Rwanda's gas-to-electricity and railway projects will make many smile, but first to beam will be cement makers

Retail prices in central Africa are $225 to $270 per tonne, while in southern Africa they can be as low as $96. The reason: energy and transport costs

IN THE past two weeks Rwanda has made two big announcements, which will have far-reaching implications for cement companies and consumers in the country, as well as for the building and construction sector in a region that has some of the highest cement prices in Africa.

Rwanda has embarked on two big infrastructure projects – first is (the recently launched) methane-fired power plant on Lake Kivu to generate clean energy. The KivuWatt gas-water extraction project is the only one operating in the world, according to ContourGlobal LP, the U.S. company that built the facility. 

It is expected to produce 100 megawatts within three years as it extracts gas found in the lake’s deep waters to generate low-carbon emission power, also reducing the risk of a catastrophic release of methane.

In a country that has a current generation capacity of 186 megawatts, and peak demand of 105 megawatts, KivuWatt represents an effective doubling of power available in the country.

Rwanda also plans to develop rail links to Indian Ocean ports through Tanzania. The Dar es Salaam-Isaka-Kigali/Keza-Musongati (DIKKM) standard gauge railway project is expected to be completed by March 2018 and is estimated to cost $5.2 billion.

The implications of this infrastructure expansion will undoubtedly touch many businesses and industries, but at the forefront will be cement. Energy and transport are the first, and second-highest, cost components for cement manufacturers, according to Busi Legodi, CEO of PPC Rwanda.

PPC Rwanda, which also retails under its former name CIMERWA, is 51% owned by South African cement giant PPC (formerly known as Pretoria Portland Cement).

It means that cement prices in Rwanda and neighbouring Democratic Republic of Congo are some of the highest in Africa: retail prices per tonne range from $225 to $270 in the region, while in southern Africa, cement can cost as low as $96 per tonne. 

With such high prices, cement consumption in DR Congo and Rwanda is just 34-45 kg per capita, compared to South Africa for example (230kg) or Botswana (302kg).

Majority stake

PPC bought a majority stake in CIMERWA in 2013, and since then has boosted manufacturing capacity six-fold, from 100,000 tonnes a year to 600,000 a year by the commissioning of a brand new factory in the southern town of Rusizi, near the Burundian border.

The number of trucks ferrying bags of PPC cement across the country has also grown from 15 trucks a day to 60 trucks a day.

But Legodi says that doing business in Rwanda is difficult, despite outright government support in the form of technology adoption and administrative efficiency.

“We’re a company that deals in heavy physical goods, and the hilly terrain in Rwanda makes transport expensive because maintenance costs are high,” said Legodi in an interview with Mail & Guardian Africa conducted at the recently-concluded World Economic Forum on Africa in Kigali.

“Gypsum is also an important component of cement manufacturing. Rwanda doesn’t have gypsum deposits so we have to import by road from Kenya and Tanzania.”

Legodi admits that without a government subsidy on power at the Rusizi plant, “we wouldn’t be competitive.”

It makes the news on the investments on the methane gas-to-electricity project, and the rail links with Tanzania particularly exciting – Rwanda and Burundi (where PPC also retails its product) don’t have any railway lines at all. The low transportation costs in southern Africa have much to do with its extensive rail network, which is suitable for transporting bulky goods.

Cement consumption is often used as a proxy indicator for economic growth – one startling statistic from 2015 showed that China had used 3 billion tonnes of cement in the previous three years, more than what the US used in the entire 20th century.

Blistering expansion

Such is the scale of blistering expansion in roads, railways, bridges, dams and modern buildings that China has aggressively pursued in recent years.

On a broader scale, however, cement prices globally are on a downward trend, partly due to production overcapacity particularly in China, which is now transitioning its economy away from a raw materials consumption giant, and more towards domestic consumption.

“Cement prices are dropping globally, not going up,” said Legodi. “There is a risk of cheap cement flooding the market, particularly from Pakistan.”

In 2014, South Africa imposed anti-dumping duties of as much as 77% on cement imports from Pakistan, in order to protect the local cement manufacturing industry. That resulted in PPC’s share price gaining the most in six years when the measures came into effect.

In East Africa, the battles over the sneaky Pakistani cement continue to rage. The East African Community agreement gives preferential tarrifs to goods manufactured within the region, but Rwandan officials last year blacklisted a Tanzanian manufacturer, Kilimanjaro Cement from retailing in its market.

The Rwandan authorities allege that Kilimanjaro Cement is imported from Pakistan and repackaged in local bags and so is not qualified to be treated as manufactured within the region.

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