18th November 2003

Portland Cement’s CEO in mortgage loan trouble

THE Newly appointed East African Portland Cement’s managing director. Emmanuel Charo Birya, is in embroiled in a financial dispute with the board that is threatening his future at the firm.

Sources told the Financial Standard that the board met on Monday last week at a Nairobi hotel to discuss the matter.

Unconfirmed reports indicate that the government is already scouting for a replacement – indicating that the future of Biria at the company is on the balance.
At the centre of his problems is Sh1.5 million advance he paid himself in October without the approval of the board. Biria however insists he has not violated any company regulations and accuses his detractors of harbouring ulterior motives.
Of the advance he took he says: “It is true I took the money to buy property. But it was in accordance with the regulations of the company.”

But the board insists that Birya took the money unilaterally without its approval. “The board did not approve of it and that is why board members are cross with him,” a source close to the board told the Financial Standard.

Clause 16 of the company’s regulations entitles permanent staff to interest free loans for purposes of paying house mortgage “so long as one has been in employment for not less than five continuous years.”

The loan must be repaid within a period not exceeding 72 months and at a monthly rate not exceeding one third of the loanee’s monthly pay.

Birya is also accused of ignoring or flouting company procurement procedures during the recent purchase of a furnace and cement package bags.

Also being questioned is his decision to retain a monopolistic cement distribution contract with a distributor at 18 per cent discount, while other customers get 4 per cent.

The meeting from which Birya was excluded for two hours was, however, unable to arrive at a decision. Sources at the meeting disclosed that the position taken by board members appear to have infuriated Biria who said nothing thereafter.

Other reports indicate that the Ministry of Finance is equally concerned over on-goings at the firm and has petitioned the Minister of Trade and Industry, Dr. Mukhisa Kituyi to look into the matter.

Kituyi is in-turn said to have summoned Biria for questioning upon receiving a formal note from the Ministry of Finance.

The government has 25 per cent shareholding in the company. Other shareholders include NSSF with 27 per cent Cementia (Lafarge) with 14.6 per cent, BCI with 14.6 per cent, Bamburi with 12.5 per cent and others with 6.3 per cent.
The company, which is Kenya’s oldest cement manufacturer has eight board members representing the shareholders.

It has a workforce of 525 permanent employees and a limited number of casuals.


18th November 2003

State gives in and agrees to lift waiver on oil

Decision followed a significant drop of Sh1.6 billion in tax collections

The state has agreed to lift a tax waiver for small importers of refined petroleum products.

This is clearly a victory for the international branded oil firms, although the government has said that its actions were promoted by a desire to provide a level playing field in the industry.

The waiver was introduced early this year through a legal notice issued by Energy minister Ochilo Ayacko.

Mr. Ayacko said at the time that the move would help to bring down petrol prices which, incidentally, are still high.

The number of small oil importers increased after the edict to the extent that the big oil firms complained about their shrinking market share – less than 70 per cent by this year.

Pull-out threat
Instead, some even threatened to pull out of Kenya.
Companies such as BP/Shell and Caltex had already pulled out of western Kenya where the so-called “independent dealers” hold sway. Mr. Ayacko’s about-turn now may raise concern over the wisdom of some of his pronouncements.

In this case, it was the government’s widening budget deficit which may have forced his hand. Revenue from oil sales has been falling.

Between April and June this year, the taxman’s collection from the sector dropped by Sh1.6 billion, due to what the state claimed were illegal practices by independent dealers – some were said to be selling adulterated fuel and petroleum products meant for export.

“Our information is that the tax revenue from oil firms went down further in the third quarter,” the general manager of Petroleum Institute of East Africa (PIEA), Mr. George Wachira, told BusinessWeek.

Last Friday, Mr. Ayacko lamented that the taxes had declined because of the diversion of products meant for export into the local market. Petrol stations operating without adhering to the law would be destroyed, the minister warned.

He said an inter-ministerial committee launched on Friday would work to curb adulteration of fuel products and end other illegal practices in the industry.
“I can say with authority that we have received information from government that the waiver will be lifted shortly,” Mr. Wachira said.

The big oil companies claimed that small importers were bringing in oil products through private depots instead of using Kenya Pipeline, and under-declaring their value to avoid paying the right tax.

Roughly half of the pump price of petrol in branded stations is composed of taxes.
Small importers are now likely to claim that Mr. Ayacko is fighting in the wrong corner, by hitting them with a blanket decree that does not differentiate between honest dealers and culprits.

“We know the KRA commissioner-general is addressing the issue [of export petroleum] and liaising with neighbouring countries on the matter,” Mr. Wachira said.
Adulteration of petrol and diesel with kerosene destroys vehicle engines, but allows independent dealers to undercut their bigger international rivals. In some cases, the price difference is as high as Sh6.

However, Kenya is not alone in this respect. In India, the problem has reach such graphic proportions with the transport industry accepted adulterated fuel as a kind of “necessary evil”.

However, the closure of so many branded petrol stations around the country is also linked to the general decline in industrial activity and therefore consumption of petroleum products.

Falling fortunes
In western Kenya in particular the near-collapse of the sugar industry, which is a fuel guzzler, has contributed to the falling fortunes of the branded oil companies.
“What we want is just fair competition. A situation where cheaper imported refined products are sold in the same market does not amount to a level-playing field,” Mr. Wachira said.

However, he noted, with the changes in the judiciary, it will be easier to bring those who violate the law to justice, and maintain a semblance of fairness in the oil sector.
The PIEA boss said the government had also assured the industry lobby that the long-delayed Petroleum Bill will be brought to parliament during the first quarter of 2004. “It will be fast-tracked in the coming year. It was delayed because there was no focus in the previous government,” Mr. Wachira said.

The oil sector is also hopeful that the government will complete a study of the oil sector and the Kenya petroleum Refineries Limited in particular during the first quarter of 2004.

18th November 2003

Vicious price war with rival may hasten the exit of Portland’s CEO

Developments at a cement company may change the shape of a raging price war in the market.

The expected exit of East African Portland Cement’s chief executive Birya Charo, may herald the end of sales battle that pitched the company against Bamburi Cement Ltd. and Athi River Mining Ltd. Only the consumer was left smiling, while the companies have seen up to Sh400 million wiped off their bottomlines.

“Of course I am not sad that he might go. I hope whoever comes is more responsible,” said a main player. Manufacturers were compelled to cut their prices as Portland engaged in predatory pricing.

The trigger on his exit was squeezed by a mountain of allegations, including matters bordering on financial impropriety and lax expenditure controls.

Mr. Charo’s trouble with the board arose out of petty cash borrowing of Sh1.5 million for reported personal use. The board said this was irregular, despite him returning the money in a week. In normal circumstances, it is hard to see the cause of the fuss and easily dismiss the accusations as legalistic. That is perhaps why Mr. Charo has not hesitated in looking elsewhere for his tormentor.

Bamburi owns nearly 20 per cent of Athi River Mining, and directly holds 12.5 per cent in Portland, while its parent, Lafarge, has a bigger stake.

That is why Mr. Charo’s charge that Bamburi had a bone to pick with him after eating into their market share may not be viewed as idle-talk. Worth noting is that for the half-year ending in June, Bamburi announced a 15 per cent reduction in profit.
“The loss of market share has been triggered particularly by the actions of a competitor, which adopted a different commercial policy,” managing director Mr. Didier Tressarieu charged, and is on record naming Portland.

Mr. Charo angrily replied to the remarks in an article published in a local daily.
But as far as the industry is concerned, the impact on cement pricing wars is what is going to be critical. Through irrational and unexplained discounts, Portland effected major chops in prices of cement, to the displeasure of manufacturers. Mr. Charo effectively gave one firm control over the distribution of 60 per cent of the 600,000 tonnes annual cement production. Ironically, this is one issue that hastened the exit of former chief executive Titus Barmasai – a departure as controversial as his intriguing replacement of Mr. John Maina in December 1998.

The intended removal of Mr. Charo has for some reason been unable to right Portland’s distribution anomalies. And despite all the hype about cleaning up, he has not been able to make any headway in putting the firm on equal management footing with competitors Bamburi Cement and Athi River Mining.

His regime has been marked by massive political interference in the management of the company, and in an unprecedented rise in the number of managers – most of them brought in through the influence of ministers.

In the year ending June, the company’s operating profit plunged 60 per cent from Sh436.5 million to Sh170.5 million. That its after-tax profit was up from Sh123.2 million to Sh226.1 million is a misnomer, and is almost wholly attributable to Narc euphoria.

It made an exchange gain of Sh298.5 million against Sh145.4 million loss in the previous year, included in its pre-tax profit of Sh382 million. This leaves an adjusted PBT of a paltry Sh83.7 million out of a Sh3.8 billion turnover.

Unfortunately, the one increasing figure beside turnover has been administrative and sales expenses – by slightly over Sh300 million in one year alone.

Fortunes of the firm are closely tied to the repayment of a two-decade old Sh6.4 billion yen-denominated loan, which had a balance of Sh4 billion by the beginning of the year. When the domestic currency strengthens, Portland makes a gain, but when it depreciates, it suffers a net loss. The shilling has strengthened since the end of last year.

At the end of the day, it will be hard to tell the real source of Mr. Charo’s trouble. Some of the directors have been reported as fingering his Portland backgrounds as a minus for him in reforming the institution, and there are several contenders for his position.

The government has huge sway in the firm. Its 25.33 per cent stake gives it the leeway to meddle in Portland’s management. The company has been exempted from the State Corporations Act since September 1998. the government also guarantees its huge yen-denominated exposure. National Security Fund owns 27 per cent of Portland.

18th November 2003

Power producers to meet

A meeting of producers, transporters and distributors of electric power in Africa is scheduled to be held in Nairobi this week.

The Union of Producers, Transporters and Distributors of Electric Power in Africa (UPDEA) holds its general assembly on Thursday and Friday. In an interview through e-mail, UPDEA president Thulani S. Gcabashe, said the assembly would discuss the