New Kaspi production line enters tough market environment

This week HeidelbergCement opened its new US$100m dry-process clinker line at its Kaspi cement plant in Georgia. The new 3000tpd line was originally expected to open at the end of 2018 but had a small delay. The new capacity increases HeidelbergCement’s presence in the local market, where it already operates the terminal at Supsa as well as the Rustavi plant and grinding plant at Poti.

It has been a testing last 12 months for the Georgian operations of HeidelbergCement. In August 2018 the company had to lay-off 200 staff and four of the company's seven kilns were shut down after Iranian imports had lowered cement prices, making it unprofitable for HeidelbergCement to run at full capacity.


Foreign invasion
The new 1Mta line at Kaspi comes into play in a competitive environment. In addition to imports from Iranian companies, Akkord Cement of Azerbijan is also increasing production with a third kiln line of 2Mta and will look to export to Georgia.

These companies will find it more difficult to import such large volumes of cement as from 15 January 2019 when a new set of regulations came into force under Georgia’s obligations with the EU. The regulations form part of the Free Trade Deal between the EU, Georgia, Moldova and Ukraine. Importers of construction materials will need to submit a declaration specifying the characteristics of imported products to the Revenue Service of Georgia. This department will stop the import of construction materials that do not have the necessary documents and will report these cases to the Technical and Construction Supervisory Agency. Any construction materials not meeting the required standards will be removed from the market.

In addition, Raysut Cement of Oman has also been considering a new 1Mta plant in Georgia to use the 30Mt limestone quarry of Pioneer Cement Industries Georgia, some 60km from Tibilisi.

The Chinese also view Georgia as an attractive market to invest in. The country may also soon see the completion of the Hualing Group's Black Sea Cement LLC project to build a 1.5Mta plant at Senaki.

Shared domestic scene
HeidelbergCement shares the domestic market with Kavkaz Cement which operates form its facilities in Avjala and Poti, while LafargeHolcim also has a 0.25Mta grinding plant at Poti.

Construction sector slowdown
The capital of Tbilisi is no longer as desirable for residence as the outskirts, where more real estate is being built. These outer areas also benefit from more green space and have better parking availability.

In 2017, 63 per cent of public spending was focussed on construction projects.

 Between 2014-17 the construction sector was the fastest-growing sector in the Georgian economy at 57 per cent, but 80 per cent of the construction has been in Tbilsi and Batumi.
 However, in the 1H18 the construction sector grew by just 0.3 per cent and the share of the construction sector in the economy dropped to 9.3 per cent in 2017 and to 8.6 per cent in 2018.

Real estate grew by 11 per cent in 2017 with the highest growth areas being Adjara up 34 per cent and Batumi. A cheaper area for real estate now is the city of Kutaisi which is forecast to see more growth. Much of Tblisis' real estate is now concentrated in the districts of Saburtalo and Vake.

Parliament passed a new construction regulation code in July 2018, which will come into force in 2022 and will see 14 new bylaws adopted while the existing regulatory framework lose their power. The new code intends to make provision for more spatial planning and development, and will separate higher and technically-hazardous counstruction from regular construction works. Greater emphasis will also be put on sustainability, seismic and fire resistance as well as noise abatement.

Tbilisi infrastructure projects
Tbilisi's Mayor, Kakha Kaladze, outlined the major infrastructure projects planned for the city in 2019-20 to be carried out by Tbilis’s City Hall’s Infrastructure Development Department (TCHIDD). The largest projects include the renovations to the Mtkvari River area development (US$1.43m, Pirosmani street (US$18.83m), Gdiashvili-Purtsseladze streets (US$16.95) and the Kakheti Highway project (US$16.95m).

The TCHIDD also has to find an action plant to solve the 170 unfinished projects in the capital. In some cases work will be resumed but in others dismantling will occur.