Sanral says projects awarded to Chinese companies ‘will use local materials’

The cement industry has been assured by the South African National Roads Agency (Sanral) that the Chinese companies that were recently awarded significant contracts by the roads agency will be using local materials on these projects.

Njombo Lekula, MD of PPC South Africa and Botswana, said on Monday that Cement & Concrete SA (CCSA) wrote to Sanral to verify that the Chinese companies would be using local product “and they gave us that assurance”.

However, Njombo said the enforcement of the use of local product for these projects relies on the SA Bureau of Standards (SABS).

“They [SABS] will obviously, through the NRCS [National Regulator for Compulsory Specifications], be the one imposing or making sure that it is local product that is being used.”

He added that although the procurement law – the Preferential Procurement Policy Framework Act – has been challenged, he believes “we can rely on the assurance that we got from Sanral that they will be using local products”.

Njombo’s comments were made in response to questions from analysts during a presentation on Monday on PPC’s financial results for the six months to end-September 2022.

This follows Sanral earlier this month announcing the award of four of the five tenders it cancelled in May this year.

The projects awarded are:

  •  Mtentu Bridge: R3.428 billion to CCCC MECSA Joint Venture (JV);

  •  R56 Matatiele rehabilitation: R1.057 billion to Down Touch Investments;

  •  Ashburton Interchange: R1.814 billion to Base Major/CSCEC JV; and

  •  EB Cloete Interchange Improvements: R4.302 billion to Base Major/CSCEC JV.

Sanral attorneys contact Moneyweb

Sanral through its attorneys wrote a letter to Moneyweb requesting a correction to an article published that cast doubt on the compliance of two members of the joint venture partners which were awarded tenders.

It also issued a media statement on Sunday in which it provided “evidence of compliance on the part of the winning bidders” to address what it called “the growing narrative of irregularities and non-compliance regarding the award of tenders to joint ventures (JVs) with Chinese companies”.

Searches by Moneyweb of the Construction Industry Development Board (CIDB) Register of Contractors of two of the joint venture partners revealed that:

  • The registration of one of the companies has expired, and
  • The other company was deregistered.

Sanral said Moneyweb is confusing the two joint venture partners with other companies with similar names and stressed that CSCEC South Africa (Pty) Ltd and MECSA Construction are the companies that formed part of the JVs that won the bids.

A search of the CIDB Register of Contractors using the exact company names provided by Sanral resulted in the following response to both searches: “There are no records to display.”

The CIDB has not yet responded to a request to verify the accuracy of the registration status of the two companies and for comment on the conflicting information.

PPC ready to supply

PPC CEO Roland van Wijnen said on Monday PPC is encouraged by the recent announcements by Sanral to award large construction projects in South Africa and the comments on increased infrastructure spending made in the recent mid-term budget speech by Minister of Finance Enoch Godongwana.

“With additional capacity available to capture an upswing in demand without additional capital expenditure required, PPC is well positioned to support the much-needed construction work across South Africa,” he said.

However, Van Wijnen said cement prices in South Africa are too cheap and the price needs to increase by a further 15% for the industry in South Africa to be viable.

PPC increased the price of its cement in South Africa and Botswana by an average of 5% in the six months to end-September.

It reported that South Africa and Botswana cement revenue increased by 4% to R2.9 billion and, despite cost control efforts, margins were squeezed by inflationary pressures, resulting in earnings before interest, tax, depreciation and amortisation (Ebitda) decreasing from R515 million to R368 million.

Van Wijnen said cement margins in SA decreased due to the fact that PPC’s energy costs have increased so much that it could not recover all these costs through price increases.

He said PPC is focusing on initiatives to offset input cost inflation to prevent cost increases from following inflation.

Cement import progress

Njombo said global supply chain constraints and a weaker rand resulted in a decrease in cement imports into the Western Cape, which positively impacted cement sales volumes to the retail segment.

PPC estimates that imports of cement and clinker decreased by 32% period-on-period.

Njombo said imports continue to threaten the long-term sustainability of the local cement industry, which is problematic for infrastructure roll out and socioeconomic development.

He said the cement industry is still waiting for a response from the International Trade Administration Commission (Itac) to its application for tariff protection on imported cement.

Van Wijnen said strategic actions enabled PPC to continue to reduce debt and maintain its leading market position despite challenging and competitive trading conditions in its core market in the reporting period.

“We are well placed to supply any increase in demand as the roll out of the South African government’s infrastructure development plans gain momentum,” he said.

“At the same time, PPC has a strong financial position and the right focus to weather the current economic cycle.”

Read: ‘Nearly R200bn strategic infrastructure projects are under construction’

Industry rationalisation?

Van Wijnen rebuffed suggestions that PPC’s South Africa cement operations would be unable to deliver acceptable returns without the rationalisation of the number of producers in the market.

He said consolidation, in his experience, has never increased demand in the market.

“Ultimately a successful industry in any country is dependent on fixed capital formation and infrastructure projects,” he said.

Read: New Eskom director identified as source of PPC market-sensitive media leaks

PPC said its results for the six months to end-September were distorted by hyperinflation accounting for PPC Zimbabwe’s performance.

With discontinued operations and PPC Zimbabwe stripped out, revenue rose 9% to R4.2 billion from R3.9 billion.

Ebitda decreased by 12% to R580 million, with margins deteriorating to 13.7% from 16.9% because of significant increases in fuel and other energy costs.

However, cost-saving initiatives and price increases improved Ebitda margins in Rwanda.

Profit before tax increased by 4% to R259 million from R250 million.

Headline earnings per share declined by 60% to 4 cents from 10 cents.

A dividend was not declared.

Shares in PPC declined by 3.07% on Monday to close at R2.21 per share.

Listen: In this SAfm Market Update interview, Sanral spokesperson Vusi Mona says the Chinese won’t bring their own steel and cement, or shipping people in from Beijing to work on these projects (or read the transcript here):