Lebanon’s cement market is an oligopoly controlled by Holcim, Sibline and Cimenterie Nationale, three producers benefiting from government regulation of imports which has effectively been a ban since import licenses were last granted in 2001.
Because of the government protection the industry receives and the lack of local competition, the three firms have been the main beneficiaries of construction booms in Lebanon over the past two decades. But the protection has also exposed them to allegations of operating like a cartel.
According to a 2010 report on Holcim by BLOM Investment Bank, Lebanon’s cement market grew by 10.3 percent annually between 2000 and 2010. Though Cimenterie Nationale has encroached slightly on Holcim’s market share in the past two years, each firm’s share of local sales over the past decade has remained relatively stable, a fact critics cite as ammunition against the oligopoly.
The chief operating officers of Sibline and Cimenterie Nationale offer multiple explanations to justify the import ban and insist they supply more than enough high-quality, fairly priced cement to meet the needs of the market.
“One thing the government considers ... is that the production capacity in Lebanon is very close to 6.5 million tons annually and consumption is a little bit higher than 5 million tons so there is excess capacity in Lebanon,” Sibline’s acting general manager and CEO Talaat al-Lahham told The Daily Star. “Since we are supplying more than what’s needed in the market why should there be importation to Lebanon? ... The three plants have invested huge money in Lebanon.”
An industrial source claims that local cement companies face competitive disadvantages producing such an energy-intensive product in Lebanon and must be insulated from the threat posed by low-priced imports from countries with high energy subsidies and cheaper labor, such as Kuwait and Egypt.
“The big negatives we face are having to import fuel from far away,” he said. “There are plants in Egypt that are above natural gas resources. They just have to drill or the government drills and they get it directly from the government.”
When asked whether the three companies coordinate with each other he pointed to a comparative chart of the companies’ sales figures over the past two decades.
“If there is a cozy relationship it sure doesn’t show in these figures,” he said, alluding to the fact that Cimenterie Nationale has gradually bitten into Holcim’s market share since expanding its facility in 1994. “I think competition in this market is pretty fierce.”
The Daily Star interviewed three separate concrete manufacturers who tell a different story.
Though none of them were willing to be quoted on the record since they didn’t want to alienate their suppliers, all of them accused the three cement manufacturers of collaborating to fix prices to keep the cost of the product artificially high and to restrict customers from switching from one company to another.
“You cannot switch suppliers. We are their property,” one concrete manufacturer told The Daily Star. “They have split the market between them and no one exceeds their percentage of the market.
“It’s a proper monopoly, but this is like the entire economy of Lebanon. Everything has someone behind it.”
Other sources were less sanguine about the current arrangement.
One recounted a yearlong battle to buy cement from a different company than the one it traditionally worked with, but asked that the manufacturers’ names not be used because the estimated 30 major concrete mixing firms in the country rarely switch suppliers.
“If they decide to stop supplying us with cement, the rest of them would gang up on us,” he said.
First, the concrete manufacturer approached the new company it wanted to buy from and was told, “We can’t sell to you until [the current supplier] agrees to let you go,” the source said.
Eventually, “they let us do it,” the concrete manufacturer said,“but only after [the new company] agreed to give [the former supplier] one of their clients in return.”
He also recalled an incident in which a colleague from another concrete company was denied a permit by the Industry Ministry to import competitively priced cement from Spain.
“The government refused and said it was their duty to protect local cement manufacturers,” he said.
Critics of the industry attribute the fact that they are protected by the government to the stakes held by influential politicians in at least two of the three companies.
Industry Minister Vrej Sabounjian told The Daily Star that he saw no basis to price fixing allegations and insisted the existing system was fair to both cement buyers and sellers.
He also said the Industry Ministry had not received a single import license application in the two years since he was appointed.
Under a 1999 agreement with the nation’s cement producers, the ministry is responsible for controlling the price on the local market, he said.
“We look at the local market conditions, the prices in neighboring countries, the costs of production,” Sabounjian said of the factors that are taken into account in setting cement’s price ceiling.
“The production in Lebanon is overcapacity,” he said of whether the import ban should be lifted. “I think they are producing enough for the country. I am more interested in them exporting to new markets. Maybe Syria will be a good market in the future.”
One concrete manufacturer estimated that the current $110 market rate for 1 ton of cement is about 50 percent above prices in other countries. He characterized the protection cement producers received as “unfair,” but said measures were par for the course in countries across the globe.
“They protect it because it is a local industry,” he said.
“All over the world cement is a political product. It is an industry that is always related to the government.”