Displaying items by tag: Ethiopia

The old saying goes that nothing is certain except for death and taxes. But maybe that should be cement and taxes. Paying your taxes is something most people and companies just get on with, perhaps with some grumbling or perhaps not, but certainly with little press. So two news stories popping up in the same week about cement plants with tax issues is out of the ordinary.

The first concerned Lucky Cement’s battle in Pakistan to keep one of its plants open following accusations of underpaying its taxes. The local tax office tried to shut the Pezu plant down for not paying its property tax. The cement producer hit back with a restraining order from the provincial high court. The second detailed efforts by the Ethiopian authorities efforts to claw back US$10m from a local cement producer accused of deliberately understating its profits. In both cases it’s hard to tell if there is an obvious right or wrong party. Yet if these kinds of stories are hitting the local press headlines then either something has gone wrong or both parties are digging in for a fight.

Looking over a longer time frame two major stories about tax have been doing the rounds over the last year in the industry news. India’s Goods and Services Tax (GST) is a classic example of how cement producers sometimes have to deal with changes to existing regulations. It received another outing this week in the form of the credit agency ICRA’s latest forecast. It explained how the introduction of the new tax, a consolidation of other existing indirect taxes, had slowed production in the second quarter of the Indian financial year in 2017 - 2018.

The other example from a large cement producing country was US President Donald Trump’s cut to federal corporate tax in December 2017. The tax cut was expected to particularly benefit companies that produce materials, like building materials manufacturers. It prompted HeidelbergCement to say in early January 2018 that it expected to see a boost to its profits in 2019. Warren Buffet, the chairman of Berkshire Hathaway and owner of insulation producer Johns Manville amongst other companies, put it bluntly when he said in his 2017 annual report that nearly half the gain of his company’s net worth came from the changes to the US tax system.

Multinational companies, including some cement producers, face issues when dealing with different rules and regulations between the various countries that they operate in. However, sometimes unfairly, sometimes not, large companies also hold a reputation for trying to avoid paying tax.

In this context it’s interesting to look at how LafargeHolcim says it approaches the issue. The company published its tax principles in 2016 where it talks about being responsible and that it, “…accepts tax as a necessary and required contribution to society.” It then talks about the necessity of transparency and good relationships with tax authorities. The same year it declared a total tax bill of Euro726m versus total sales revenue of Euro23bn. By contrast Cemex UK in its tax strategy talks about how it follows the US Sarbanes Oxley Act 2002, which applies a more stringent international accounting and auditing standard. It feels far more honest when it says that it aims to minimise the tax burden upon its shareholders by using methods outlined by the UK government. Taxes may be a certainty but nobody wants to pay a penny more in taxes than they have to.

Ethiopia: The Ethiopian Revenues & Customs Authority (ERCA) says that Chinese company Inchini Bedrock Cement owes it US$10m for alleged tax evasion. The cement producer has declared a loss for five of the seven years it has been in operation, according to the Addis Fortune newspaper. However, ERCA’s Large Taxpayers Office (LTO) has refuted these claims and, following an audit, says that Inchini Bedrock had failed to keep records of the raw materials and finished products in stock. The investigation was triggered following the discovery of documents relating to Inchini Bedrock whilst ECRA was looking at another case.

Inchini Bedrock Cement employs 265 employees, including 22 foreign nationals. However, it appears to have no manager or representative at present, except for the head of the expatriate department, according to sources quoted by Addis Fortune. The manager of the company left Ethiopia in late 2017 due to medical reasons. The plant had a cement production capacity of 0.3Mt/yr when it opened in 2012.

Ethiopia: Cement producers have faced disruption due to security concerns in Oromia state. Habesha Cement suspended production at its Holeta plant on 24 October 2017 due to youth protestors who occupied the site, according to the Reporter newspaper. The protestors took over the unit and demanded to be given jobs. The cement producer says that has been active in community development projects and has recruitment policy that gives priority to local communities.

In two separate incidents, five trucks belonging to Dangote Cement were set on fire over the last week in other parts of the state. In one of the incidents, at Ambo, 10 people also died during clashes between protestors and the government.

Ethiopia: Ethiopia earned US$17.3m from exports of 0.2Mt of cement exports in its latest financial year that ended on 7 July 2017. The Chemical and Construction Input Industry Development Institute added that the country’s cement industry is planning to reach a production capacity of 27Mt/yr by the end of the Second Growth and Transformation Plan (GTP-II) in the 2019 – 2020 year, according to the Walta Information and Public Relations Centre.

Ethiopia: Dangote Cement’s plant at Mugher is the second biggest earning plant in the group’s network. It reported revenue in excess of US$85.8m for the Ethiopian fiscal year that ended on 8 July 2017, according to the Agence de Presse Africaine. Sales and marketing deputy manager Tariku Alemayehu said that the majority of the earnings came from exports of over 2Mt of cement to neighbouring countries.

The Mugher cement plant recently built a 120bag/yr bagging unit for over US$21.5m. The cement plant is the largest in the country and it produces 32.5 and 42.5-grade cements.

South Africa: PPC estimates that cement demand improved in South Africa during the first half of 2017 following a poor first quarter to the calendar year. It has also predicted that production capacity utilisation rates for the industry as a whole are growing and that they could reach full capacity in 2020. On an adjusted like-for-like basis its cement sales volumes grew by 0.5% year-on-year in the most recent quarter due to good performance in its Coastal and Inland areas. However, imports have continued to decline, by 27%. Outside of South Africa the company has overseen growth particularly in Rwanda, and, in Zimbabwe, the Democratic Republic of Congo and in Ethiopia as well. The company made the announcement as part of an operational update for its first financial quarter that ended on 30 June 2017.

”Our focus is firmly on delivering improved profitability and liquidity in the shorter term while our longer term strategy remains unchanged. More specifically, we will focus our management effort on the new operations in the DRC and Ethiopia, ensuring that they deliver to expectations, while further optimising efficiency in our other businesses,” said interim chief executive officer (CEO) Johan Claassen.

Ethiopia: Requests from 20 cement producers have led the Ethiopian Petroleum Supply Enterprise (EPSE) to start a tendering process to procure coal. Four international firms have reached the preliminary technical evaluation stage of the tender to procure 0.7Mt of coal, according to the Addis Fortune newspaper. The majority of the coal, around 0.6Mt, will be imported for the cement producers with the remainder going to steel and ceramics producers. The process excludes Derba Cement, which has its own arrangements to import coal in place. EPSE is expected to award the bid by the end of July 2017.

Ethiopia imports over 0.75Mt/yr of coal, of which more than 75% is for cement production. More than half of the energy consumption of the country’s cement plants is derived from coal.

Ethiopia: Dangote Cement has threatened to stop its operations at its Mugher cement plant in Oromia if the local government doesn’t cancel an order forcing the cement producer to give control of some of its business to local young people. Oromia state's East Shewa Zone administration has asked the Nigerian cement company to allow cooperatives of unemployed young adults to run part of its mining businesses or face ‘any problems’ that may arise, according to the Star newspaper. The state scheme is intended to reduce youth unemployment and to relax local social tensions following riots in 2016. Dangote Cement was one of several businesses that were attacked in the unrest.

However, Dangote Cement’s executive director Edwin Devakumar warned that any ‘mismanagement’ of its mining business could undermine its entire business. The cement producer intends to write to the federal government to ask for intervention otherwise it will consider shutting its Mugher plant as a last resort.

South Africa: PPC has blamed its poor performance in its financial year to 31 March 2017 on a poor credit rating from S&P Global Ratings. Its chief executive officer Darryll Castle complained about a liquidity crisis caused by the downgrading of PPC’s credit ratings to junk status by S&P Global Ratings in May 2016. He also attributed the result to falling cement prices in South Africa and poor weather in early 2017.

The cement producer’s earnings before interest, taxation, depreciation and amortisation (EBITDA) fell by 13% year-on-year to US$160m for its financial year that ended on 31 March 2017 from US$184m in the same period in 2016. Despite this its sales revenue rose by 5% to US$745m from US$711m and its cement sales volumes rose by 1.6% to 5.54Mt from 5.45Mt.

PPC reported that its 1Mt/yr production line at PPC Slurry is on schedule for commissioning in the first half of 2018. Its 1.4Mt/yr plant in Ethiopia started selling cement in May 2017 and sales are expected to rise as the plant ramps up production.

Ethiopia: Messebo Cement has purchased 200 trucks from Germany’s Man for US$30m. The cement producer has expanded its fleet to reduce its transportation costs, according to the Ethiopian Reporter newspaper. The trucks have been assembled locally by Mesfin Industrial Engineering, a sister company to Massebo, after shipping. 25 of the trucks are silo trucks for transporting bulk cement and 50 are dump trucks.