In the course of 11 months, the price for one ton of cement has gone up from 23,000 AMD to 43,000 AMD (an 87% rise). The “Ararat cement” (Gagik Tsarukyan) and “Mika Cement” (Mikhail Baghdasarov) companies are selling their cement at the same price. Allow me to repeat: 43,000 AMD for one ton of cement.
Construction is going on all over Armenia, as well as throughout the region. This means that the abovementioned businessmen don’t have any problems selling their product because their factories are working full time. However, “Mika Limited” placed 292 in the list of taxpayers of Armenia, while “Ararat Cement” wasn’t even on the list.
How cement circumvents the budget
In order to make it clear just how possible it is to raise the stable prices for gas and electricity to an unprecedented high price in a matter of months, let’s first take a look at cement pricing in Armenia. One of the experts in this field helped me out.
Pricing for cement depends on how much the factory produces (the more the factory produces, the lower the price will be), as well as the technological advances. “Ararat Cement”, which currently goes by the endearing name of “Roberto”, has a new technology for producing cement. The company produces cement through the dry method, which saves 20% of energetic resources. With that, “Ararat Cement” has more advantages than any cement factory in Armenia, or Georgia and Azerbaijan for that matter. In addition, the factory produces 1,200,000 tons of cement a year. No other factory produces that much and can’t compete with the price (neither the Hrazdan cement factory, nor the Rustavi and Batumi factories in Georgia, nor other small Ararat factory).
Cement is produced with the combination of limestone and clay. Limestone and clay have to be mixed well after grinding. Old factories do this with water and then put the mixture into the grinder. Gas is heated in the grinder where the water has to get dry first. The grinder is pretty long in length, thus more money is spent on gas. The factories working with the new method, including the Ararat cement factory, mix the two components- limestone and clay-into the air. In other words, they conserve gas and energy.
Other standards for cement pricing include the number of products and how far the mining fields are from where the raw material is transferred to the factory. The “Ararat Cement” factory is the only one in its kind in Armenia and the world that gets its two necessary raw materials in the same area. The furthest mining field is 9 kilometers away from the factory and the closest is 1 meter. We can’t say the same for the Hrazdan factory, which has mining fields 60-70 kilometers away. As for the quality of the limestone, everyone knows that the cleanest limestone is located in the Ararat mining field with 98% pureness. The quality is so high that it would take a longer time to produce low-quality cement.
The next component for cement pricing is the price for using energetic resources, but the price for gas and electricity hadn’t gone up until April. Even if the prices go up, cement prices will only go up by 40-45%.
“It’s all about theft”
In 1999, the Ararat cement factory produced 250,000 tons of clinker (raw material for cement, which then turns into cement). The price for 250,000 tons of cement could have been no less than 19,000 AMD (45 dollars), but cement was sold at 21,000 AMD (50 dollars). The factory, which produces 1,200,000 tons of clinker, produced 250,000 tons that year. The factory made 24% profit.
Currently, the factory works year-round and hasn’t had any problems with the market and consuming for the past couple of years. We are talking about super profits. Head of the “Ararat Cement” factory council and owner of “Multi Group” Sedrak Arustamyan said the following in response to the question as to why they have raised the price for cement:
“It’s because the price for storage parts has gone up. We invest three million yearly for fire-clay, metallic materials, which we import from Russia. In Russia, the prices for those materials keep going up.”
Although it’s clear that the gas price will go up starting from April 1, however Mr. Arustamyan said that for the time being (he means one month) cement prices will not increase. Perhaps Arustamyan’s reasons are convincing for an average person. But experts say that they are pointless and unconvincing. Amortization raises the price in the market. The thing is that the main materials that the factory purchases, including fire-clay among others, are the bricks for the grinder. If the factory uses the right technology, those bricks can be used for one-two years, in other words, they get old after producing 2,600,000 tons of cement. The other main sources are the grinded materials, the metallic pellets (as stated by Mr. Arustamyan). They grind the clinkers until they turn into particles. It’s obvious that those metallic pellets get worn out by getting smudged on the walls. According to norms, one ton of clinker needs one kilogram of metallic pellets. If the factory produces 100,000 tons of cement, then it must use 1000 tons of pellets. According to experts, the price for pellets hasn’t gone up yet. Armenia produces these pellets in the city of Charentsavan. The quality is not that high and more than one kilogram of pellets is used to produce the clinker. Clinkers are also produced in Ukraine and Armenia imports them from there.
“Based on the taxpayers list, these factories not only don’t get profit, but they also spend too much. There is only one logical answer: it’s all about theft,” says one of the experts.
Is there agreement for no competition?
“Mika Cement” can’t compete with “Ararat Cement” with its production. Cement prices at “Mika” are expensive due to the fact that the company uses old technologies, the mining fields are located too far and they apply the “wet” method of producing cement. If we take a look at the real market, the prices fixed by the two companies should differ from each other. Otherwise, it turns out that both companies have come to an agreement on fixing the same prices.
“Mika Limited” spends more for gas and electricity. It’s interesting; does the State Committee on Economic Competition Defense regulate the prices fixed by the two leading companies in the market? Press secretary of the committee Armine Udumyan stated that the committee had studied the cement market two months ago based on its structure. Since both companies are the leaders in the market, they are obligated to give a report on the prices every 6 months (in fact, the deadline is June 1). If the prices for their cement change, then they have to explain why. The committee will take action only if it doesn’t agree with their reasons. As for the agreement between the two for no competition (setting the high price for cement for no reason), that’s pretty hard to prove. We have to go deeper into the issue. There is only agreement like that in Armenia so far.