Dangote Cement wants to import coal from South African to lower energy
cost for its Tanzania plant. PHOTO | COURTESY | Dangote.com
By ASTERIUS BANZI
In Summary
- Dangote Cement, the country’s most powerful cement manufacturer, suspended production at its $500 million Mtwara plant citing “non-serious technical issues.”
- Analysts say that the shutdown was aimed at pressuring the government to lift its ban on coal imports or compel it to sell natural gas at a preferential price.
- Dangote Cement argues that buying natural gas at the “Dar es Salaam price” while the plant is located at the source of the commodity does not make business sense.
Dangote Cement has suspended operations at its plant in
Mtwara in Tanzania in the unfolding dispute over a ban on coal imports
that producers want lifted.
Manufacturers say the ban has increased the cost of cement
production but after two weeks of meetings with sector executives, the
government has instead proposed talks on lowering the price of natural
gas for the grinders.
“It’s going to be a win-win situation,” said a government official privy to the ongoing talks.
Dangote Cement has proposed that the price of natural gas be set
at $4 per 1,000 cubic feet, against a market price of $5.12 per 1,000
cubic feet.
In the talks, the government is represented by Energy and Water
Regulatory Authority (EWURA), the Tanzania Petroleum Development
Corporation (TPDC) and technocrats from the Ministry for Energy and
Minerals.
TPDC, a government corporation with exclusive rights to sell
gas, confirmed last week that Ewura will soon set new prices of natural
gas and that TPDC will start selling the commodity to Dangote Cement as
soon as construction work at the plant is completed in January next
year.
Last week, Dangote Cement, the country’s most powerful cement
manufacturer, suspended production at its $500 million Mtwara plant
citing “non-serious technical issues.”
Analysts say that the shutdown was aimed at pressuring the
government to lift its ban on coal imports or compel it to sell natural
gas at a preferential price.
Dangote Cement argues that buying natural gas at the “Dar es
Salaam price” while the plant is located at the source of the commodity
does not make business sense.
Producing three million tonnes of cement annually and directly
employing 1,000 people, Dangote is the largest cement company in
Tanzania.
Spike in cement prices
Indeed, the temporary closure of the market leader was instantly
followed by a spike in prices of cement produced by other manufacturers
like Rhino Cement, Tanga Cement, Mbeya Cement and Portland Cement.
In Mtwara region, where Dangote Cement has the largest market
share, the price of a 50kg bag of cement shot from Tsh11,500 ($5.15) to
TSh17,000 ($7.61). In Morogoro region, the price has gone up from
Tsh12,000 ($5.37) to Tsh13,500 ($6.04) and in Dodoma from Tsh13,500
($6.04) to Tsh14,000 ($6.27).
Defending the coal import ban on Thursday last week, Charles
Mwijage, Minister for Industry, Trade and Investments said “The
government can’t be too generous to investors at the expense of the
country’s interests.”
Mr Mwijage said Dangote’s decision to import coal did not make
sense because is was expensive compared with buying the commodity from
local producers
Cost of coal
He said transporting coal from South Africa to the Dangote plant
was costing the company $103 per tonne while from the Ngaka mine in
Ruvuma Mbinga would have cost them $90 a tonne.
Tanzania’s total coal reserves are estimated at five billion
tonnes, with Ngaka mine alone having a reserve of 400 million tonnes
that can be extracted for a period of 40 years. The government thus no
reason to allow importation of coal while the country has plenty of the
deposits in its soil.
Dangote and other cement producers were struggling for
permission to import coal from South Africa, claiming it was a cheaper
option than buying locally produced cement. In addition, the cement
manufacturers noted that South African coal was of a better quality.
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