UWE KOEHLER General Director Garadagh Cement

With one of the largest investment in the country in 1999, Garadagh Cement, has since become the major cement producer in Azerbaijan, delivering more than 1 million tons cement a year. Could you please give your introduction to this flagship company?

In 1999 we were the first privatized company in Azerbaijan. The plant was actually established at the beginning of the 1950s by a decree of Stalin. The technology applied is called " wet process'' and you can still find this outdated technology in post Soviet Union countries and even in the USA. It is not environmentally friendly, because it consumes a lot of energy. Holcim Group had to invest 23 million dollars within 5 years due to the contract we concluded in 1999. But in reality we invested more than 40 million dollars to date. We are meeting all the environmental standards of Azerbaijan, but there is still room for improvement regarding European norms. This is actually the next step that we are taking together with EBRD: they will become an equity shareholder of the company and invest 10 million dollars, which will be especially used to improve the environmental impact of the company and to meet European standards in 2010. We have at the moment 553 employees. So, it is half of the staff we had under the soviet times. But it is still a lot, more than in other plants of this size. Our installed capacity is about 750 000 tons of clinker. We have 4 kilns and we are grinding the cement in 9 mills. This capacity only leads to an output of 1 million tons of cement but acknowledging the high demand for cement in the Azerbaijani market we have started to import clinker from our sister company based in the Saratov region in Russia. We are then able to produce 1,3 million tons of cement. But that will decrease in the future for two reasons. Transportation costs have tremendously increased during the last years. We are importing this clinker by rail from Russia and the transportation cost are more than $30 per ton. The other reason is that Russia has its own construction boom and it makes more sense for our sister company to sell its clinker to the domestic market. Our output is maximum 1,3 million tons but we estimate that the domestic demand for cement is 2,5 million tons. That is a huge gap. We are the only integrated clinker and cement producer. Some of the other cement producers, so-called grinding stations, are meeting today's standards but their production capacity is very low and they have to import clinker from Georgia. All together, the cement production is not meeting the domestic market demand. The additional cement comes mainly from Russia. Till April, 2005 there were a lot coming from Iran. But since then, Iran stopped completely its exportation. Our plan for the future is first to switch from outdated wet process to dry process. The energy consumption will go down by 35% to 40 %. On top of this it will enable us to stop our clinker importation from Russia and at the same time increase our capacity by 15%. But as you see, 1,5 million tons would not even come close to market demand. This investment will require 120 million dollars and it was discussed with EBRD but put on hold last year because of the legal uncertainty in this country.

What is your contribution in terms of raising the standards and bringing new technology to the country?

Our contribution has been significant. We were the first one to introduce the new cement types in 2005. We are the driving force behind the introduction of European norms to the markets. We have switched old Soviet standards to European norms. The major step is not only regarding cement quality but also in fighting cement misusing. Before, in a shortage market, people were using the hardest cement for any applications. They were educated that way. We are now inviting all our customers in cooperation with business partners for trainings. We had a 2 day seminar last September. We had 2 groups of customers and we explained them how to use the right cement for the right application.

How would you define your commitment to quality in your processes?

We have probably the best laboratory in all the CIS countries. We also started to provide services for the concrete in order to control our customers' outputs. We have established the management system to comply with ISO 9001:2000 (quality management) and ISO 14001: 1996 (environmental management) and we have obtained relevant certificates. Garadagh Cement is perceived as the best quality service in the market.

Garadagh Cement experienced a 10% growth in its revenues in 2005. What have been the key drivers behind the growth?

At first, it is the pricing. In a shortage market you can increase the prices to a certain level. Azerbaijan has higher prices than its neighboring countries because of this shortage. As a dominant player on the market, we cannot increase the price endlessly, of course. We also had cost savings by repositioning our product. We reduced the clinker factor, which is the most expensive component. There we had tremendous progress, both in technical maximization but also in optimizing the product mix. We established a win-win situation with our clients who saved money and we reduced our production costs. We are keeping our staff and have no intention to cut the headcount. On the contrary, we invest a lot in trainings. We are sending people to study abroad. We have one person in Switzerland, 2 persons in Russia, and one in Bulgaria at the moment. Every year we have 350 000 dollars invested for CSR projects and have some concrete projects such as hospitals machinery equipments. We also support a cardiological sanatorium for children. Out of three hundred fifty thousands, almost two hundred fifty thousand we are spending in the Garadagh district, mainly in the adjacent Sahil settlement, and one hundred thousand for the oncological clinic in Baku.

You have been appointed in 2004 after working in other countries in the region. Is there an important mission that you would like to carry out here in Azerbaijan?

At the end of 2003, the company was accused of improper business conduct. So, when I arrived I was committed to change the mentality and to re-establish the company's reputation.. We started open communication and established clear anti-corruption rules- "we don't take, we don't give.'' I think that was the major achievement of the company and I feel proud of it. We also changed the cement distribution system in Azerbaijan. When we arrived, 97 % of our sales were in the hands of distributors. Those distributors were simply people with mobile phones and good connections. This system was completely eliminated. The last distributor left us last year. The local people are the ones who accomplished this. The second thing is to delegate to local colleagues so they become members of the management. It is one of my professional dreams: to empower local people. Eventually, the company belongs to Azerbaijan.

Do you have a final message to American audience about Azerbaijan?

The potential of this country is tremendously high. Expectations are also very high. People more and more say that they want to become a second Dubai. The country has been independent for 15 years, it had a lot of troubles and it has indeed many excuses. Nevertheless it is a pity when you hear that young persons' ambition is to go abroad. A lot of people are looking for opportunities to leave the country. These are the ones that can make a difference in this country. You have to make Azerbaijan attractive for young people to return and develop their country. One does not see local people investing money in production. The major projects are either fully financed by foreign investors or co-financed by international financial institutions. Legal certainty must be improved. They have to make the judicial system independent from political influence. Beside that, the country is beautiful. People don't want to stick to the old soviet heritage and want to go towards Europe.

Thanks!