State must come clean on its pressure on Lafarge to exit Portland

Some time in early 2007, when I was minister in charge of Industry, a fellow suggested that I should initiate the process to kick Lafarge out of East African Portland Cement Company (EAPC) on grounds that the company’s prevalence in the cement sector allowed it inordinate influence and breached competition law.

Innocently I argued that the cement sector internationally was drifting towards dominant regional players taking advantage of the economies of scale. I showed him how Lafarge had grown in Egypt while lowering factory gate prices.

But, most importantly, I pointed out that Kenya’s entry into the Comesa free trade area meant that duty free cement from the regional bloc would obviate any temptation by Lafarge to manipulate the local market.

After listening to me patiently, the fellow laughed and told me I was not getting the point.

He said that since 2007 was an election year, I should help fundraise for the war chest.

Still not getting it, I asked about how the competition policy related to funding elections.

He said that threatening to force Lafarge to sell its equity in EAPC would make them “talk”.

That talk about undue influence was a way to extort money from the French giant. I dismissed the fellow and the matter went to rest.

This past week, the government competition authority has returned to Lafarge with the same old argument about undue influence, again in the run-up to an election.

I feel a sense of déjà vu. The latest posturing comes at a time when questionable deals at NHIF, bulk petroleum importation and possible sale of New KCC are raising the spectre of raiding public coffers for campaign funds. All prefects and whistle blowers of public interest should get on elevated alert.

Let us look closely at the EAPC case. Lafarge is the largest single shareholder in EAPC, holding about 29 per cent through BCI and Clementina and an additional 7.25 per cent by fact of owning 58 per cent of the 12.5 per cent shares held by Bamburi Cement. This is a situation we have had for many years.

But there is no demonstrated undue influence over the years of this structure of relations.

Indeed Bamburi is not represented on the board of EAPC. Why does the potential of undue influence choose to emerge in the run-up to an election?

Over the past few months, government dysfunction has seen a sad circus at EAPC similar to NHIF with multiple dismissals and reinstatements.

The confusion saw the erosion in the value of EAPC’s stock.

On recent evidence, the Ministry of Industry has exercised undue influence in the affairs of EAPC totally disproportionate to the equity held by its trustees.

Undue influence

How do you force a leading shareholder to dispose of their stock at a time when the value of a company’s equity has been lowered by mistakes of the self same government now talking about undue influence?

If government wants to reduce the influence of Lafarge, where was it when the largest public shareholder in the company, NSSF, was diluting its stock in the company?

Over the past few years, we have seen the most dramatic change in market segmentation in Kenya’s cement industry since independence.

The dramatic entry of Mombasa Cement, National Cement, Devkhi, Simba and Savanna cement companies has substantially diversified the market and reduced the share of Lafarge as the leading manufacturer.

If the fear of over-bearing presence by the French giant was an issue, it is much less so today than at any other time in our history.

So, how can the issue of undue influence arise exactly at the time when Lafarge is being reduced in the market by new entrants?

The best interest of the government and the Kenyan public is a cement sector that is efficient and cost effective as we look to a future of major construction boom.

To help EAPC survive in such a field, government should look to exit as a player and improve its performance as a regulator.

At a time when markets are jittery about the impact of electioneering, the last thing we need is needless interventions which seem more akin to rent seeking behaviour than rational regulation of a free market.

Dr Mukhisa Kituyi is a director of Kenya Institute of Governance [email protected]