WHEN the Ministry of Trade announced on December 7, 2020, that it was imposing new restrictions on the importation of cement into Trinidad and Tobago effective January 1, 2021, it reignited a legal dispute that has been rumbling through the region since January 2015.
That was when it was reported that Barbadian contractor and businessman, Mark Maloney, had established a company called Rock Hard Cement, and that he intended to import cement into Barbados.
That news report led to a flood of litigation by Trinidad Cement Ltd (TCL), the Claxton Bay-headquartered company that has cement manufacturing operations in Trinidad, Barbados and Jamaica company.
Established in June 1954, TCL is the only large scale manufacturer of cement in the English-speaking Caribbean, supplying the commodity throughout the region.
With group third-party revenues of about $1.7 billion (US$250 million) in 2019, TCL immediately viewed Rock Hard Cement as an existential threat, as the Barbados based company, with no manufacturing capacity either in Barbados or elsewhere within the Community, was intent on importing cement from the extra-regional countries such as Turkey and Portugal, both of which had large cement facilities that operated with surplus capacity six years ago.
The Rock Hard Cement’s threat to TCL intensified when it soon became clear that a Trinidadian contractor, Mootilal Ramhit and Sons, joined with the Barbadian company to receive imports of cement from Turkey and Portugal.
The evidence of the seriousness with which TCL viewed the Rock Hard threat can be found in the fact that between April 2018 and August 2019, the Caribbean Court delivered five separate judgments and addressed “numerous other applications and claims” on the issue of cement imports into the region and what tariffs should be paid by importers of cement.
In the final judgment on the issue, delivered by the president of the CCJ, Adrian Saunders, the regional court stated: “The issue that remains for determination is the very narrow one with which this odyssey began, namely: whether Rock Hard Cement imported from Turkey and Portugal is to be classified as ‘Building cement (grey)’, thereby attracting a tariff of 15 per cent, or as ‘Other hydraulic cement’, on which a tariff of 0-5 per cent is payable.”
In August 2009, CCJ decided in favour of Rock Hard, ruling that the product imported by the company should be classified as ‘other hydraulic cement,’ attracting the lower Common External Tariff (CET) of 5 per cent or less and not the CET on imported Portland or building cement that is at 15 per cent.
In effect, Rock Hard, the small importer of cement, recorded a resounding judicial victory over the much larger and stronger TCL, some 69.83 per cent of whose 374,647,704 shares are owned by a company called Sierra Trading Ltd, the holding company for Mexico’s multinational building materials company, Cemex.
That victory allowed Mootilal Ramhit and Sons to continue importing cement into Trinidad and Tobago at the minimal tariff rate ratified by the CCJ, providing serious competition for TCL’s products.
Competition to TCL
The competition from imports means that cement prices on the local retail market have remained relatively stable for the last five years at between $44 and $50 a bag.
But before that TCL increased the price of a 42.5 kilogramme bag of cement by 9.5 per cent to around $55 in January 2013. TCL explained at the time that the price increase was due to an increase in its operating costs, specifically in the areas of energy, packaging and spares, according to a report in the World Cement publication of January 2013. The cement price increase that month came after a price review in July 2012 that followed strenuous objections from the construction industry to an earlier price increase announcement.
Correspondence from TCL in January 2012, indicated the retail price of cement increased by 6.5 per cent in 2008 to $48 a bag; the price decreased by five per cent in 2009 to $46 a bag (as a result of a tariff elimination) and the retail price of cement rose to $47 in 2010 and $48 in 2011, although TCL did not adjust its prices in those years. In 2012, TCL increased its company by 8 per cent to $52, which was temporarily rolled back because of opposition.
Cost of competition
While consumers have benefitted from the competition to TCL from imported cement, that comes at the cost of the foreign exchange that is being used to purchase the imported product. Imports are being funded with foreign exchange that is increasing scarce, while TCL’s general manager for the T&T market, Guillermo Rojo told Express Business on Sunday that “heavy investment in equipment and people has made the Claxton Bay plant more competitive and productive with excess idle capacity.”
Rojo also boasts that Cemex’s investments at Claxton Bay have made the local operations “one of the top three non-natural gas exporters and foreign exchange generators in Trinidad and Tobago.”
And it is not clear how much foreign exchange Mootilal Ramhit and Sons are using to import cement into T&T as it is private companies with no requirement to make such information public.
But Central Bank data indicate Mootilal Ramhit and Sons may have imported as much as 118,000 tonnes of cement into Trinidad in 2019. The Central Bank statistics indicate that domestic production of cement (by TCL) in 2019 totaled 678,338 tonnes. Of that output, TCL exported 309,529 tonnes, which suggests the local manufacturer sold 368,809 tonnes on the local market. According to the Central Bank, 486,726 tonnes of cement was sold on the local market in 2019, leaving 118,000 tonnes to be supplied by a non-TCL importer.
Restrictions on imports
On December 7, the Ministry of Trade announced that it was introducing a quota, import licensing regime and a registration system for all imported cement (building cement—grey and other hydraulic cements) effective January 1, 2021 and continuing for an initial period of three years.
There was no explanation from the Ministry of Trade about the rationale for the introduction of the restrictions, or any analysis of the current retail and wholesale market for cement in T&T or an impact analysis of the decision. Or who lobbied for the restrictions privately.
TCL explained in an advertisement in the Sunday Express that it does not intend to increase the price of cement “in the short term.” Although Rojo was pressed hard, he declined to specify what TCL meant by short term. He added that “like any other manufacturer, in the medium term prices might fluctuate based on significant changes in input costs.”
A former TCL executive estimated that about 90 per cent of the company’s cost of production is local value added content. With local inflation running at less than one per cent, there is little chance that TCL can cite increases in local prices to justify increasing the price of cement.
But clearly the reduction in competition in the local market could lead TCL to cite increases in the areas of energy, packaging and spares, as it did in January 2013, to justify increasing the price of local cement.
Perhaps the only thing preventing TCL from reverting to its past monopolistic bad practices is the fact that Minister of Trade, Paula Gopee-Scoon can reverse the restrictions on cement imports her ministry announced last month. But will she...or is there something else in the kiln?