Jan 2013 Financial News

ANSA  McAL  COO Gerry Brooks: Importing cement no answer to TCL price hikes

Jan 24, 2013

Adding his voice to the debate, Gerry Brooks, chief operating officer, ANSA McAL Group, said although there are calls to open the market to other cement producers, allowing Trinidad Cement Ltd (TCL) to face competition may not necessarily be a solution.

“As a country, no firm is going to survive if it is not competitive locally or internationally. My own view is if you are to open the market at that stage, you could potentially put the company at risk. I would give it a period of time to allow the company to re-engineer a very clear mandate and business plan,” he said.

Brooks spoke to the Business Guardian last Friday after the ANSA Coatings Ltd’s awards ceremony at the Hyatt Regency Trinidad hotel, Dock Road, Port-of-Spain.

Two weeks ago, after TCL announced a 9.5 per cent increase in cement prices, Trade Minister Vasant Bharath spoke of plans to seek Caricom’s help to cut the 15 per cent duty on cement imports.

Bharath said because cement is made in three nations in Caricom—T&T, Barbados and Jamaica—any nation wanting to waive import duty must first get Caricom’s nod. He showed how important the cost of cement is by saying the construction sector accounts for seven per cent of T&T’s gross domestic product (GDP).

Reacting to Bharath last week in an article published in the Business Guardian, economist and former planning minister Mary King said imports will not be the answer to TCL’s problems. She argued that this could be a “drain” on T&T’s foreign exchange and could lead to other countries dumping their products in T&T.

Brooks said TCL must put its house in order and re-engineer its business structure to prevent annual price increases.

“That is going to reflect in higher raw material input prices for us from a concrete standpoint. It will also impact our clay business to a lesser extent. TCL’s problem is a far greater problem than simply annualised increases in prices. One has to take a look at the re-engineering of that company. One component is a debt problem that affects financial institutions and which has led to provisioning of loans in the case of the institutions that are holding that debt because over $1 billion is held in debt.

“The second part of the problem is the raw material input. There are a couple inputs that are important, one of which is cement. We cannot keep up with annualised increases. A deep and profound look needs to be taken at the company,” he said.

Whatever decision TCL takes, he said, different stakeholders and shareholders must be factored in.

“There are several elements to TCL. One is not only the debt the company is carrying, but you also have shareholder value and you have many companies which hold TCL shares in their pension plan, and institutional portfolios and that, in itself, has to be managed. At this stage it is a question of fixing the company, having a clear plan you go to shareholders with and ensuring you get the support of the institutional partners who have allied partners.”

Construction: A catalyst for the economy

Brooks spoke of the importance of the construction sector to the economy.

“The construction sector is an important catalyst for the economy. For 2012 there are varying numbers around the economy. Some talk about one per cent growth, but if we take a look at the economy since 2009, it has not really grown significantly. Most countries in our position, with an energy-based economy, have in fact recovered at three, four and five per cent growth. We need to catalyse our economy. One of the important instruments for catalysing the economy is the construction sector.”

He warned the Government against making the same errors that ere made between 2004 and 2007.

Clay plant

He said the ANSA McAL Group’s $400 million clay plant investment, expected to be opened this year, is a reaction to rising prices in the construction sector.

“We are seeing on an annualised basis prices increases coming through a couple of things. One is that you are seeing labour escalation in price. Secondly, you are seeing two years running cement price increases.”

The clay plant will be serve not only local needs, but also regional.

“One of the things we have done is we have made a substantial investment in clay, which means in terms of cement and dependents on cement, that input is significantly reduced. We feel that in 2013, we will be able to offer customers, clients, architects, contractors, a better product locally and regionally because clay offers as a possibility to export to Guyana, Suriname, Barbados, Grenada and OECS countries.”

Local content

Repeating the call by local contractors, Brooks urged the Government to design a policy and protocol on local content in the industry.

On Tuesday, Mervyn Chin, president of the T&T Contractors Association (TTCA), said foreign contractors will continue to come in to the country and do shoddy work if there is not proper legislation to prevent it.

“This happened and will continue to happen as a result of Government’s inadequate procurement policy and the absence of a Lien Law protecting local contractors and service providers.

“One of the main things we have to ensure, that for the construction sector, to accelerate there is more local content. Let us use our local people and local providers because we have the expertise, we have the experience.”

Brooks said foreign firms must be pre-qualified before entering the local market.

“What we saw in the past is those firms coming in, establishing a local company, having no resources, and no track record behind the company, incurring debt, collecting payment, and leaving and leaving local suppliers with debt outstanding. By that same token, employees were also not paid. We need to prevent that as we move forward. The Government must have a proper pre-qualification system so that companies do not come in, collect money, do not finish the job, leave the jurisdiction and then leave local providers hanging,” he said.

Money owed

Brooks addressed the issue of the State’s indebtedness to contractors.

Last month, Chin said $0.5 billion is still owed to local contractors for local projects.

“Monies are still being owed to local contractors. Some in the coating industry, some in other areas of services. These companies need to be paid, whether it is VAT or outstanding payments. So we urge the Government to ensure that VAT is paid in a more timely fashion and outstanding payments are settled,” Brooks said.

Last week, Bharath said up to $60 million in outstanding VAT payments would be made available to local manufacturers and other businesses from February 1.


Source:
RAPHAEL JOHN LALL
Trinidad Guardian
Thursday January 24, 2013

http://www.guardian.co.tt/business-guardian/2013-01-24/ansa%E2%80%88-mcal%E2%80%88-coo-gerry-brooks-importing-cement-no-answer-tcl-price-hikes