The Company incurred EGP 1 Bn losses due to the ongoing dispute with the Egyptian government: Jose Magrina, ACC CEO
ACC is now preceding International Arbitration’s procedures against the Egyptian government, as the Company will present documents which support it position in the ongoing dispute with the government over cement licenses, as said by Jose Magrina, ACC CEO
Jose Magrina, ACC CEO, said in his interview with “Mal We Aamal” that the dispute with the Egyptian government goes back to 2007. The dispute started when the company has finished the plant constructions, as Rashid Mohamed Rashid, former Minister of Trade and Industry has issued a decree to retroactively impose “top slicing" of the license fee on the company’s plant operation worth EGP 100 Mn and EGP 40 Mn on electricity license, the theme which made the Company starts international Arbitration procedures 2010 after they failed to reach amicable settlement with the government. He said that International Arbitration is now proceeding the final verdict, as both parties have started presentations of documents and the testimony of witnesses. He added that although the government has asked the company to postpone Litigation more than once, which has already done, they never try to reach amicable settlement with the Company. He said that the company is now preceding the international Arbitration, as the ministerial committees allocated to resolve the dispute haven’t handle the ongoing dispute. He pointed out that the Company welcomes amicable settlement with the government and agrees to pay EGP 8 Mn monthly for the different licenses. The company incurred EGP 1Bn losses, including interests, which is equal to 5 years’ net profit due to the ongoing dispute over cement license. He also said that investors’ protection agreement between Egypt and Spain provides for subjecting the two Countries’ investors to constant laws which cannot be changed in the middle of the investment process; Spain abides by these laws unlike the Egyptian Government. With regard to the Company’s investing plans in the local market during the current year, Maria said that ACC has completed coke coal and alternative energy conversion and constructions with the value of $ 32 Mn, which are the Company’s investments until the end of 2015. “Based on 2015 financial results we will set up 2016 investment plan” said Maria. The Company investments is divided as follows, $ 12 Mn allocated for the technical arrangements of using coal as an alternative source of energy and $ 20 Mn for furnaces which run on alternative fuel. The Company’s production capacity reaches 5 Mn ton every year , through its plant in Cairo-Sokhna Road , which represent 7% of the total cement industry’s full capacities in Egypt . He stated that the Company has no intention in the meantime to increase its production capacity as the local market can meet the annual consumption that reaches 50 Mn tons which meets local market needs. Regarding the effect of state’s national mega projects on the increase of cement demand, he said that facts and data revealed that the demand on cement have dropped by 5 – 6% during January and February and increased by the same percentage during March and April, which resulted in increasing the demand on cement during this period by only 1%, despite the states’ projects. He stated that there are many reasons behind the decrease in the Company’s net profit by 51%, the most significant is the decrease in EGP USD exchange rate which cause losses in the exchange rate worth EGP32 Mn, also the decrease in sales value due to cement low prices, in addition, the Company have imported clinker during 2014 with higher prices. The operating capacity of clinker has increased, after operating the Company’s furnaces on coal and alternative fuel, to reach 91% which is a large proportion. He expected the discontinuity of these reasons during the next period except for cement prices which witnesses instability , the theme which will affect the Company’s’ financial results in Q2/2015. Cement pricing is subject to supply and demand mechanisms, the Company is following industry and trade ministry’s conditions regarding setting maximum limit for cement’s sale price per ton.
Sales and finance zones:
Maria said about the targeted sales zones of the company in the local and global market, that the company targets the local market more than exporting after they halted exportation as a result of political and security situations that Libya has been through. The Libyan market was one of the most important export markets for the company, as it is difficult to compete with the prices of UAE and Turkey and the other countries that produce cement as sales prices are not competitive in such countries. That is why the Company directs its sales to the local markets especially in Cairo, Delta and Suez Canal areas in addition to Beni suef governorate in south Egypt because of the high cost of transportation to the south areas. Regarding mechanics finance mechanism which the Company depend on, Maria said, that that ACC like any other Egyptian company depends on the usual mechanism of finance as it obtained three finances from the banks and they are currently refunding them according to the specified dates and schedules of repayments. The company considers the bank finance as a mean of financing that can be used once again if any expansions are required. He mentioned that the investments of the company in Brazil can be financed through banks. He said about the obstacles that face cement industry in Egypt that the most Significant challenge is the energy shortage represented in natural gas. Cement industry suffered from severe shortage of fuel that negatively affects the production capacity of the plants. The Egyptian government allowed cement companies a year ago to use coal and the alternative fuel instead of the natural gas and subsequently it is expected that all the cement companies working in Egypt will use the alternative fuel instead of the natural gas by the end of the year. He said that the other challenge that face the industry regarding the licenses as the previous Egyptian governments followed policies which contradicts investment concept instead of encouraging investors by exempting them from Operating and electricity licenses and other fees in order to enable them to compete with the current produces in the local market. But what happened is the opposite as in 2007 the government imposed fees on the junior investors in order to be able to compete the current investors in addition to pumping new investments at the same time so We demand the government to necessarily amend those decisions to encourage the new investors. With regard to the Country need to pump new investments as the government announced its plan to issue 12 new licenses; Maria added that production capacity of cement industry in Egypt has reached 68.7 million tons and can efficiently produce 75.6 million tons in case of the availability of thermo energy from fuel, which in case of its shortage during the past 5 years it resulted in low production of clinker by 31% in 2012 and 44% in 2014. He added that this resulted in importing 8.7 million tons of clinker to produce 9.4 million tons of cement to be added to 42.7 million tons produced from the local clinker, to reach a total of 52.1 million tons of cement to meet the market needs. Regarding the predictions that the market need will reach 80 million tons annually by 2020, he said that the current production capacity can already fulfill this amount now without the need for new licenses, noting that new licenses should be directed towards health or education projects instead in order to avoid the same problem with the government regarding licenses
