State Committee of the Republic of Uzbekistan for Demonopolisation, Support of Competition and Enterprise has received a request from the Ministry of Economy to investigate the case of the sale of cement for compliance with the requirements of the Resolution of the Cabinet of Ministers dated 26 December 2002 No.407.

The Committee had earlier implemented substantial work to investigate the issue of the movement of cement along the "producer-seller-consumer" scheme. The investigation revealed the facts of the wholesale resale of the construction material. Thus the results of the work carried out showed that the majority of buyers are located near the actual producer-plant. The Committee kept in mind that cement is a highly liquid good, and is highly demanded among the population; the market for cement is seeing high activity of entrepreneurial structures, who act as intermediaries and try to get high revenues with minimum costs, the Committee’s website says.

It was revealed that the situation in the market is made even more complicated by the fact that this category of market participants do not have a defined activity status, i.e. the cement is procured in large batches by third parties, who do not have a constant location. Of 60 large buyers of cement located in different regions of Uzbekistan, 37 were not found at the addressed stated in the purchase and sale contracts, and 25 other buyers factually sold the right to buy cement at the enterprises.

It was reveled that this category of entrepreneurs is mostly fictitious in nature, and their activity is mainly aimed at short-term periods of activity (2-3 months), and accordingly, there is no infrastructure for the storage, sale and transportation of the construction material purchased.

To look deeper into the situation, the Committee used the information on exchange deals to identify the list of enterprises that purchased the largest amount of cement in the month of August.

At this time, in order to determine the lawfulness of the wholesale operations on resale of cement, and to check the compliance of the enterprises’ activity with the legal conditions for the wholesale trade, the Committee has directed a letter to the State Tax Committee asking for the organization of joint investigation of the problem. The results of the investigation are to be announced later.

To reduce the artificially increased demand for cement and pursuant to the protocol of the meeting of the Complex of Economy and Foreign Economic Relations of the Cabinet of Ministers devoted to the results of the first half of the year 2007, the Cabinet of Ministers has prepared a draft of the resolution envisaging the increase of the size of guarantee collateral required for the execution of the exchange deals to 10% against the existing 2%. The draft of the resolution has already been revised by the Ministry of Economy, Uzbek Republican Commodity Exchange (UzEX) and is now being reviewed by the Ministry of Finance.

Provision 9.2 of the protocol of the meeting of the Complex of Economy and Foreign Economic Relations of the Cabinet of Ministers devoted to the results of the first half of the year 2007 charges the Committee, the Ministry of Economy, UzStroyMateriali, and UzEX with control over the maintenance of the balance on the set of cement for sale at exchange trades, and its delivery for production of roofing sheets and asbestos pipes at declared prices. Despite the recent decision, AhangaranCement continues to deliver cement for the production of roofing sheets at average exchange prices, except for the volume of cement required for the production of roofing sheets ordered by the state.

The analysis of the company’s pricing in declaration of prices for roofing sheets produced by AhangaranShifer has revealed that in its calculations the Ministry of Finance took into account the costs of cement at the producer’s rates, while AhangaranCement estimated the costs of cement at average exchange market rates. In this situation, the production of roofing sheets becomes unprofitable.

As a result of the sale of cement to AhangaranShifer at average exchange market rates, in the effort to cover its costs the enterprise went against the existing procedures, and charged higher starting prices for its product at exchange trades. The aggregate sum of the difference between the planned and the actual sales prices in 2006 amounted to 2.2 billion soums. At the same time, the average market prices for roofing sheets against the starting prices grew by 20%. Addition profits from the sale of roofing sheets at exchange trades in 2006 earned by AhangaranShifer made up 1.56 billion soums. Thus, the additional profits received do not cover the differences in the prices for cement.

Over the April-July period of this year, AhangaranCement has received additional 4.4 billion soums from AhangaranShifer above the declared prices because of the sale of cement at the average exchange quotes. The Committee for Demonopolisation has launched an investigation of this case.

The delivery of cement for the production of roofing sheets at average exchange rates will lead to unequal conditions with the cement enterprises producing roofing sheets using their own cement. Apart from this, AhangaranShifer will have to keep separate accounts for the spending for roofing sheets ordered by the state, for the production of which cement is sold at declared prices, and for the roofing sheets sold at exchange trades. In this situation, negative consequences may arise for the producer of the construction material.