Philippine Government Quits Cement Business

Philippine Government Quits Cement Business
Three Million Peso Plant Bought by Irwin Syndicate
THE AMERICAN CHAMBER OF COMMERCE JOURNAL November, 1926

J. L. Irwin and associates have purchased from the Philippine government the stock of the Cebu Portland Cement Company, which thereby passes into private ownership after two years' negotiations during which many attempts to reach an agreement failed; but now the contract is signed and all objections laid, the deal closed. The National Development Company held the stock, 27,500 shares at par P100 per share. This stock, representing an actual cash outlay of P2,750,000, was sold to the Irwin syndicate for P2,175,000. The government also receives the profits until the date of the first payment, and the purchasers assume the overdraft at the Bank of the Philippine Islands, approximately P475,000, together with all other current obligations. The first payment is P250,000 and is payable within sixty days from the date the contract was signed. The next payment is P475,000 and payable one year after the first payment. The balance of P1,500,000 is payable in four equal annual installments with interest at six per cent. As security, the government holds a first mortgage upon all fixed assets of the company. In addition it holds a bond for the full amount of the second payment, P475,000, to be cancelled when the second payment is made, at the end of one year from the date of transfer and first payment. The government may purchase for public use fifty per cent of the product of the plant at not to exceed P4.75 the barrel, f. o. b. mill, during a period of ten years; provided that during the ten years the cost of production does not rise, on account of labor, coal, etc., sufficient to entail a loss at the price of P4.75 the barrel. Such are the essentials of the contract. The political features are that the government ap prove the stockholders, a list of which is submitted, and that it have the refusal of stock for the purchase of which the company may receive a subsequent offer. The government had in the plant P120,000, paid to C. F. Massey, the promoter, in settlement upon his contract, in addition to the investment in stock of P2,750,000; so that altogether the capital investment was P2,870,000. Operative losses incurred at the outset ran this well up over P3,000,000. The company was incorporated under the laws of the Philippines January 13, 1922, with an authorized capital stock of P5,000,000. The plant is at Naga, Cebu. Adjacent to the site are found abundant quantities of all raw materials required, including coal, except the gypsum ingredient, which may either be obtained abroad or elsewhere in the islands where liberal deposits have been found. The company owns, and has under Torrens title, some 125 acres of cement material land adjoining the plant site; it also holds the foreshore lease from the government for all its shore land, and may develop a modern port obviating shipment to and from Cebu of its output and incoming supplies. The plant is a modern wet-process plant in which a second kiln may be installed without adding materially to operation costs. The present capacity is 1200 barrels daily. The new ownership contemplates more economies than the government effected, among them being coal from the nearby Uling-Naga mines, from which the coal may be run to the plant by gravity. Of the quality of the cement, W. H. Brown, director of the bureau of science, states to the United States Navy in a letter dated July 31, 1925: "I believe our chemist is perfectly right when he says that Apo cement is as good as any found in the market." The data substantiating this would be cumbersome here. There is no doubt that Naga and other points in the Philippines have first rate cement materials. In July this year the production cost of Apo cement c. i. f. Manila was P4.422 per barrel. When the plant began producing cement was selling in Manila at P7.50 to PO10 the barrel, but now the ruling prices are much lower, as indicated by the agreement to furnish the government half the output at not more than P4.75 the barrel. Cebu is much interested in the transfer of the plant to private ownership and the prospect of operating the Uling-Naga mines again, which will afford much needed employment and, it is asserted, keep a larger share of cement money within the islands. M. M. Ludlow, reputed to be a competent authority, made an expert's report on the project last year, saying among other favorable things: "This company has an unlimited supply of high-grade materials. It has a large deposit consisting largely of decomposed coral rock running from 80(, to 90c%(,, calcium carbonate. This deposit is in such a condition that no blasting is necessary, and it may be easily handled (as it is actually) by a steam shovel. It also has a large deposit of a hard shale, an alluvial clay, and a low limestone, all of suitable chemical composition to produce economically a high grade cement. The cost of cement in the bin at present runs about P1.80 per barrel, or $0.90, as compared with $1.00 to $1.15 in the States. This is based on Japanese coal at P14.50 a ton, and on a production of about 30,000 barrels of clinker and 25,000 barrels of cement a month. This cost can be very materially lowered by using a cheaper coal which is available near the plant; and by increasing the output to normal capacity, I believe cement can be produced at this plant for one peso a barrel, the plant operating at full capacity. "In general I would say that in all my experience covering 23 years in all parts of the United States, Canada and other parts of the world, I have never seen a plant possessing as many natural advantages as the plant of the Cebu Portland Cement Company, and I can see no reason why it should not be a good investment in the future. The labor is of a very good quality and the men all seem to take an interest in their work. The average cost runs around one peso per day." The use of cement in the islands is increasing. When the Cebu company was organized the consumption yearly had been running between 300,000 and 400,000 barrels, but is now about 33 per cent more. Besides, within a radius of 3,500 miles of Cebu, there is a population of 761,205,722 people, their yearly purchase of cement running above 16 million barrels. As the cement plant passes into private ownership, these figures on cement importations during the first half of this year, indicate the competition it has:
From- Kilos Value Duty
United States... 19,278 P 2,033 None
Great Britain... 3,048 979 P 23
France......... 28,224 979 190
Germany....... 3,200 107 20
Spain.......... 4,448 124 29
Hongkong...... 4,168 164 29
Japan.......... 16,674,395 355,977 110,869
Indochina..... 1,121,252 15,562 7,176
Total........ 17,858,013 P355,681 P118,330