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Financial News

Oct 2009 Financial News

Cement supply guaranteed, import waiver in jeopardy

Oct 23, 2009

Industry minister Karl Samuda has gone silent amid signals out of Georgetown that Jamaica's request for an extension of its cement waiver is on the verge of being denied, unless other persuasive arguments prevail.

The CARICOM Secretariat is also not talking, preferring to communicate directly with Jamaican officials, but informed sources say a letter was destined for Kingston with what would be for cement importers, bad news.

"Both Trinidad & Tobago and Barbados have indicated that they can supply the cement," said a CARICOM source Wednesday, who spoke on condition of anonymity.

The assurance from those markets was the one thing Samuda had said earlier this month that could derail final approval for suspension of the 15 per cent Common External Tariff on imports being sought by Jamaica for a third year.

Even before the current developments, construction company Tank-Weld Group said Tuesday that if the duty waiver is killed, it could seriously harm its nascent cement import and distribution operation, perhaps leading to closure.

No competition

On Wednesday, CEO Chris Bicknell, speaking more broadly, suggested that, without the waiver, there would be no competition to sole Jamaican producer Caribbean Cement Company Limited (CCCL).

"The health of the construction industry and the protection of the consumer through competition are of greater importance than any one company, and therefore we hope and expect that the minister will find a way to ensure that these priorities are achieved," said the Tank-Weld CEO.

"Jamaica's legitimate interest must not be sacrificed in what is essentially a battle about monopoly versus competition."

Tank-Weld is the third major cement importer to have locked horns with Caribbean Cement within this decade - the others were Arc and Mainland - with the producer having emerged victorious in the past.

It's unclear whether Samuda has received the news, officially, on Trinidad's and Barbados' position, but their commitment effectively cuts off Jamaica's main argument for why importers should be allowed special access - the need for back-up supplies were CCCL to fall short as happened four years ago when its quality systems failed - and may well explain the marathon meeting at the industry and commerce ministry Tuesday to map strategy.

No response

Samuda, who initially said he would speak with the Financial Gleaner by Wednesday, did not return calls. It's understood that there were more meetings that day.

But following a COTED meeting with colleagues October 5-6, Samuda said then that Jamaica would get its one-year extension on the waiver if Barbados and Trinidad could not guarantee supplies for Jamaica in emergencies.

Caribbean Cement, based at Rockfort in Kingston, is a subsidiary of Trinidad Cement Limited (TCL), which also owns cement-producing facilities in its home country, Barbados and other regional markets.

The Jamaican company initially went on the attack against the waiver extension, but turned docile after talks with Samuda that resulted in a pull-back on the concession to importers from 170,000 tonnes, or 20 per cent of the domestic market, to 120,000 tonnes or 15 per cent.

CCCL's motivation is 'payback', saying it needs a 100 per cent shot at the domestic market to achieve, in the shortest timeframe, positive return on its US$177 million (J$15 billion) investment in plant modernisation that wrapped up mid-summer.

Its parent TCL, however, was fighting the waiver on a different front, warning that other unnamed territories were gearing to follow Jamaica with requests to set aside the CET on cement, and urging CARICOM to consider the impact on its operation from extra-regional competition.

Caribbean Cement also did not return calls for comment on the new developments, but the company now has the capacity to produce 1.8 million tonnes of the product and has maintained, for months, that it can meet all demand.

But that, for Bicknell, is not the key issue.

"We don't want a monopoly. We need to have an alternative supply in the event that there is a shortage in supply or a disruption," said Bicknell. "All the virtues of having competition have been presented."

A victory on the waiver for Caribbean Cement is a financial nightmare for Tank-Weld, which operates its cement business from the $1.2-billion port facility it built two years ago at Rio Bueno in Trelawny.

Already facing pushback

To maintain viability, the cement operation needs a 15 per cent minimum market share, Bicknell has said. His company is already facing pushback but is gearing to contest complaints that the American-made Vulcan product that Tank-Weld is trading is dumped cement, a charge the company denies.

Raymond Cooper, president of the Incorporated Masterbuilders Association of Jamaica (IMAJ), whose 160 members are responsible for more than 75 per cent of the construction work done locally, is also wary of a monopolistic environment and is batting for competition.

"Our concern would be around pricing and how reasonable one with a monopoly could be with the pricing of the product," said Cooper on Wednesday.

"Recently, when Carib Cement equalised its price throughout the island, it was a direct result of the fact that, they had competition. Our concern is that, without competition, there would be no regard for the rate of the pricing of the commodity. There has not been any recent issue on the quality of cement, and we are keen to have a reliable supply of good quality and at good prices. But we also want to ensure that the matter of competition remains in place to keep prices at a level where they can be borne at this time."


Source:
Mark Titus, Business Reporter
mark.titus@gleanerjm.com
Jamaica Gleaner
Friday October 23, 2009

http://www.jamaica-gleaner.com/gleaner/20091023/business/business6.html