IN THE MIXER

Kazakhstan 2012 | REAL ESTATE & CONSTRUCTION | VIP INTERVIEW

TBY talks to Roman Kempe, General Manager of HeidelbergCement Central Asia, on local demand and production, and the investment environment.

How have your operations evolved in the region?

HeidelbergCement is the global market leader in aggregates and a prominent player in the fields of cement, concrete, and other downstream activities, making it one of the world's largest manufacturers of building materials. The company employs some 54,000 people at 2,500 locations in more than 40 countries. The HeidelbergCement Group is present in Russia with three plants, and has plans to expand its operations in this part of the world. We have operations in Georgia and Ukraine as well. HeidelbergCement's network really gives a clue as to the importance we attach to the Central Asian region. As for Kazakhstan, HeidelbergCement has been interested in this part of the world and in 2005 it began discussions with the Bukhtarma Cement Company in the northeast of the country. Following negotiations at the end of the same year, HeidelbergCement decided to buy the company out, and since 2006 we have been operating the facility. In 2007 we started to develop our other business lines. At the moment, in addition to the Bukhtarma plant, we have five ready-mixed concrete plants in four locations: Almaty, Aktau, Astana, and Shetpe, and one aggregate quarry near Astana. HeidelbergCement is also investing heavily in West Kazakhstan. In Shetpe, near Aktau, we are building a new cement plant. Our plans are that in 2013 we will start production at this modern, dry processing factory with a capacity up to 1 million tons of cement per year, and will build a second line when the demand is high enough. Our factory in the north is a wet process plant that we are planning to convert into a dry process plant as the future is in dry processing.

How do you see Kazakhstan's cement production base and consumption channels developing?

There are a lot of projects to be built and new capacity will soon be developed in Kazakhstan. The total production capacity in the whole cement industry in Kazakhstan is currently 8 million tons of cement, and it is anticipated to increase up to 12.6 million-13 million tons in the coming years. Current market demand we estimate at 6.2 million tons, and that is expected to increase to 6.7 million tons in 2012. We cannot forget that around Kazakhstan there are a lot of competitors pushing cement into the country from Uzbekistan and Russia. However, we have observed that imports are decreasing, and in 2011 they were 40% lower than in the previous year. In my opinion, this trend will continue. On the one hand, production capacity will increase competition, and on the other hand decrease the need to resort to imports. It is positive for the country to produce locally and sell domestically. In Kazakhstan the sector is typically driven by big infrastructure projects financed by the government. What this country needs is, in my opinion, more development from the private sector side, which we currently do not see much of, although the current trend looks set to continue.

“The total production capacity in the whole cement industry in Kazakhstan is currently 8 million tons of cement."

As a company registered in Kazakhstan, how do you strike a balance between directives from head office and initiatives from the field here in Kazakhstan?

Our head office gives us ideas, and we implement them according to our experience in the country. Innovation comes both from the field and head office. The Heidelberg Technology Center (HTC) supports our operations through its know-how and it is developing and providing us with technical assistance. Since 2006 we have spent millions of euros on modernization and environmental programs. We have added cement mills, silos, and Kazakhstan's first bag filters. In 2012 we are going to install the last filter, which will cost a few million euros. We also have ideas that we come up with here that you cannot create at head office. We are trying to implement a European culture of doing business in a market that was defined in the past by antiquated market development and economical principles. After implementing all these changes, our organization in this country should also be led and managed by locals. We have standards that we are strict about, yet at the same time we are very flexible and close to the business here. We take decisions here in the field according to our corporate standards. We have the freedom, which helps our company to develop fast by taking quick decisions.

What are the barriers to a higher level of FDI in the sector?

Relative complications in the law and bureaucracy cause difficulties from time to time in areas such as licenses, visas, immigration procedures, and work permits. Apart from this, the long distances between population centers pose another difficulty. However, these are challenges that can be addressed over time, and Kazakhstan's government should work heavily on them. The country depends on the rail network because of the long distances between the markets. Without a well-organized rail network, it is hard to shift around goods. The majority of the equipment is unfortunately old, and is getting older; investment is needed. In the second half of 2011 we faced delays in the delivery of raw materials due to logistics problems in the infrastructure network, resulting in a temporary halt to production. Many companies used this moment and increased prices, which stunted our decision-making. At the end it was a fight to get wagon space. In 2012 the market will not be easy, either. As the Russian and the Kazakhstani markets grow, more volume and logistics will be needed to be able to handle the increased output. Recently, I observe that in Kazakhstan many infrastructure projects have being carried out to solve the logistic problems in this country. I see that there is a movement for development, but I would appreciate if more was invested in that area.

How would you assess the latest trends in construction materials manufacturing?

Most of the products unfortunately come from abroad. Almost everything is imported. In the past, Kazakhstan produced a lot of interesting things, and now these factories are closed. There are goods imported from China, Russia, and Europe in the market now. This is not the best development path. In my opinion Kazakhstan should also focus on developing its own production, and the Customs Union with Belarus and Russia opens up new possibilities. In the building materials industry, for example, cement is manufactured locally, but the majority of all other construction materials come from abroad. We can find European technology in Kazakhstan, but I do not see real Kazakhstani products. It is, however, difficult to develop products when faced with such strong international competition. The fastest way to develop our own industry is to invite investors to establish production facilities in Kazakhstan. HeidelbergCement is investing in Kazakhstan directly. We are employing local people, bringing in know-how, developing cement production, and paying taxes in the country. This is, in my opinion, the right model.

© The Business Year - February 2012