The FINANCIAL — A new player RUGE Capital has appeared in the cement production market in Georgia. From USD 200 to 300 million will be invested by the partnership of Georgian-American Company RUGE Capital and Firebird Fund in building a new cement factory, equipped with special modern filtration systems.
“We’ve been investing in Georgia since 2004. We’re one of the largest shareholders of the Bank of Georgia and we’ve been familiar with Georgia for a long time. Our main competitor on the market will be Heidelberg Cement who has the largest share on the market. We assume that the Georgian market can handle more than two companies and we will take our chances. The market will show us whether we’ll be leaders or just followers of the market,” Ian Hague, Lead Manager of Firebird Fund, told The FINANCIAL.
“There will be modern filtration systems and so air pollution will be decreased to a minimum. American investments guarantee that the quality standards will be in the highest mode, in accordance with ISO Certificates,” Lasha Shanidze, the founder of RUGE Capital, told The FINANCIAL.
The license period for using the limestone quarry is 20 years. The factory will employ from about 300 to 500 people. The object brought at the auction was the Babakiari cement limestone mine in the Marneuli region. The total volume of the cement limestone to be obtained is 169,261,500 tonnes. The starting selling price was USD 3,000,000. The RUGE Capital LLC was declared as the winner. The company won the auction by offering USD 6,800,000. The factory will start operating in two to three years.
The auction was held in the Ministry of Economic Development of Georgia with the purpose of issuing the license for obtaining ore resources. Pioneer Cement Industries Georgia LLC, a group founded by Rakeen Development, and RUGE Capital were competing. The auction was won by American-Georgian company RUGE Capital and its partner Firebird Fund.
Firebird manages four private funds dedicated to investment in publicly traded equities of companies operating in the former Soviet Union and early-stage Eastern European countries, as well as two global portfolio equity funds. Firebird also co-manages two private equity funds focusing on the Baltic States.
“The competition on the Georgian cement market is high. There are many small cement producers and also Armenian cement importer companies in Georgia. The market share of HeidelbergCement Georgia today is from 50-60%,” Akaki Chkhaidze, Head of Marketing and Communication Department of HeidelbergCement Georgia, told The FINANCIAL.
Today German HeidelbergCement is the number one cement producer on the market. In May 2006, Heidelberg Cement purchased a stake of 51% in the Georgian cement grinding plant Kartuli Cementi. This was Heidelberg Cement’s first investment in the Caucasus region. The plant is located in Rustavi, 50 km from the Georgian capital Tbilisi. In the meantime the plant has been extended and transformed into an integrated cement plant. The new plant with a cement capacity of 400,000 tonnes was commissioned in early 2008.
Heidelberg Cement has the production capacity of 2,000,000 tonnes annually. From 2006 the company has invested more than USD 248,544,236 in Georgia.
EUR 12,000,000 investments were made in the recent period with the aim of renewing the filtration systems in Rustavi and Kaspi factories. Due to the war the suppliers had problems with providing materials and Heidelberg had to postpone the process. The new filtration system will start working at the end of 2008 in Kaspi and at the beginning of 2009 in Rustavi.
At the end of 2006 Heidelberg Cement acquired a stake of 75% in Saqcementi, the largest cement producer in the Caucasus region. Saqcementi operates two cement plants (Kaspi and Rustavi) near the capital Tbilisi with a total capacity of 1.6 million tonnes of cement.
RUGE Capital and Firebird Fund are going to build a strong brand “Kavkaz Cement”. “This cement will be produced with dry method. Old technologies are based on using the wet method of cement production and largely pollute the air. Factory related pollution is the number one source of pollution in the United States. Factory pollution accounts for more than half the volume of all water pollution, as well as for the most deadly of pollutants. More than 365,000 manufacturing factories consume vast quantities of fresh water to carry away wastes of several different types”, company said.
Nowadays typical industrial factories have been fitted with various types of pollution control devices that are designed to minimize the amount of contaminants that are released into the air or water.
Construction related factory discharge includes gypsum, metals, cement, abrasives and poisonous solvents. According to Lasha Shanidze the new factory will be equipped with the newest filtration systems which will guarantee safe operations and perseverance of nature.
“We’ve been working on this project for months now and the war didn’t stop us. We with our American partners are committed to this project and thus committed to Georgia. The government did a fantastic job of promoting competition on the tender. The investment attractiveness is a combination of two things, the opportunity itself and the risk that you experience in the course of investing. Georgia continues to represent a substantial opportunity for investments even after the war assuming all the risks.”
Heidelberg Georgia uses both wet and dry methods for cement production. It has two wet methods using factories in Kaspi and Rustavi. The one factory using the dry method is in Rustavi.
Lasha Shanidze worked as a Chief Executive Officer of the Millennium Challenge Georgia Fund which was created in 2004. It was created by the Government of the United States of America in partnership with the Georgian Government to reduce poverty through economic growth in Georgia. In that program Mr. Shanidze managed to negotiate on behalf of Georgia around USD 300 million in grant and established team and organization to run it smoothly.
In September 2007 Shanidze, after 3 years serving as CEO of MCG resigned to apply his experience and start working in private business of attracting large investors in other fields of Georgian economy.
“We’ve analyzed the market and found that there’s serious demand for quality building materials for building Georgian infrastructure, this including cement. High quality calls for the high price for the company and we’ll try to guarantee the highest quality on the market. These kinds of factories equipped with modern technologies will help Georgia into further European integration,” said Mr. Shanidze.
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