Dangote Cement, Tanzania dispute over natural gas prices for cement factory

07 Dec 2016
Financial Nigeria

Summary

Dangote Cement operates the largest factory in Tanzania, with a total production capacity of three million metric tonnes.

Aliko Dangote, President and Chief Executive, Dangote Group

Dangote Cement is currently negotiating with the Tanzania Petroleum Development Corporation (TPDC) over the supply of natural gas to a cement plant. However, the parties have yet to reach an agreement on the pricing of the gas, according to a statement released by TPDC on Wednesday.

Last week, Dangote Cement shut down its $500 million factory in Mtwara, located in Tanzania’s south-eastern region, due to high energy costs and technical issues. The Nigeria-based company had requested the state-owned TPDC to supply gas to its plant at subsidized prices, but the request was refused. The Mtwara-plant, which was commissioned in December last year, reportedly consumed six million litres of diesel per month at a cost of $4 million.

"Dangote has held protracted talks with TPDC on the pricing of natural gas. The Dangote Cement factory has asked for gas supply at below market prices, equivalent to the price of raw natural gas from producing wells," TPDC said. "TPDC cannot sell natural gas (to final consumers) on at-the-well price because there are additional costs incurred in processing and transporting the gas.”

Dangote Cement operates the largest factory in Tanzania, with a total production capacity of three million metric tonnes. The company reportedly sited the factory close to Mtwara in order to access subsidized natural gas from TPDC as part of a deal with the government of Tanzania’s immediate past president, Jakaya Kikwete.

But the TPDC, under the incumbent President John Magufuli, has refused to honour the agreement. The new government also stopped Dangote from importing coal from South Africa to fuel its plants, requesting the company to source its coal locally, according to Forbes.

With nearly 44 metric tonnes per annum capacity, Dangote Cement is Africa’s leading cement producer with operations in 15 African countries and Nepal. The company has been ramping up its cement production as part of a plan to raise its capacity to 100 million metric tonnes by 2020.


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