Central Asia. The Cement Industry of Uzbekistan
With over 29 million people, Uzbekistan is definitely not short of cheap labor force. The country is improving its economy quickly thanks to sufficient internal investments and proper exporting policies. Uzbekistan exports its fossil fuels to China and collaborates with its Chinese partners on a regular basis. In 2014, the growth of GDP was close to 8.2%. In 2015, the GDP grew by ~6.5%. The estimation for 2016 is 7-8%. The main sources of income for the country are cotton, gold, and natural gas.
The Cement Industry of Uzbekistan
The country is one of the biggest manufacturers of cement in Central Asia with 9 large facilities capable of producing over 7.6Mt per year. The industry is also supported by a 1Mt per year grinding facility in Tashkent.
The vast majority of industrial objects in Uzbekistan has been owned by the government for a long time. However, ever since 1997 the government conducts “waves” of privatization. A more market-friendly reform that is happening right now attracts foreign business that wants to be present in the region. One of the biggest facilities that are about to be acquired by foreign investors is Qizilqumsement facility. The plant is capable of producing 3.08Mt per year with a potential to increase its capacity if needed. HeidelbergCement expressed its interest in acquiring the facility in 2015 and started bargaining with Uzstroymaterialy (the current owner of the plant) on terms and conditions of the deal. After the acquisition, the Uzbekistan’s company will have a 51% controlling stake dropping an over 35.9% share in favor of HeidelbergCement. This will be one of the biggest acquisitions in the region.
2015 has been a very productive year for the whole cement industry of Uzbekistan with over 11.3% growth only in the first half of the year. Many domestic companies drastically improved their production and manufactured 113% more Portland cement, 108% more gypsum, and over 135% more lime. The production of fibre cement and ceramic bricks also more than doubled in 2015. At the same time, many companies showed record numbers in 2015. For example, Ahangaracement produced over 160 thousand tons of cement which is 2.5% more than previously. The company well-performed both in terms of production and sales shipping over 164 thousand tons to its customers.
The expected growth of the industry by 2019 is close to 20%. Uzbekistan is expected to produce 8.9 million tons of cement in 2019. At the same time, the industry is a subject for heavy modernization during the period from 2015 to 2019. In order to improve technologically, Qizilqumcement and Bekabadcement will be investing $30 and $5.5 million respectively.
While 7.6Mt per year is the best production capacity in the region, the cement industry of Uzbekistan is unable to satisfy the domestic cement demand. In order to meet the domestic requirements, the industry will have to expand and modernize. With a respectable growth of the construction share in GDP, it is quite understandable why the industry is failing to sufficiently supply the domestic demand when it comes to construction materials.
The Future of the Cement Industry
Uzbekistan wants to expand its cement industry and will collaborate with various international investors in order to enhance the domain.
In 2015, AMMC group (Almalyk Mining and Metallurgy Complex) announced their decision to modernize their facility in Zafarabad increasing the capacity from 750 thousand tons to 1Mt per year. Note that the majority of products produced here is exported elsewhere.
At the same time, Shangfeng Cement decides to enter the Uzbekistan market by constructing a new facility capable of producing over 1.2Mt per year. The total cost of the project is estimated at $137 million and will produce cement to supply both Uzbekistan, Kyrgyzstan, and Turkmenistan.
AMMC group and Dal Engineer Group (Turkey) announced their plans to collaborate on a new cement plant in Surkhandarya with the installed capacity ot 1.5Mt per year. The project costs over $155 million and will be partially supported by the government and loans from commercial finance institutions.
Acquired by Eurocement in 1994, Akhangaracement has had several issues so far. In 2014, $19 million in assets and over $177 million in cash were seized by the court. The case has been not solved ever since and still heavily limits the company in terms of financial operations. The Tashkent Regional Economic Court is concerned with the legality of the acquisition and the prosecution wants the facility to be nationalized due to the fact that the privatization was conducted improperly. The case has been postponed several times.
Note that Akhangaracement is the biggest manufacturer of cement in the country and has millions of dollars in fixed assets. At the same time, the company is unable to operate normally due to various legal and financial limitations.
The legal status of the company is not the only concern that Akhangaracement has. Due to being late with their taxes, the company received heavy penalties for their late payments for the period from 2009 to 2014.
The company has been trying to solve the case in court arguing that their calculation has been correct and the mistake is on the side of taxing department.
The problem with taxes and the fact that many assets of the company are still seized heavily limit the company. Reportedly, Akhangaracement has plans to modernize and expand the facility in order to bring both the quality and capacity to European standards. However, with limited investment options, the company is far from being ready to implement positive changes in their production cycles.
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