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Manage cement price
Last Tuesday, Trinidad Cement Limited (TCL) announced a rise in price on a standard 42.5 kilogramme bag of cement by 9.5 per cent. The company had warned last July that it would have to review its prices after a 90-day strike by the OWTU meant to shift the company’s position from a wage offer of 6.5 per cent.
TCL has been managing weighty losses over the last three years with a loss in 2010 of just over $80 million, a loss in 2011 of more than $130 million. When the union called the strike, TCL had already declared itself insolvent and was working with creditors to restructure more than $1.8 billion in debt.
The company’s unaudited after-tax loss for 2012 soared to $178 million for the nine-month period between January and September, a 26 per cent increase over the same financial period in 2011. In October, Labour Minister and retired OWTU president general Errol McLeod told Parliament during the budget debate that “The TCL strike was an error of great magnitude in Trinidad and Tobago.”
The costly lessons of the strike, so fresh in the memory of the construction industry, offer timely warning of how the price increase will affect projects underway. The short-term $13 price increase occasioned by the strike, an effective spike of 21 per cent, triggered sharp rises in the price of bulk cement, a situation that’s likely to play out again, causing complementary escalations in the cost of major construction and refurbishment projects.
Without intervention, the pain of the May increase, a concession to the constrained circumstances occasioned by the strike, will now become a sustained rise in the cost of construction just as the industry begins to build some steam after a long period at enforced downtime. Mikey Joseph, past president of the Contractors Association of T&T, summed up the dissatisfaction of the industry in a single word. “Unacceptable.”
Mr Joseph was surprised at the sudden implementation of the increase and saw problems arising with contracted projects with fixed prices. Coosal’s Construction Company Limited called for the removal of the tariff on imported cement, concerned that costs on concrete and masonry products would rise by as much as 20 per cent downstream from TCL.
That would effectively kill TCL as a viable company, so the Government’s response has been to find other ways to give the cement company a fighting chance to survive. Trade Minister Vasant Bharath announced plans to look at import duties but instead chose to target the 15 per cent Caricom tax on cement imported from outside the region and to seek a reclassification of the cement company at the National Gas Company that would reduce their cost for gas.
Most critical, but unfortunately far too generalised was a vague plan to seek ways to make TCL more efficient.
The first two efforts are likely to have more immediate results. There is precedent for a reduction in the Caricom cement tax, and the Government has some sway at NGC, but both solutions demand interventions that aren’t sustainable. Bulk cement is always a risky product to ship and will only provide a reprieve while any NGC price reductions will ultimately amount to a government subsidy of TCL’s operations.
Ultimately, making the company solvent again will mean making some tough decisions about how the company operates and how it manages its substantial wage bill. The only real solution is a tightly staffed, efficiently run and profit focused TCL and that’s a reality that’s evaded the company’s management for years now. TCL in 2013 is a brittle, fractured company that’s going to have to be handled deftly and with serious intent or it will simply shatter.
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