Displaying items by tag: DunaDráva Cement
New emissions taxes hit Hungary’s cement industry
23 August 2023The Hungarian government recently enacted Emergency Decree 320/2023, taxing all CO2 emissions from the country’s 40 or so largest industrial enterprises. The government used emergency powers to set up a new taxation scheme, which undercuts existing free allowances under the EU emissions trading scheme (ETS). The scheme additionally penalises the trade in ETS credits. Cement producers announced that the new regulations will make it impossible for them to keep operating.1
With regard to Hungary’s six active cement plants, the scheme comprises:
1 – A Euro20/t tax on CO2 emissions, effective retroactively from 1 January 2023, payable by any large enterprise that uses EU Emissions Trading Scheme (ETS) free allowances to cover the majority of its CO2 emissions. Plants that decrease their production, or that carry on non-CO2-emitting activities at over 10% of their operations, will pay a higher rate of Euro40/t of CO2.
2 – A 10% transaction fee for the sale of free allocations under the EU ETS, payable to the Hungarian Climate Protection Authority.
Less than three years ahead of full implementation of the EU carbon border adjustment mechanism (CBAM), the Hungarian government has seemingly moved unilaterally against cement production – this in a country surrounded by seven other cement-producing countries. Multiple foreign cement producers connected to the major market of Budapest by rail, river and road will be watching developments with interest. These include CRH, which, besides two smaller plants inside Hungary, operates the 800,000t/yr Cementáreň Turňa nad Bodvou plant, immediately over the border in Slovakia.
This comes at a time when the domestic cement industry is facing historically high costs and low demand, with a 30% year-on-year decline in construction activity in July 2023, following double-digit inflation throughout 2022 and the first half of 2023.
Catastrophising may be a common symptom of environmental regulation in industry associations, but one can understand on this occasion. The Hungarian cement and lime industry association, CeMBeton, backed its members’ gloomy announcement about their future with an estimate for extra annual taxes of ‘several billion forints’ (1bn forint = US$2.84m), in a statement following the decree. Assuming annual CO2 emissions of 565kg/t across its 5.4Mt/yr cement capacity, the sector might expect to pay US$61m/yr in CO2 rates alone.2, 3 According to analyst ClearBlue, the government will raise additional tax revenues worth US$278m/yr across all of the 40 aforementioned heavy emitters in Hungary.4
It may seem surprising that CeMBeton did not even draw up a projected tax bill during consultations over the new tax scheme – but, in fact, no such consultations took place. In its most recent statement, the association said “We do not know the government’s intentions.” Outside of official releases, Hungary’s cement producers have not always been so reserved about the government’s perceived aim.
Global Cement reported in April 2023 that the Hungarian government was allegedly interfering in the cement sector to make producers sell up – as per accusations by an anonymous industry executive.5 There is arguably a course of action on the government’s part which, more or less, appears consistent with this aim:
October 2020 – The Hungarian Competition Authority (GVH) starts competition supervision proceedings against CRH, Duna-Dráva Cement and Lafarge Cement Magyarország.
July 2021 – Emergency Decree 2021/404 imposes a 90% tax on producers’ ‘excess’ profits, based on threshold cement sales revenues of Euro56/t. Additionally, producers must report their exports.
September 2021 – GVH finds insufficient evidence to support the initiation of competition supervisory proceedings in the cement industry.
January 2023 – (Retroactive) entry into force of CO2 emissions tax.
May 2023 – The government of Hungary reportedly initiates negotiations to acquire Duna Dráva Cement and Holcim Magyarország, according to the Hungarian builders’ association, National Professional Association of Construction Contractors (ÉVOSZ). Duna Dráva Cement owners Heidelberg Materials and Schwenk Zement state that they have entered into no such negotiations, while Holcim declines to comment.
July 2023 – The Act on Hungarian Architecture lets the government dictate producers' volumes and prices and require them to supply cement to National Building Materials Stores (a proposed state-owned construction materials retail monopoly).6 Additionally, the government gains a right of first refusal over the divestment of any asset by the cement industry’s foreign owners.
20 July 2023 – The government enacts Emergency Decree 320/2023. ETS transaction fees enter into force.
The government can now expect a legal challenge to its latest move. CeMBeton’s first ally may be the font of all emissions legislation – the EU itself. Within the EU ETS framework, tax rates are down to member states to determine. However, the introduction of a transaction fee may constitute an illegal restriction to free allowances, OPIS News has reported. The association has also indicated its readiness to mount a constitutional challenge, specifically with regard to the legislative retrofit involved in the CO2 emissions tax. The Fundamental Law of Hungary does not generally permit legislation to apply retroactively, though how courts will balance this consideration against the rights of the government is untested.
The government amended the constitution to provide for new emergency powers, and subsequently adopted them in May 2022, in response to the ‘state of danger’ created by Russia’s war in Ukraine – though its actions on the international stage suggest careful neutrality, if not ambivalence. At home, the war has brought a consolidation of the government’s control over various areas of life, including the economy, according to Human Rights Watch.7
Climate protestors around the world might be glad to see governments wield emergency powers against their own heavy industries. In Hungary, however, the wider sustainability goals are not yet clear with regard to a policy that seems, at least partly, politically motivated.
References
1. CeMBeton, Sajtónyilatkozat, 21 August 2023, https://www.cembeton.hu/hirlevel/2023-08-21/202308-mozgalmas-osz-ele-nezunk/116/sajtonyilatkozat/668
2. Heidelberg Materials, ‘Energy and climate protection,’ 2022, https://www.heidelbergmaterials.com/en/energy-and-climate-protection
3. Global Cement, Global Cement Directory 2023, https://www.globalcement.com/directory
4. OPIS News, ‘Hungary's New Carbon Tax Unlikely to Set EU Precedent, Say Analysts,’ 16 August 2023
5. Global Cement, 'Update on Hungary,' April 2023, https://www.globalcement.com/news/item/15572-update-on-hungary-april-2023#:~:text=Heidelberg%20Materials'%20subsidiary%20Duna%2DDr%C3%A1va,the%20country's%20active%20national%20capacity.
6. Daily News Hungary, ‘Hungarian government’s new nationalising plan could violate EU law,’ 27 February 2023, https://dailynewshungary.com/hungarian-govts-new-nationalizing-plan-could-violate-eu-law/
7. Human Rights Watch, ‘Hungary’s New 'State of Danger',’ 8 June 2022, https://www.hrw.org/news/2022/06/08/hungarys-new-state-danger
Hungary: The Hungarian National Professional Association of Construction Contractors (ÉVOSZ) has claimed that the government of Hungary has initiated negotiations to acquire Duna Dráva Cement and Holcim Magyarország. 24.hu News has reported that the construction industry is facing on-going cement supply issues due to a purported decline in domestic production. ÉVOSZ said that its members’ reliance on imports of cement has risen to 60% from 40%.
Duna Dráva Cement clarified that its joint owners, Germany-based Heidelberg Materials and Schwenk Zement, are ‘committed to their investment in Hungary and are not negotiating its sale.’
Meanwhile, Switzerland-based Holcim said "We are not in a position to comment on the news that the Hungarian state is negotiating with domestic cement producers and/or their foreign owners for the purpose of acquiring shares."
Update on Hungary, April 2023
05 April 2023Heidelberg Materials’ reaction to changes in the law in Hungary received attention this week in the German press. The government introduced its Act on Hungarian Architecture in March 2023 that will enable it to set production levels and prices upon foreign-owned cement producers when the new legislation takes force in July 2023. An unnamed executive at the Germany-based Heidelberg Materials told Der Spiegel that, "These regulations represent a complete violation of all rules of the European single market.” They added that the Hungarian government appeared to be trying to force the producer to sell up. The report further alleges that the owners of Duna-Dráva Cement, Heidelberg Materials and Schwenk Zement, also received an offer to buy them out in mid-2022 from an individual with links to Prime Minister Victor Orbán.
This latest move to corral the cement sector in Hungary follows a number of recent changes in legislation. Notably, Decree 404 was introduced in July 2021. This set a 90% tax on the ‘excess’ profits of cement, plaster, chalk, gravel, sand, clay, lime and gypsum producers with the stated intention of wanting to prevent rising prices. The government set a threshold price for cement of Euro56/t at the time. At the same time it also blocked exports of cement and other raw materials of declared strategic importance unless affected companies had registered with the Ministry of the Interior. The European Commission (EC) responded to a parliamentary question on the matter in November 2021 saying that it had sent a formal letter to Hungary informing it that it was breaching some parts of the Treaty on the Functioning of the European Union (EU) on the free movement of goods. Although it noted that the new law also affected exports outside the EU, which was beyond the EC's remit. It added that the so-called ‘mining royalties’ did not seem to breach EU tax law.
Concerns over these issues between Hungary and Germany also surfaced in October 2022 when Orbán met with the German Chancellor Olaf Scholz. At this time Thomas Spannagl, the head of Schwenk Zement, said that the windfall profit tax in Hungary had a "serious negative" impact on business and that importers were not affected in the same way.
Heidelberg Materials’ subsidiary Duna-Dráva Cement is the largest cement producer by production capacity in Hungary with two integrated plants at Beremend and Vác. Together they have a production capacity of 2.8Mt/yr, according to the Global Cement Directory 2023, or about 70% of the country’s active national capacity. Heidelberg Materials reported that its result from equity accounted investments fell by 27% year-on-year to Euro262m in 2022 from Euro356m in 2023 due to a decline in earnings particularly in China and Hungary. This compares to a 4% drop to Euro3.74bn in its result from current operations before depreciation and amortisation across the whole business. Despite this it also noted that Hungary’s overall economic output had grown by 5% in 2022.
Just before the new laws affecting cement companies starting arriving in mid-July 2021, the Hungarian Competition Authority started an investigation into a “drastic” increase in raw material prices. This followed a warning a year earlier in 2020 that it had started competition supervision proceedings against the three main market participants: Duna-Dráva Cement, Lafarge Cement and CRH. All three are foreign-owned companies.
Lafarge Cement Hungary operates the Kiralyegyháza plant and it is due to change its name to Holcim in May 2023. Its predecessor companies, Holcim and Lafarge, also used to run plants at Hejocsaba and Lábatlan before the merger in 2015. However, the Hejocsaba plant ran into legal problems between Holcim and another investor, shut in 2011 and was later forcibly taken over by the other party in 2014. Today the plant operates as Hejőcsabai Cement- és Mészipari (HCM) but cement production is reportedly yet to restart nearly a decade later and Holcim says that legal proceedings are still ongoing. The Lábatlan plant, meanwhile, closed for good in the early 2010s. CRH took over some of Holcim’s other operations in Hungary in 2015 at the same time as the formation of LafargeHolcim but does not run any cement plants in the country at present. It does own cement plants in nearby countries that are able to supply the Hungarian market as well as running 19 concrete units. It describes itself as the “number two player” in the local market. It wasn’t specific on Hungary in its financial results for 2022 but it did describe sales in its Europe East region as being ahead of 2021, “due to a strong focus on commercial actions to offset significant cost inflation.”
Construction costs in Hungary do appear to have grown faster than other European countries in the second half of 2021 as the country came out of the coronavirus pandemic. However, the country's anti-immigrant labour stance may have also contributed to the situation, in addition to the high-energy prices and supply chain bottlenecks experienced elsewhere. In addition, cement companies are also capable of monopolistic behaviour. For example, Duna-Dráva Cement’s proposed acquisition of Cemex Croatia was blocked by the EC back in 2017 on competition grounds. However, given how international the cement industry has become, it is surprising to see this kind of treatment from a government within the European Union.
Hungary: The government has enacted an 'architecture law' which will increase its role in decision making within the Hungarian cement industry. When it enters force in July 2023, the law will let the government set producers' cement volumes and prices. It will also require the companies to sell their products to the market-leading retail network, and will give the government a right of first refusal over future divestments.
Der Spiegel News has reported that the government previously enacted decrees that further regulated limestone production, imposed 90% 'additional mining levies' and required producers to obtain special permits to export their cement abroad. Duna-Dráva Cement, a subsidiary of Heidelberg Materials and Schwenk Zement, reportedly began making losses on its bagged cement sales due to the new rules. Both Germany-based owners separately received letters inviting them to sell a stake in Duna-Dráva Cement, and thanking them for their cooperation, in 2022. The sender identified themself as the owner of an 'intensively expanding group of companies' with a 'dominant position in the Hungarian building materials industry.' Anti-corruption organisation Transparency International identified the correspondent as a friend of Hungarian President Viktor Orbán.
Regarding the incoming change to the law, a representative of Heidelberg Materials said "These regulations are a total violation of all the rules of the European internal market. It is obvious that the government wants to pressure foreign cement manufacturers to sell.”
Zsolt Szilágyi appointed as head of Duna-Dráva Cement
30 November 2022Hungary: Duna-Dráva Cement (DCC) has appointed Zsolt Szilágyi as its president and chief executive officer with effect from January 2023. He succeeds János Szarkándi, who is set to retire.
Szilágyi currently works at the subsidiary of Heidelberg Materials as the Deputy General Manager of Construction Materials and Trade. He started his career at DDC in 1999 as a technical coordinator. Later, he worked as an investment project manager, then as a production manager and plant director of the Váci Cement Plant.
Hungary: Germany’s IKN has provided information on its role with an environmental upgrade to Duna-Dráva Cement’s Vác plant. The Euro22m project was commissioned in April 2018. The 2400t/day clinker production line was modified by IKN to handle a refuse-derived fuel (RDF) substitution rate of up to 100% in the calciner. The two lower cyclone stages were replaced, a complete new preheater tower with the inline calciner was erected, a new bypass system and a new static inlet in the clinker cooler were installed. IKN says that it completed the project in just less than two years on an engineering, procurement, and construction (EPC) basis.
Denmark’s FLSmdith also worked on the project replacing the line’s bag filters with an electrostatic precipitator system. This part of the environmental upgrade cost Euro4.7m.
Trying it on and liming it up
12 April 2017Unsurprisingly the European Commission blocked Duna-Dráva Cement’s (DDC) attempted purchase of Cemex Croatia this week. Merging the country’s biggest cement producer with its largest importer was going to be a challenge for the commission. Whereas in previous transactions the various parties offered business disposals to ease the commission’s concerns, here all they were got was access to a cement terminal in Metković in southern Croatia. And this facility on the Neretva river is currently being leased by Cemex! Clearly this didn’t give the impression of being a long term solution.
Compare this with the merger between Lafarge and Holcim in 2015 where multiple sales were proposed to make sure the deal went through. Or look at the acquisition of Italcementi by HeidelbergCement in 2016 where the parties sold Italcementi’s Belgian subsidiary Compagnie des Ciments Belges to Cementir to make the deal happen. In comparison to these deals the attempt by HeidelbergCement and Schwenk, through their subsidiary DDC, comes across as a calculated gamble designed to test the resolve of the commission. If the commission had somehow passed the proposed acquisition then the companies would have cornered the market. If it turned it down, as it has, then nothing would be lost other than putting together the bid. HeidelbergCement had its mind on bigger things as it bought and then integrated Italcementi.
Commissioner Margrethe Vestager summed up the mood of the commission: “For mergers between direct competitors, we generally have a preference for a clean, structural solution, such as selling a production plant. HeidelbergCement and Schwenk decided not to offer that. Instead they proposed to give a competitor access to a cement terminal in southern Croatia. Essentially, this amounted to giving a competitor access to a storage facility – without existing customers or established access to cement, without brands and without sales or managerial staff.”
Elsewhere, the other big story in the industry news this week was Votorantim’s decision to focus on the lime business in Brazil by adding lime units to some of its existing cement plants. Given the dire state of the local cement and construction industry, initiatives to break the deadlock have been expected. The alternative is plant closures and divestures, such as the ongoing talks by Camargo Corrêa to sell the other big local producer, InterCement. Votorantim plans to build lime units attached to the cement plants at Nobres in Mato Grosso, Xambioa in Tocantins, Primavera in Pará and Idealiza in Goiás. Unfortunately the agricultural areas of the country and ones with cement plants don’t overlay neatly. Cement production is mainly focused in the south-eastern states and Votorantim are targeting the Cerrado, in the centre of the country, for the lime business.
The scale of the project, at US$50m, the scale of the lime business generally and the addition of lime units at cement plants suggest that the pivot to lime can only be a sideline to cement and construction. Given the similarity of the cement and lime production processes the announcement would be much more significant were Votorantim set to convert clinker kilns into lime ones. A notable example of this was at Cement Australia’s Gladstone plant in Queensland, Australia. Here a mothballed FCB-Ciment clinker kiln was converted into a lime kiln in the early 2000s. At the time the cost of the conversion project was valued at just under US$20m. If Votorantim was seriously thinking of doing this at a few of their underperforming cement plants then one would expect the bill to be higher than US$50m. However, it’s early days yet.
European Commission blocks HeidelbergCement and Schwenk's proposed takeover of Cemex Croatia
06 April 2017Europe/Croatia: The European Commission has blocked the proposed takeover of Cemex Croatia by HeidelbergCement and Schwenk under the European Union (EU) Merger Regulation. The commission expressed concerns that the takeover would have significantly reduced competition in grey cement markets and increased prices in Croatia. The decision follows an investigation by the commission into the proposed deal where HeidelbergCement and Schwenk, two German cement companies, would acquire Cemex's assets in Croatia via their joint-venture company Duna Dráva Cement (DDC).
"We had clear evidence that this takeover would have led to price increases in Croatia, which could have adversely affected the construction sector. HeidelbergCement and Schwenk failed to offer appropriate remedies to address these concerns. Therefore, the Commission has decided to prohibit the takeover to protect competitive markets for Croatian customers and businesses," said Commissioner Margrethe Vestager.
The commission found that the takeover would have eliminated competition between companies that were competing directly for the business of Croatian cement customers and could have led to a dominant position in the markets. The combined market shares of the parties would have been around 45 - 50% in the markets and reached more than 70% in parts of the country, notably in Dalmatia. It found that DDC had been pursuing a strategy to increase sales in Croatia, resulting in more competitive prices for Croatian customers in recent years. Allowing the takeover would have reduced this competition. The commission also found that the remaining domestic cement suppliers and importers would not have been able to compete effectively with the new entity due to limited potential for sales expansion and due to being further from potential markets. In addition there are no independent terminals available on the Croatian coast for seaborne imports.
None of the proposed remedies offered by HeidelbergCement and Schwenk satisfied the commission. Options such as a granting access to a cement terminal leased by Cemex Croatia on the Neretva river in Metković in southern Croatia were deemed insufficient and temporary.
Cemex Croatia, the largest cement producer in the country, operates three cement plants, seven concrete plants, two aggregates quarries and a network of maritime and land-based terminals in Croatia, Bosnia-Herzegovina and Montenegro. DDC and HeidelbergCement are the largest cement importers in Croatia.
Cemex Croatia operates three cement plants, seven concrete plants, two aggregates quarries and a network of maritime and land-based terminals in Croatia, Bosnia-Herzegovina and Montenegro. DDC imports grey cement into Croatia from its plants in Hungary and Bosnia-Herzegovina, the closest competing plant to Cemex's plants in Split. HeidelbergCement imports grey cement into Croatia from a plant in Italy.
European Commission set to block HeidelbergCement and Schwenk purchase of Cemex Croatia
29 March 2017Croatia: The proposed acquisition of Cemex Croatia by HeidelbergCement and Schwenk is set to be blocked by the European Commission according to sources quoted by Reuters. The commission started investing the deal in October 2016 following plans by HeidelbergCement and Schwenk to buy Cemex Croatia via their jointly owned subsidiary Duna Drava Cement (DDC). The deal would see the largest producer in the area merged with the largest importer. However, a final decision on the transaction has not been made yet and the European Competition Commissioner Margrethe Vestager could still rule in favour of it. The commission is expected to make a final decision by 18 April 2017.
HeidelbergCement appeals against investigation by European Commission into purchase of Cemex Croatia
28 February 2017Croatia: HeidelbergCement has appealed against an investigation by the European Commission into the proposed joint purchase with Germany’s Schwenk Zement of Cemex Croatia. The cement producer asserts that by considering Schwenk and itself rather than Duna-Dráva Cement (DDC), a subsidiary that both companies own equally, the commission has given the transaction a ‘Union dimension,’ according to the Official Journal of the European Union. Although DDC is based in Hungary, within the European Union (EU), it imports cement into Croatia (in the EU) from Bosnia & Herzegovina, a country outside of the union. The appeal was made in late December 2016 but only reported in late February 2017.
The European Commission revealed that it was investigating the proposed acquisition of Cemex Croatia by HeidelbergCement and Schwenk in October 2016. The commission was concerned that the transaction would merge the biggest producer in the area with the biggest importer, potentially reducing local competition.