Businessman Aliko Dangote met with Tanzanian President John Magufuli in Dar es Salaam over Dangote Cement, which is finding it difficult to operate in the country.

After the meeting, the president told journalist Saturday that they had reached an agreement that will see the government supply natural gas at a "reasonable" tariff to the manufacturing plant, eliminating middlemen.

This is after it emerged that Tanzania is finding some of the incentives offered to Dangote Cement untenable as it faces demands for the same from three other cement firms.

The generous incentives, that included tax breaks for diesel imports and allowed the firm to import its coal, were offered after a meeting in May 2015 between Aliko Dangote and president Jakaya Kikwete, where they discussed the challenges that Mr Dangote was facing in accessing gas and coal in Tanzania.

These were given to entice him to open a $500 million plant in Mtwara, in the southeastern part of the country.

Tanzania President Jakaya Kikwete, and Mr Aliko Dangote inaugurate the Dangote Cement factory in Mtwara in October 2015. PHOTO | FILE

Tanzania was taking a cue from Ethiopia, which offered to supply the firm with electricity at a discounted rate of $0.03 kilowatts per hour for the company to build a plant in Ethiopia. This reduced its production cost by over 40 per cent compared with its Nigerian operations.

Tanzania, through its ministry of energy and minerals, has since rolled back some of these incentives, banning the importation of coal while also holding down on the price of gas.

READ: Tanzania to maintain ban on coal imports

Operations of the firm have in the past two weeks ground to a halt over what were described as “technical issues.”

The halting of operations was largely seen as a move to force the government to the negotiating table.

However, the firm’s chief investor relations officer Carl Franklin said the technical issues had been fixed. But he did not give a timeline for when operations would resume.

It is understood that Mr Dangote reached out to President John Magufuli’s administration over the matter.

“We are just caught up in the infighting of greedy political interests between the current and previous administrations,” an insider in the firm said.

READ: Tanzania, Dangote to unlock stalemate over coal

The previous administration has been accused of giving Dangote Cement generous incentives through the Tanzania Investment Centre. These included land for the factory, tax exemption on importation of the monthly six million litres of diesel for power generation, accelerated work permits for expatriate staff and tax waivers on machinery.

The Centre’s then executive director, Juliet Kairuki, has since been replaced. There are also claims that the firm’s local shareholding is led by the former government’s top politicians.

“I don’t think we gave them any generous incentives and we haven’t withdrawn any of these as is being alleged. We would not want to compromise such an investment in our country which has been a game changer as it has delivered on pricing to consumers,” Charles Mwijage, the minister for industries, trade and investments said, adding that there are several interested cement investors who at different stages of implementing their investments projects including financing, land acquisition and construction.

The EastAfrican has learnt that the current regime, faced with three other cement investment requests worth $9 billion, is struggling to justify denying these new firms these generous tax incentives.

Dangote Cement, which as at June controlled 23 per cent share of cement business across Tanzania, is said to have been unhappy with Tanzania’s decision in August, to ban the importation of coal, instead insisting on use of its own coal.

'Low quality coal'

Most cement firms use coal to burn the raw materials to make clinker. Dangote has been importing its coal from the central Highveld basin in South Africa at a cost of $103 per tonne, while Tanzania says that its coal is priced at as low as $90 per tonne.

Some cement manufacturers The EastAfrican spoke to complained that Tanzania’s coal is of low quality, which forces them to incur extra costs as they seek high grade limestone to make good quality cement.

“The low grade of coal that we get from the Songwe mines is still usable in making cement but this means that you have to be guaranteed good quality limestone for you to meet the international standards on the grade of cement. It is indeed a struggle to get that high grade limestone here that’s why some of these firms were importing the good quality coal from other markets,” a business executive said.

“I honestly don’t understand why these cement manufactures are saying that our coal is of low quality. From my understanding, we have the best grade that fits in terms of prices,” John Shija, the acting commissioner of minerals in the ministry of energy and minerals said.

There are also fears that middlemen connected to the political elite, are forcing themselves to be resellers of the gas that Dangote and other manufactures are seeking, raising fears of a rise in the overall cost of the product.

“This group has been angling to use their company as resellers with Dangote insisting on buying the natural gas supplies directly from Tanzania Petroleum Development Corporation (TPDC) to reduce costs. It’s the reasons for the pricing stalemate between the firm and TPDC,” the source said.

Currently, the cement maker is using diesel powered generators to power its plants, a venture it says is costly. It has been demanding to buy gas at $4 per 100 cubic feet while TPDC says it can only sell at $5.12 per 1000 cubic feet.

The government did not disclose, however, the details of the new tariff it struck with Mr Dangote on Saturday.

Dangote’s discount pricing technique to gain market share has so far seen its revenue in its east and southern Africa’s investment rise from $54.5 million last year to $82.2 million in the past six months to June supported by its Ethiopia and Tanzania new operations, driving the regions profit to $3.43 million.