VZCZCXYZ0002
RR RUEHWEB

DE RUEHEG #0396 0581556
ZNR UUUUU ZZH
R 271556Z FEB 08
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 8305
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0389

UNCLAS CAIRO 000396 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ELA, NEA/RA AND EEB 
USAID FOR ANE/MEA MCCLOUD AND DUNN 
TREASURY FOR MATHIASON AND CONNOLLY 
COMMERCE FOR 4520/ITA/ANESA/OBERG 
 
E.O. 12958:  N/A 
TAGS: ECON EAID EINV EG
SUBJECT: PROSECUTOR GENERAL PRESSES CHARGES AGAINST CEMENT 
MANUFACTURERS 
 
Sensitive but Unclassified.  Not for Internet distribution. 
 
REF:  07 Cairo 3097 
 
¶1.  (U) The trial of 12 cement companies accused of collusion under 
Egypt's 2005 Competition Law begins this week, amidst calls for 
prosecution of steel manufacturers under the same law.  As reported 
in reftel, in October 2007 the Egyptian Competition Authority (ECA) 
announced that its 14-month investigation of the cement industry 
found evidence of collusion among cement companies to control supply 
and fix prices from May 2005 to December 2006.  Based on ECA's 
findings, the Minister of Trade and Industry referred the companies 
to the Prosecutor General, who decided in January to prosecute the 
case, the first under the Competition Law.  The companies could be 
fined up to LE 10 million ($1.8 million) each if found guilty.  The 
ECA is still investigating the steel industry for evidence of 
collusion. 
 
¶2.  (SBU) Eric Holard, Managing Director of Sinai Cement, one of the 
companies named in the case, told us that collusion to fix prices 
makes sense only when demand is low.  The period for which the 
companies are accused of colluding coincided with the start of 
Egypt's construction boom, when demand increased significantly. 
Holard believes the case is really intended to demonstrate 
government action to control consumer prices.  Cement prices affect 
Egyptian consumers directly because of the prevalence of 
"do-it-yourself" home construction, especially in poor areas.  In 
developed markets, producers sell cement by the ton, mostly to 
construction companies, and deliver it in large mixing trucks.  In 
Egypt, producers sell cement by the bag to traders licensed by the 
Ministry of Trade and Industry.  The traders re-sell the bags, often 
at a significant mark up, to construction companies and individuals 
building their own houses.  So traders, not producers, determine the 
consumer price of cement, according to Holard. 
 
¶3.  (SBU) Holard warned that the court case would send a negative 
signal to potential investors in the cement sector, and would have 
no effect at all on prices.  In fact, the real cause of rising 
prices is lack of capacity in the cement industry.  Producers can 
not keep up with the demands of the construction boom.  The GOE's 
recent issuance of 6 licenses for new cement factories should ease 
the problem, but not until the factories come online, which could 
take 2-3 years.  In the meantime, prices will continue to rise as 
the construction sector flourishes with abundant foreign 
investment. 
 
¶4.  (SBU) Comment:  Although the cement case is not likely to lower 
prices, it will provide a bellwether of how the legal system will 
deal with commercial cases, as increased foreign investment is 
likely to result in more commercial cases.  If the government's aim 
in bringing the case is to control prices, a much more effective way 
would be to eliminate licensed traders as middlepersons in the 
distribution chain, or at a minimum allow greater competition among 
traders.  Simplifying the supply chain would not only eliminate the 
mark up taken by traders but would put to rest claims, particularly 
in the local press, that suppliers withhold supplies in anticipation 
of price increases. 
RICCIARDONE