Egyptian Market lacks regulative rules and transpareny

 

June 3, 2013

 

• Decline in launching national projects and developing infrastructure affects sales

• We received 38 notifications from City Gas informing us with reducing natural gas supply quantities

• We pay EGP 8 Mn monthly installments though not receiving our needs of fuel

• IDA ignores us and 350 MT drop in production due to energy shortage

• $40 Mn self-funding and facilities from machinery suppliers to use alternative fuel

• Debt scheduling is expected if shortage of energy supply continued or getting coal license delayed

 

Jose Maria Magrina, Chief Executive Officer of Arabian Cement Company (ACC), confirmed that Egyptian cement market suffers from lack of transparency and information that help investor know the market needs in order to put its investment plans. Jose noted that the scarcity of information, data, and regulative rules hinders the sector's growth. Jose added that the decline in launching national projects and infrastructure ones affected the performance of the cement market in Egypt recently, the theme that reflected on the cement companies' sales as their sales reduced by approximately 5%. Jose confirmed that ACC pays the license's installments regularly (EGP 8 million monthly). ACC CEO pointed out that the Company suffers so much to get Dollar to buy machines, confirming the

 

necessity to work on solving such problems to support investments. Arabian Cement Company (ACC) considered one of the biggest SpanishEgyptian cement companies. The cement factory is located in the Suez Governorate. It produces five million tons of first quality cement, approximately 10% of Egypt’s production. The company is a joint venture between Cementos La Union, a Spanish investor holding the majority of shares, and a group of Egyptian investors. Jose confirmed that ACC suffers from shortage of energy supplies by 25% since last January, which caused the Cement produces a loss of 350,000 tons of its production capacity over the course of the last 4 months. Jose Maria said that in case that shortage of natural gas quantities (378 million m3 of natural gas a year) supplied to the Company continued, the Company's production will drop by 1,100,000 tons a year of the total Company's production (five million tons). Jose expected halting gas supplies by the end of the year, which may lead to reducing cement quantities in the domesti c market and a crisis in supply.

 

Jose revealed that the Company received 38 notifications from City Gas (affiliated to EGAS) informing with reducing quantities of natural gas supplied to ACC since last January, the matter that made the Company think of investing $40 million to use alternative fuel. The $40 million investment will be used in establishing 3 units; 2 to produce fuel from wastes and one to produce fuel from coal, noting that ACC has gotten the $40 million through self-funding, in addition to facilities from the machinery suppliers. ACC is still pending the permit to use coal though It had started investing in alternative fuel, stressing the necessity to speed the approval process to optimize the results of the investment.

 

Maria added that although ACC pays its monthly installments to the Industrial Development Authority (IDA) (the cement license's value) regularly, It didn't get its needs of natural gas. Moreover, ACC demanded meeting Mahmoud Al-Garf, the Head of IDA, many times to find solutions for the problems facing the Company but he didn't respond. Jose was shocked at Al-Garf disregarding his request to meet him though many letters and calls, stating "ACC didn't commit any violations to be dealt like that." Though pressures on the Company in the Egyptian market, It regularly pays its dues for banks. He said that if the shortage of gas quantities supplied to companies continued and the government still doesn't provide the permit to import coal, ACC may resort to ask debtor banks to schedule dues. Jose said that lack of Dol lar in the Egyptian market and banks' refrain to secure it put more pressure on the Company, especially in importing machines.

 

Jose added that though all the problems Company faces in the Egyptian market that led to reducing its production, we are constantly looking for ways to develop our business in Egypt and make it more efficient. ACC started working in 2008 in Suez Governorate. It produces 10% of Egypt’s production. Its brand "Al Mussallah" enjoys undisputed prestige and is considered among the best cements produced in Egypt.