TBY talks to İsmail Erkovan, CEO of Qızıldaş Sement, on domestic cement demand and on progress in setting up a new cement facility.
TBY Where are you looking to position your company within Azerbaijan’s cement industry?
İSMAİL ERKOVAN There is only one integrated cement factory currently operating in Azerbaijan, which has a capacity of 1.3 million tons of cement per year. Comprehensive infrastructure and various other ambitious projects implemented throughout the country, which together with the expansion of civil construction, further spurred growth in cement consumption. As such, in 1997, consumption was just 0.5 million tons, whereas in 2008 the figure had reached 4.3 million tons, which was satisfied through the import of about 3 million tons of clinker and cement a year. A continued increase in cement consumption and limited domestic cement production has led to the outflow of hard currency from the country, as well as increased further dependence of the construction sector on external factors and market shocks. Given all of these long-term growth prospects, the cement market is aimed at ensuring that the growing demand for cement is an important element of economic diversification through import substitution. In this way, the management of our company decided to build the region’s biggest cement plant with a production capacity of 5,000 tons of clinker per day and 2 million tons of cement per year. To date, the company has carried out extensive scientific and technical research with the involvement of leading consultants and experts in the field of the cement industry from different countries and developed the technical, financial, and economic plans for the project.
The Qızıldaş Sement plant is not only intended to substitute imports, but through the introduction of advanced technologies in the project it will enable it to supply the oil industry in Azerbaijan and the whole Caspian region with special brands of oil-well cement that comply with API standards. With an output capacity of 5,000 tons of clinker per day and 2 million tons of cement per year, the plant will not only considerably substitute imports, but also enable Azerbaijan to become an exporter of strategic consumables for the oil industry. The process equipment supplied for the project is being purchased from leading producers in Germany and other European countries, which will ensure high-quality output, safety, and efficiency of operation, as well as minimize power consumption, while preserving high European and global ecological standards. The project envisages the creation of new infrastructure that will improve the quality of life in neighboring settlements. It is noteworthy that the project is significant in terms of the creation of new jobs. It will be the biggest factory not only in Azerbaijan, but also in all of the Caucasus.
The management decided to implement the project under a turnkey scheme to balance the lack of experience in cement plant construction in Azerbaijan and to ensure technology and knowledge transfer from a reputable international turnkey contractor. The company’s management was shaped under best international practice and experienced professionals were invited to take positions with Norm LLC. I was invited to take over the CEO position and lead the company and the whole project. The board proposed this position as I had been working for more than 35 years in Turkey at Oyak Cement Group. The aim of the management team is to create a very modern factory that is environmentally friendly and has the latest technology. On March 1, 2011, NORM LLC signed a contract with a consortium of companies comprised of China Triumph International Engineering Company and Mitsubishi Corporation. The plant will be put into full-scale operation in 28 months, while early cement will first start to be pumped out six months earlier. We are planning to import clinker and will start production to test the market and penetrate with a new brand name. By the end of 2013 our factory may become one of the key market players.
What benefits will the factory bring to Azerbaijan?
The factory will substitute the import of cement and subsequently reduce the cash outflow by approximately $150 million per year. Additionally, it will bring competition, which will raise the quality of the cement industry in Azerbaijan. As we enter the market, Garadagh Cement will be forced to improve on quality and pricing. In a market dominated by Garadagh Cement, most cement customers’ first choice is Garadagh Cement, as it is a local establishment and has quick access to its customers, while imports are always more risky from in terms of point of delivery time. Reliability and availability are important in this industry.
A big consideration in the cement industry is energy costs. What are you doing to minimize their potential impact?
There are two types of energy carriers consumed at cement plants—electric power and fuel. For example, in Turkey, the energy contribution rate in the average production cost of clinker is around 60%, and so in order to attain more price competitiveness one needs to consider cost optimization and in particular decrease energy consumption. Over the course of project feasibility and basic design, we selected the most advanced and energy efficient technological equipment with high attention to environmental preservation. In order to dismiss the idea that cement plants are major polluters, dust and exhaust emitters are being applied. We are closely cooperating with relevant public authorities, especially with Ministry of Ecology and Natural Resources, to ensure the application of the most stringent environmental standards and a monitoring system for a better future with harmony between nature conservation and sustainable industrial development.
Will you cater for niche markets?
We will produce Portland cement and Pozzolanic Portland cement. In addition, our system was designed to meet the oil extraction industry’s requirements and standards for oil well cement. With production of about 100,000 tons per annum, we will not only completely satisfy the Azerbaijan oil industry’s needs, but for the first time in the Caspian region we will start the strategic export of oil well cement under API standards to Caspian countries.
What is your outlook for the future of the cement industry in Azerbaijan?
There are three cement production projects that are being executed in Azerbaijan, namely Garadagh Cement, which is constructing a new line in Baku with a capacity of 1.7 million tons, and Akkord, which is building a 1-million ton cement plant in the north-western Gazakh region. Last but not least, Qızıldaş Sement—our project—which has the biggest capacity in the country at 2 million tons. Thus, the total installed capacity of cement production will be 4.7 million tons annually, which fully satisfies current market demand. However, our market research predicts further growth in demand, so we are working on capacity expansion options as well. This would enable us to start the project process on a second line immediately after completion of the first line. We have secured enough resources to even triple our capacities in the coming 5-10 years and implement gradual raw materials and market investigations to adequately address the requirements of the rapidly growing Azerbaijani economy.
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