Lafarge wins go-ahead for cross-border project

By Syed Tashfin Chowdhury

DHAKA - A ground-breaking cross-border project involving India and Bangladesh, agreed to more than a decade ago, appears finally ready to go into operation following a Supreme Court judgement in India that rejected protests by local tribal groups.

The judgement on July 7 allows limestone mining in the East Khasi Hills area of the Indian state of Meghalaya, bordering Bangladesh's northern border, by Lafarge Umiam Mining Private Ltd (LUMPL), a unit of France-based Lafarge, the world's biggest cement company. The limestone will be transported from Meghalaya to the Chhatak plant in Bangladesh via a 17-kilometer conveyor belt.

The project will boost cement production in Bangladesh, but prevailing prices are unlikely to be affected due to high demand, which has surged 50% in the past two years amid a fast-expanding economy, cement dealers told Asia Times Online.

The project had been stalled since early in 2010, when 21 tribal groups and the Shella Action Committee, a non-governmental organization in the Meghalaya area, petitioned against the mining, fearing "ecological degradation".

The verdict was the only obstacle to Lafarge's efforts to supply raw material to its US$255 million Bangladesh venture, Lafarge Surma Cement Ltd (LSCL). The Bangladesh unit has lost around $1 million every month since April 2010 due to the court ban, Business Standard estimated. The company imported clinkers from abroad "to maintain limited production of its cement until the verdict came", Daily Star reported, citing Shuvashish Priya Barua, LSCL director of corporate affairs.

The governments of both countries, which have been seeking to improve ties over the past two years, were keen to see a court ruling that allowed mining to go ahead. The Indian government sought permission from the court to start mining after Lafarge agreed to pay part of its sale proceeds to the Meghalaya government for development in the region, Bloomberg reported.

India and Bangladesh signed an agreement in November 2000 supporting the LSCL-led cement manufacturing project, the only cross-border industrial project between the two countries. It has been financed by Lafarge, Cementos Molins of Spain, leading Bangladeshi business houses, the World Bank's International Finance Corp, the Asian Development Bank, German Development Bank, the European Investment Bank, and the Netherlands Development Co, according to LUMPL's website.

A senior LSCL official told Business Standard after the Supreme Court approval, "All the petitions filed by the Shella Action Committee have been dismissed by the court. We are grateful to the government of India, the government of Bangladesh, the state government of Meghalaya and the local people in Meghalaya, who have fully supported us in the Supreme Court," before adding that the operations at LUMPL would begin "as soon as possible".

The project's prospects will be further improved if LSCL succeeds in taking a majority stake in Meghalaya-based Star Cement, a unit of India's Cement Manufacturing Co Ltd (CMCL), which claims to be the "largest cement player in the northeast".

Talks between Lafarge India and Star Cement have progressed to a "due diligence stage", Business Standard reported on July 12. The final deal could be worth up to 12 billion rupees (US$269 million). YES Bank is believed to be advising Lafarge, while Morgan Stanley is helping the promoters of Star Cement.

Star Cement is poised to increase its grinding capacity to 3.2 million tonnes in Assam and Bihar along with 1.2 million tonnes in Meghalaya by 2012, which could increase to 1.75 million tonnes, according to Business Standard.

"We are expanding our grinding capacity in the east, and so we would need funds and are open to partnerships," CMCL chairman Sajjan Bhajanka said, according to Business Standard. "We may divest up to a 15-20% stake to strategic partners, but we are unlikely to sell out entirely."

Lafarge did not comment on the deal status. Other companies including Aditya Birla Group, Holcim and Dalmia Cements have also been approached, Business Standard reported.

Lafarge is one of the cement market leaders in Bangladesh alongside Shah Cement, Crown, Holcim, Heidelberg, Seven Circles, Fresh and Cemex, with more than a score of smaller players. Demand last year topped 15 million tonnes, up from 13 million tonnes a year earlier and 50% more than demand in 2008, according to the Bangladesh Cement Manufacturers Association.

Syed Tashfin Chowdhury is a senior staff writer at New Age in Dhaka.