Strategic pillars
Cost leadership – Egypt
Asset light – Mexico
Sustainability – Malawi
Commercial transformation – Philippines / USA
Sokhna, Egypt

Fueling Ingenuity
Reducing costs through fuel flexibility.

Share

During the last couple of years, the Sokhna plant in Egypt developed and implemented an innovation change to drastically lower its energy costs. The experience prepared the team to weather future shifts in fuel costs, inevitable as they are. “We have increased our resilience and our immunity to cost shifts,” says Khaled Ghareib, Industrial Director of Lafarge Cement Egypt.

A first-of-its-kind conversion

Fuel is an essential cost driver in the energy-intensive cement industry, representing about 14 percent of total costs. To stay competitive, managing costs is critical.

Since the Arab Spring in 2011, natural gas has been in short supply and, as such, much more expensive. Because of this, the plant began looking at alternate fuel sources. The prices of lower quality solid fuel were attractive. But how best to utilize them? In 2014, the team in Egypt launched a project to switch a significant percentage of the fuel mix to petcoke, a byproduct of the oil refining process.

Applying “asset light” thinking, they decided to take one of the eight cement mills and convert it to a mill for processing petcoke. By modifying this existing asset, they would be able to save about CHF 30 million compared to building a new mill. But this was challenging – there was no blueprint for such a conversion as it was the first of its kind in the industry.

“The Group empowered us, trusted us, to develop a solution through collaboration,” says Ghareib. “When people believe in a dream, they’ll make it happen. Working with the regional Cement Industrial Performance project management and engineering teams, we found a way to do it.” By May 2014 the mill was converted.

When people believe in a dream, they’ll make it happen.

Khaled Ghareib, Industrial Director of Lafarge Cement Egypt

Cost Leadership

Summary

  • Significant cost saving potential has been uncovered through the process of realizing synergies.
  • Cost excellence is in the DNA of our organization and is essential to success in our industry.
  • Driven by our performance organization, we will use all the available levers to control and reduce our costs.

Objectives

  • We will deliver the total run rate synergies of more than CHF 1 billion by the end of 2017, ahead of schedule.
  • We will leverage expertise, best practice and scale benefits throughout the countries in which we operate.
  • We will target all cost levers, including fuel mix optimization and energy efficiency to address rising energy prices.

Our synergy targets for 2016 have been exceeded and are fully visible in our bottom line. This has been achieved thanks to the systematic approach we took to identify integration-related ­savings across our business and to the full mobilization of our teams to achieve those targets.

Maintaining a tight rein on costs is a key element of our strategy. The work done on synergies and standard cost improvements ­allowed us to explore new avenues for cost re­ductions. We addressed new opportunities in SG&A and industrial fixed costs while trimming variable costs in addition to our focus on procurement and logistics. Initiatives totaling CHF 200 million have been identified in ­addition to on-going cost plans and will contribute positively to our 2018 EBITDA target.

Beyond this, we continue to rigorously screen all cost categories to drive optimization and cost reduction.

Tight cost management

As we combine the skills and know-how of the best professionals in the business, we are able to reduce our costs and operate efficiently anywhere in the world. Flexibility, agility, internal and external benchmarking and expertise close to our operations are key success factors to drive cost leadership.

On fuel and energy costs, for example, in countries where petcoke wasn’t being used, we were able make the conversion from coal to petcoke quickly and efficiently during 2016. This was achieved by mobilizing global sourcing experts to work closely with local teams.

In 2017, where we anticipate energy prices will be up by some 10 percent, addressing fuel mix optimization and energy efficiency as well as the use of alternative fuels, will be a key area of focus when mitigating energy costs.

Read more
Close

Getting the optimal performance

In 2016, the team faced its second challenge: improving productivity of the converted mill. Again relying on their expansive expertise and the power of collaboration, the team succeeded in fully optimizing the plant, doubling productivity from under 40 tons per hour to above 80 tons per hour. This allowed them to significantly increase the percentage of petcoke used in the mix, taking advantage of the low cost of this new fuel.

“The day we had commissioned the inaugural run of the fully optimized mill, I was there with the plant management team. We were in the control room for the launch, but things didn’t go as expected,” said Ghareib. At night, it was suggested that the team sleep in shifts, as the plant staff worked around the clock to get it started. “But no one did,” Ghareib remembers. “When we got the mill started for the first time 36 hours later, we were all there, thrilled to see the dream become reality.”

We were all there, thrilled to see the dream become reality.

Khaled Ghareib and his colleagues at the Sokhna plant

The Sokhna plant, LafargeHolcim’s biggest cement plant

Petcoke, a byproduct of the oil refining process, is used as fuel in cement production

Staying flexible and agile

The impact on plant costs was significant. “In two years we’ve gone from zero to 80 percent petcoke. Our agility allowed us to shift from one fuel to another, capitalizing on the lower costs,” notes Ghareib. As a result, the fuel bill for the plant was reduced by CHF 60 million in 2016 compared with 2015.

The experience of shifting fuel sources in the past couple of years has prepared the team for similar exercises in the future. “The market is characterized by movement,” says Ghareib. “It’s a question of being ready when the opportunity comes.”

As for the next move? Ghareib says, “The name of the game next year is to shift to 20 percent alternative fuel, using processed waste. The team is ready.”

An initiative to decrease energy costs

The Egypt project was part of the global Fuel Mix Optimization Initiative, FMOI, started in early 2016. The initiative embodies the Group’s priorities of fostering innovation, making “asset light” decisions and promoting sustainability. The objective is to optimize the fuel mix used by not only reducing costs, but also improving product quality and lowering emissions. Fuel mix optimization will vary, of course, by location and external circumstances.

FMOI is a collaborative initiative, involving know-how from Sustainable Development, Geocycle, CIP (Cement Industrial Performance) and Procurement. By using inter­ disciplinary expert know-how, a global library of knowledge about optimized fuel mixes is being built to be used by plants as needed.