Friday, September 7, 2007

LGI News: Cement firms in tussle for mining rights

["On July 19, this year, senior officials of Athi River Mining Company, led by director Titus Mbathi, addressed a high-profile public meeting at Mathima shopping centre in the new Mutomo district. The main agenda was the compensation of the local residents whose land is to be taken by a cement factory.

Two weeks later, the giant Bamburi cement company sponsored a three-day trip for 40 Kitui county councillors and chief officers for a tour of its Mombasa plant. With other events taking place behind the scenes, the scramble for limestone extraction in the dry and vast district had begun in earnest — and the two cement firms seemed to be headed for a clash in their bid to establish multi-billion-shilling factories in the area.

At stake is millions of tonnes of limestone lying beneath 180 square kilometres of largely unproductive land. Caught in the middle of the unfolding tussle is the Kitui county council, which holds the land in trust for the residents because it has not been adjudicated to allow the issuing of title deeds.

A special full council meeting early this week approved separate applications by both firms to mine limestone and establish plants in Mathima and Kanziko locations. The area has huge quantities of high-grade crystalline limestone — the main raw material in cement making, accounting for about 80 per cent of the final product. It therefore determines the location of the factories.

The area has also pozzolana and gypsum deposits, both of which are used as additives in cement-making. Although the council’s approval is the first among a series of procedural requirements by various government organisations, it has triggered a fierce commercial competition between the two companies.

The Mutomo limestone site has lately become economically significant to investors due to its proximity to the Mui basin in neighbouring Kitui and Mwingi districts, which have enormous coal deposits. The war over its control is a reflection of how the cement firms are strategically positioning themselves to reap the huge industrial benefits accruing from the two minerals which, in turn, is expected to drastically lower retail cement prices. The Mutomo limestone site and the Mui coal basin are a mere 60km apart.

Currently, the firms import coal from South Africa at a very high cost to run their heavy machinery. This contributes largely to the doubling of the cost of cement making in Kenya. Coal is the cheapest as well as most reliable and efficient source of energy. And industry players are confident that once Kenya starts producing its own, cement consumer prices will go down by more than a third, making the cost of construction even cheaper.

The managing director of Athi River Mining Company, Mr Pradeep Paunrana, says the high freight charges of importing coal contributes to more than half of the total production cost. “Coal importation obviously determines the increase and trend in consumer prices,” he explained, adding with the prospects of coal being produced locally are high.

The Mui basin, which spans 40km across Kitui and Mwingi districts, has been the focus of geologists from the ministry of Energy, who are at the final exploration stage of quantifying the coal reserves. This will allow the Government to invite bids from international firms to start mining the fuel for both domestic consumption and export.

Athi River makes the Rhino cement brand, while Bamburi’s product goes by its name. Interestingly, Bamburi owns a 15 per cent stake in the latter.

Full council meeting

The special full council meeting chaired by Mr Musili Mukiti resolved to invite as many interested investors as possible into the new district, saying that the local authority’s role is an impartial arbitrator. This decision has put the council on a collision course with Bamburi, which has gone public in demanding that it be given exclusive rights over the limestone deposits, citing superior financial strength.

“In allowing both companies to proceed with their plans, we acted within the law and in the best interest of the local community, the region and the country at large,” Mr Mukiti said, adding that the council would never allow one company to enjoy monopoly while other equally qualified firms are interested.

However, by law, the council resolution to grant mining consent to the two companies is subject to the approval of Local Government minister Musikari Kombo.

Mr Mukiti warned that while the companies were at liberty to pursue a commercial advantage as they establish their manufacturing plants, the council would not entertain any illegal moves by either or take sides. And in an apparent reference to claims by Bamburi that the local authority is biased, the council chairman ruled that neither company would be given exclusive rights.

“There is enough limestone in the area, which can last four cement firms up to five decades of inexhaustible extraction, so why should one company get exclusive permission?” Mr Mukiti wondered when he addressed journalists soon after the meeting.

Mr Richard Kemoli, the Bamburi board chairman, claims that his company has the blessings of both the council and the commissioner of mines, which the council chief officers deny.

Mr Kemoli adds that Bamburi intends to pump Sh17 billion into setting up the cement Mutomo plant as part of its expansion plans that would see the firm double its current cement annual production capacity of about 2.3 million metric tonnes.

The county clerk, Mr Edward Mwamburi, maintains that it is against government economic policies to allow monopoly in such lucrative investments, arguing that all the interested companies must be prepared to compete.

Investigations by the Saturday Nation have established that soon after the council passed the resolution allowing both companies, Bamburi sent a protest letter to the Government, asking Mr Kombo not to approve the decision.

The note, according to a sources, claims that the council contravened the law in convening the special full council meeting, and that its resolutions were also illegal.

Mutomo district commissioner Alfred Muandale says the Government supports the council decision that the investment be competitive for the benefit of the community and the country. “All companies must adhere to the legal framework as they have done in the other parts where they operate,” he says, adding that illegal activities by the investors will not be tolerated. On their part, Athi River says it needs only a tenth of the land, which they have applied for and that the other interested parties can invest in the rest. This translates to 800 of the 20,000 hectares.

Mr Paunrana says the firm has completed plans to establish a modern, state-of-the-art factory at a cost of Sh5 billion. “We expect to fulfill all the requirements and have the plant established and operational in the next two years,” he says and adds that the investment will create 2,000 direct and 20,000 indirect jobs.

The scramble comes against a backdrop of a rapidly growing local and regional demand for cement, causing a huge shortage. The Government’s decision to allow its use in road construction, coupled with the massive reconstruction in neighbouring Somalia and Sudan after years of internal turmoil and the boom in the local housing sector, has pushed the demand to an all-time high.

But the residents hope that the two major investments will help to spur economic development of the district, one of the least developed in the country, and create thousands of direct and indirect jobs. “Water scarcity, bad roads and biting poverty will soon be a thing of the past if the ambitious plans are fully effected,” enthuses Mr Joseph Kavisa."]

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