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By MUNA WAHOME
Cement manufacturers have increased prices by more than 3 per cent even as construction begins to slow down. Early this month, all the companies announced upward adjustment of both bagged and bulk cement prices citing rising costs of production.
That is likely to further inflate the cost of construction, which has escalated since 2002, and leave property developers with even larger inventories in their hands. “We are already seeing a slowdown with the Nairobi City Council ban on approvals for development of apartments. There are so many finished units which have not been bought,” said quantity surveyor Reginald Okumu. The cement industry has lately done well for itself. The 2006 Economic Survey says the industry grew 10.9 per cent last year. Industry figures indicate actual growth could have averaged 12 per cent in the past four years.
This has rubbed off on the cement oligopoly, which incidentally trades on the Nairobi Stock Exchange. Bamburi Cement has ridden the wave of good fortunes and a bull-run at the bourse to perch at a high of Sh155. Athi River Mining has touched a high of Sh72. No longer the sick man of the industry, East African Portland Cement Company (EAPCC) has nudged a high of Sh126. Before the rapid growth in consumption, only Bamburi traded at anything near half the current prices.
Last week, ARM managing director Pradeep Paunrana said the industry is likely to record a 6 to 7 per cent increase in production. Roughly, the prices have gone up 3.5 per cent in the latest round, which is just one of a number over the last four years. Unfortunately, prices for virtually every building material have risen.
Cement companies are blaming recent surge in international crude oil and knock-off increase in the cost of substitute coal. In Kenya, it is estimated that 45 per cent of the running costs in cement plants is gobbled by energy. Companies have to use either coal or heavy fuel oil in clinkers.
Coal is reported to have gone up by between 35 per cent and 40 per cent in the last eight months. The Sh15 billion turnover Bamburi is the main user of coal while EAPCC uses fuel oil. ARM is also using coal in its plant. Players say the cost of electricity since January this year has gone up by over 10 per cent. To the home consumer, the electricity bill may have escalated as much. But for large industrial users, fuel cost adjustment component has been a major cost factor.
“Electricity has been going up even before the advent of the emergency power generators, which are expected to add the cost per unit by Sh1.20 in July,” said Mr Paunrana, who is also the chairman of the private and public sector committee overseeing the implementation of the emergency generators.
The fossil fuel-guzzling generators have been spawned by declining dam levels in the country after a long drought. Oil as an input loads cost on transport over and above the country’s poor road network. Given that either raw material or finished products have to be hauled from the Coast to upcountry and vice versa, this adds up to a significant cost burden.
The industry last year cranked 1.6 million tonnes of cement out of its two million-tonne installed capacity. More than half this capacity is dominated by Bamburi, followed by Portland, then ARM, which is now enhancing its capacity.
Apart from the cost impact, construction is suffering a multiplicity of other misfortunes. One is the legal complication surrounding the issuance of title deeds. This is anchored on nullification of the documents either under the Ndung’u Commission Report or through administrative decrees.
Most banks have been reluctant to lend to developers. Indeed, they are already holding titles for places like the Karura Forest and road reserves. |
