Cement Corporation factories, on brink of collapse due to hike in price of diesel

Published on 24 January 2013 in Business
Samar Qaed (author)

Samar Qaed

Government owned cement factors are finding it increasingly hard to keep up with the production rates of private factories.

Government owned cement factors are finding it increasingly hard to keep up with the production rates of private factories.

With factories in Bajel, Amran, and Bahr, the Public Corporation for Cement Industry and Marketing's has been a leading manufacturer in cement material for the past two past decades. However, in recent years, these government-owned factories have managerially deteriorated and are now in danger bankruptcy. In large part, this is due to an increase in  the cost of fuel.

In 2010, the Yemeni Petroleum Company approved a hike in the price of diesel from YR90 to YR180 per liter. This increase in cost was a result of government subsidies for other fuel derivatives like petroleum and kerosene.

Abdualrahman Almasni, the general manager of the Barh factory, believes the government was pushed by oil company representatives to up diesel costs to a level that exceeded international standards. A liter of diesel in Saudi Arabia costs YR10, however Yemen's government currently sells it for YR180.

Dependant on diesel for the cement extraction process, cement companies across the country have suffered huge losses as a result.

The Barh factory, the first cement producer in Yemen, consumes about 165,000 liters of diesel daily. Surprised by the sudden diesel price hike in 2010, they were unable to develop a contingency plan and have experience a significant deterioration in production, the management staff says.

For the Bajel factory, losses were so high that they were forced to close down in 2010.

Almasni says all factories in the Public Corporation for Cement Industry and Marketing are now standing on the edge of an abyss.

Unlike the blossoming private sector, government factories now produces 2.25 million tons of cement a year, saying they cannot keep up with the private sector, which is estimated to produce 3 million tons a year.

Why the hike?

Locally produced in Aden, diesel is considered one of the highest quality fuel extracts. The high global market demand for diesel has encouraged the state to export it, according to Yaser Alwahidi, the commercial affairs deputy manager at Yemeni Petroleum Company (YPC).

Alwahidi said that the YPC is committed to the current price proposed by the Ministry of Petroleum, saying the cement corporations should seek alternative solutions as prices are likely not going to come down any time soon.  

Alwahidi suggested overhauling the production of cement and going from using diesel to charcoal as fuel.

Using charcoal could decrease the production cost per bag of cement by up to YR400, Alwahidi said.    

“The private sector changed its system from diesel to charcoal over an 8 month period. As a result, it competes by selling a sack of cement for only YR1000” he said.

The privatization approach

Cement Corporation workers have become increasingly critical of governmental decrees that dictate diesel price hikes. The workers have also accused the Ministry of Finance of “slobbering” over cement factory profits without improving facilities.

The state treasury has earned almost $30 billion a year since the factories were established, according to statistics release by the Yemen Corporation for Cement. 
Many in the industry have asked why these funds have not gone towards finding solutions for the struggling factories.

“We as workers feel that there are people plotting against the governmental cement factories, encouraging them to collapse so they can be privatized,” said Yahia Altabib, the head of construction syndicate. He said that if the industry is provided with good management, Yemen has the potential to be a major global cement producer as there are over 200 current sites in the country that have the raw materials for cement production.

Altabib also highlighted that over 4,000 trained workers will be forced out of work if the government does not cope with cement industry issues.  

“The government should look into the situation the workforce faces and pay more attention to the possibility they will be unemployed” he said. “The Public Corporation for Cement Industry and Marketing with the Ministry of Industry should make serious and quick decisions as a national disaster is looming on the horizon.”

Mostafa Nasr, the Economic and Media Centre Studies director, made some suggestions for restarting the factories such as importing diesel.

If the factories operated using charcoal, the cost of fuel would decrease by 62 percent, according to Nasr.

“Barh factory is on the edge of collapse. If it continues without change, it will be in the same situation of Bajel” Nasr said.