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Tanzania, Dangote to unlock stalemate over coal

Wednesday December 07 2016
Dangote

Dangote Cement wants to import coal from South African to lower energy cost for its Tanzania plant. PHOTO | COURTESY | Dangote.com

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.

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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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