relevant law.

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A weird situation.. and reverting to international arbitration

 

• Personally, from the economic aspect, this amount is way over-priced for an operation license, and is harmful to the industry in general. Such amounts will drive new investors away, investors that increase cement production in Egypt which drives prices down.

• Now our situation is weird because the companies that got the operation licenses are now operating normally and have advantages more than those companies obliged to pay huge amount against operation licenses. This led to increasing cement prices and monopoly in the market, in a main product for the Egyptian market.

• ACC paid 20% of the required license fees, i.e. EGP560 million, because we had no other choice, and we can’t close down the business.

• Now we were facing a big financial problem and had to solutions, either to pay the license fees or to continue establishing the second production line to increase our production capacity to 5 million tons a year. We had to choose where to allocate our resources, and we chose to go on with the second production line which employs more than 10 thousand workers producing 2 million tons of cement a year, so, we stopped paying the license fees and filed a lawsuit in local courts in addition to revertin to international arbitration.

• ACC is an Egyptian company however we reverted to arbitration as CLU and Aridos Jativa who own 60% of ACC. Egypt and Spain have a reciprocity agreement of investment protection since 1992, and according to this agreement, we can revert to international arbitration.

• There are other companies that were at our position and filed international cases and the verdict was in their favor against the Egyptian government. Such as Ganoub Al Wadi Cement Co, although their situation was slightly different than ours. Thbe verdict had the government to pay all amount received from the said company despite that the company did not finish their construction works.

• The IDA threatened us of cutting gas supply off the second production line after we filed the cases. This line was fully established with a production capacity of 2.5 million tons a year, and creates 700 job opportunities.

 

A proposal to end the problem

 

• We proposed an offer to the MoI, offering to pay EGP8 million a month from the required fees until a verdict is reached locally or internationally.

• I believe this offer was a win-win offer, as it grants the Egyptian government EGP8 million a month at a time of a deficit in the public treasury in addition to allowing ACC to produce 2.5 million tons a year which helps in controlling cement prices. Also ACC has been paying for the gas supply with the standard price of the market and not the subsidized price in addition to contributing by 1.% (a typo in the newspaper) from the total GDP.

• After presenting such a proposal we sent many letters to the Minister of Industry and we hadn’t got a formal rejection however we were not able to meet with him at all and we didn’t get any response so far, which cause the government to lose EGP32 million that it would’ve gotten if approved the installments system.

• I have a question to the Egyptian government that is why is our proposal neglected until now? Especially in the economic situation Egypt is going through? This problem could be easily solved and will also contribute in developing the cement industry.

• I would like to propose my offer to the current government of Egypt as they aim at realizing what’s best for the Egyptian economy and the Egyptian people. Operating our second production line will increase cement supply by 10% without the government doing anything from their part. They only have to receive the installments until a verdict is reached in the case. We want to push the production wheel by operating our second production line in a win-win situation.

  Our legal situation is solid and we have faith in the Egyptian judiciary so if the verdict is in our favor we will expand our business in the Egyptian market and increase our investments and production volume, and if the verdict is not in our favor we will still be committed to the market trying to look for alternative ways to continue our business in whatever circumstances we’re in at that time.