Clare Nuttall in Baku -

Private sector construction has slowed in Azerbaijan, but the state's infrastructure building programme has ensured that demand for cement and other construction materials remains strong. As such, local producer Garadagh Cement is in the process of expanding and upgrading its production capacity to meet the expected increase in foreign competition.

Garadagh, which is majority owned by Switzerland's Holcim Group, currently has a market share of around 35% in Azerbaijan, where it is the only integrated manufacturer of clinker and cement. In 2008, the company started production of sulphate-resistant cement that can be used in sulphate-aggressive soils in Baku and the Abershon peninsula.

Construction of the Garadagh Cement Plant near Baku started in 1949. Today, Garadagh has four wet kiln lines with total production capacity of around 850,000 tonnes of clinker a year. However, in 2008 it launched a €300m project to build a modern dry kiln, which will allow it to increase clinker production by 40% when it comes online in 2011. Switching to dry production will also make the company's production more environmentally friendly. "The shift from wet to dry process will help the company to increase its production from 1.3m to 1.7m tonnes of cement annually. The project will also lead to a reduction in specific carbon dioxide emissions by almost 10%," says Garadagh's general director, Horia Adrian.

Recovery

Increasing production capacity will put Garadagh in a position to take advantage of the expected rally in demand for cement in Azerbaijan as the global economy recovers. Although the impact of the crisis on Azerbaijan's economy was small compared with other countries in the region, there has still been a fall in construction activity, which last year was down 25% from 2008. The decrease was mainly due to a slowdown in private sector construction works, while public infrastructure investment has continued. "The structure of local demand has slightly changed in recent years. A few years ago the main construction driver was the private sector, especially the residential construction segment. Nowadays, infrastructure projects funded by the state have started to play a more important role," says Adrian.

These include government-funded projects to build roads and other infrastructure, tourist facilities and the development of other industries outside the oil and gas sector. In particular, they are intended to promote regional development.

In future, Adrian is confident of seeing a rise in demand for Garadagh's products. "The construction sector in Azerbaijan is expected to increase, fuelled by the revenues coming from the oil and gas sector," he says. "The expected future development of the non-oil sector, as well as a number of infrastructure and non-residential projects that are already in the pipeline, will contribute to raising domestic demand in the coming years."

Switzerland-based Holcim was an early international entrant to the Azeri market; it bought a controlling stake in Garadagh in 1999. Adrian says competition from international cement producers is already increasing, with imports from countries such as Georgia, Russia, Turkey and Ukraine growing. However, Garadagh expects to maintain its market share of around 35% in the foreseeable future, and, with strong domestic demand will continue to devote its production to the domestic market.