Which way Dangote Cement?


  • The $500 million (Sh1 trillion) investment by Africa’s richest businessman Aliko Dangote of Nigeria was commissioned in October 2015 amid pomp and ceremony but high operational costs associated mainly with overdependence on diesel have led to a slow down on production since the beginning of the last quarter of this year and a complete halt last week.

Dar es Salaam. Trouble bedeviling operations of the Dangote cement factory in Mtwara could derail the mega plant and blot the country’s attractiveness for investment.

The $500 million (Sh1 trillion) investment by Africa’s richest businessman Aliko Dangote of Nigeria was commissioned in October 2015 amid pomp and ceremony but high operational costs associated mainly with overdependence on diesel have led to a slow down on production since the beginning of the last quarter of this year and a complete halt last week.

More than meets the eye

The factory’s management yesterday cited “non-critical, technical issues” as the reason for suspending production but high placed, impeccable sources from within the government and in the Dangote Industries Tanzania Limited say there was more than meet the eye in Dangote operational problems.

“The Dangote Cement investment has found itself in the middle of fierce political crosswinds. You have key members of the current administration on one hand and those from the immediate past administration on the other engaged in a political battle that is difficult to understand. It could turn out to be worse,” the source confided to The Citizen yesterday.

Unjustified incentives?

To convince Dangote Cement to come to Tanzania President Jakaya Kikwete’s administration saw it wise to provide as much incentives as possible, but the current administration has found many of the incentives to be unjustified, sources added. The granting of investment incentives to Dangote, seen as too much by the current administration, was one of the behind the scene reasons that led to the sacking of the former executive director of the Tanzania Investment Centre, Julieth Kairuki, sources added.

“What complicates matters is the fact that it seems some powerful politicians who served in the past administration have strong, vested interests in the Dangote Cement. It is possible that they form part of the local shareholding in the project,” a Member of Parliament from Mtwara region said.

He added; “We used to defend the Dangote Cement project in Parliament in one voice as legislators from Mtwara and Lindi Region, but since we discovered that some politicians, and some of them from the Lindi and Mtwara regions, have shares in the project some of us decided to keep quite. We do not want to fight political battles of other people,” the legislator said.

The legislator said the talk that prevailed outside the debating chamber in Parliament is the fact that in addition to what he viewed as too much incentives granted to Dangote officials in President John Magufuli’s administration was also infuriated by the way the huge money invested in Dangote by “local shareholders” was obtained. “The talk is that the money was obtained through grand corruption that was diverted from other government projects,” the legislator said.

The natural gas promise evaporates into thin air

Source within Dangote Cement also said the investor has been highly frustrated by lack of cooperation in helping it accessing cheap fuel, either from natural gas, drilled some a few kilometres from the factory or from cheap imported coal from South Africa.

The Dangote Cement was the first of a series of the petro-chemical industries that were to be built in Mtwara to take advantage of the cheap natural gas for both the raw materials and fuel. But the Dangote Cement has not been able to utilize natural gas for its fuel needs one year after the commissioning of the plant.

The Dangote Cement management has openly complained about the failure to access the natural gas. The chief executive officer Harpreet Duggal told a visiting CCM delegation in October 26 this year that the failure by authorities to facilitate the supply of cheap natural gas to the factory has led to skyrocketing fuel costs. He said the factory was now forced to use six million littres of diesel per month which is equivalent to Sh10 billion according to estimates by The Citizen which would make Dangote Cement unable to breakeven in the foreseeable future. He added that Dangote Cement failed to agree with the Tanzania Petroleum Development Cooperation on the prices of natural gas. While Dangote expected cheap gas TPDC insisted on selling the gas at “Dar es Salaam prices” to the cement factory located a few kilometres from the gas fields.

Mr Duggal also told the delegation that included the Mtwara Regional Commissioner Halima Dengegu that the ban placed on coal imports from South Africa by the government sealed the doors for alternative cheap fuel. The government through the Minister of Energy and Minerals Prof Sospeter Muhongo recently said the ban is not going to be lifted. TPDC officials said they needed time to address Dangote Cement’s claims.

“Give us till tomorrow (today) to reply on the issue of Dangote and natural gas prices,” a TPDC official who asked for anonymity told The Citizen yesterday.

But the Communications manager for the Energy and Water Utilities Regulatory Authority (Ewura) Titus Kaguo said the controversy surrounding natural gas prices between TPDC and Dangote Cement was caused by the lack of cap prices on users of natural gas that is based on the locations where they are found.

“Natural gas is now sold at $2.14 per 1000 cubic feet. But this price factors costs of processing, transportation and distribution and as a result customers located in Mtwara or Dar es Salaam are obliged to buy the gas at the same price,” Mr Kaguo said.

He added that Ewura had tasked TPDC to conduct an evaluation and submitted a tariff application by Monday of last week (November 21) for approval, but the application wasn’t submitted.

“There are 542 kilometers from Mtwara to Dar es Salaam, and now according to new regulations the distance will be grouped into six categories of 100 kilometres, and the first group which will cover the Dangote plant will be less charged and those in the last category including Dar es Salaam will have higher charges,” he said. Kaguo also said there’s an additional $3 tariff that is charged by TPDC and the government which is not regulated by Ewura.

There were also reports that Dangote plant was reassured of an access to the national power grid, claims which were refuted by the managing director of Tanzania Electrical Supply Company (Tanesco) Eng Felchesmi Mramba.

Mr Mramba told The Citizen that initially Tanesco showed interest I supplying the plant with power, but the company told them according to their business model they were going to erect a captive power plant to generate and manage their own energy.

“I was in that meeting and I can confirm that there was no deal or assurance that was entered into. Again the Dangote plant requires electricity supply of 132Kv and currently our Mtwara supply line is of only 33Kv,” he said.

Any solution in sight?

At the October meeting Ms Dendegu accused Dangote management of “suffering in silence” saying her office had never received any complaints from Dangote. “Why is it that I have not received any formal complaints on the problems that you are facing? When you were constructing the factory we were working very closely but since you started production I have noted a breakdown in communication,” she had said.

The Citizen yesterday observed the Dangote management locked up in a long meeting with the Mtwara Region leadership.

Ms Dendegu refused to comment on anything concerning the Dangote Cement when she met reporters prior to the meeting with the investors but said consultations were ongoing to see how the Region Administration can help solve some of the issue of facing the factory.

“I cannot say anything now because consultations have not reached far enough,” she told The Citizen.

The statement released yesterday by Dangote Cement said talks were ongoing with the government to see how production costs incurred by Dangote Cement could be lowered. But when reached for comment the minister for Industries Trade and Investments Charles Mwijage said he had no official information on the matter. “I don’t know who is he (Duggal) is talking to, by today (yesterday) morning I had no official communication of the stoppage of production and I tasked my Permanent Secretary to follow up on the issue,” said Mwijage.

The leadership of the ruling party, CCM in Mtwara region said it was high time the government helped to solve the Dangote Cement operational issues.

Mtwara CCM Regional Secretary Shaibu Akwilombe said suspension of production by Dangote Cement was a shame to the government that worked so hard to bring the investment into the country and could deal a blow to the hopes of seeing Tanzania industrialise. He said Dangote issues have revealed deep weaknesses in both the Industries, Trade and Investment ministry and the Energy and Minerals one.

“The TIC should intervene and serve as an arbitrator on this whole issue by bringing the relevant government ministries and the investor. These issues should be discussed honestly and the solution found,” Mr Akwilombe said.

“We as CCM leadership in Mtwara are asking ourselves how the situation reached that stage. It is very disappointing. They must sit down and find solutions to these problems,” Mr Akwilombe noted. He said in addition to lowering the price of cement Dangote provided employment to the unemployed youth and stimulated the economy of the region.

Data shows that Dangote Cement, which produces 7500 tonnes of cement per day, employed 149 permanent workers and 405 expatriates at the start of production in January. Contractors working with the factory also employed 400 workers.