Paul RODZIANKO: "Fight against Fake Cement and Unfair Competition Continues"

14.12.2020 (Caucasian Journal)   The quality of cement… Is it a socially important topic? In Georgia, yes, it is. How safe are the homes built with fake cement? How many buildings may be at risk? Is the regulation of construction sector adequate? What can be done to protect ourselves?

That’s the kind of questions Caucasian Journal will be asking our today’s guest – Mr. Paul RODZIANKO, President of the Georgian Cement Association (GCA) and Chairman & CEO of Kavkaz Cement and of Georgian Building Group (GBG).
Read the Georgian language version here.

Alexander KAFFKA, editor-in-chief of Caucasian Journal: At Caucasian Journal, we do our best to cover issues that matter to people – that is, they have a clear social importance. Today we have a rare opportunity to talk professionally about the construction industry – and the risks that it creates for people. In the developed countries, the quality of cement is a routine technical parameter, which deserves as little media attention as, say, standard rails width. Why in Georgia does it gain so much importance? 
Paul RODZIANKO: I trust that your readers will understand that cement worldwide is a commodity product i.e., a standard item with specific technical parameters as you put it so aptly. SO: when is a commodity not a commodity? The answer: when the labeling on the packaging does not conform to the product inside. It is this cheating – and there really is no other word for it – that has brought this matter to prominence.

AK: Before we move to facts and figures, I wanted to put the problem into a wider context. I suppose the quality of cement is not the only construction issue that may pose risks to a dweller, a shopper at the mall, or any other user of a building, a bridge, a tunnel, etc. What about the quality of metal, or health safety of thermal insulation materials? What about fire safety of plastics used in construction, and, generally the fire safety? I know this may be beyond your professional expertise, but still your opinion would be very important to our readers.

PR: I agree with you fully. Virtually all countries worldwide have adopted building codes and product standards to protect the safety of their citizens. Together with the codes, various verification procedures are employed to ensure that products comply with these codes and standards. The third aspect is the enforcement function to ensure compliance of manufacturers and builders. These three steps are the only way that people can be safe and customers avoid being cheated.

AK: I am sure you know well how this kind of issues are regulated in the developed countries, in particular in your native USA. Are there any state-level standards in place, and how are they enforced and controlled?

PR: I am not sure what specifically you mean by “state-level”. The reality is that there exists an entire patchwork quilt of federal, state-by-state, and local municipal standards regulating the manufacture of products and construction practices. As an example, in the village that my wife and I just moved from, we have the several local steps needed for the approval process: a Planning Board, a Zoning Appeals Board, and a Board of Architectural Review. On the enforcement side, we have a Building Inspector & Zoning Code Enforcement Officer whose duty it is to process Building Permits and to ensure their compliance with the Village Code. Finally, the Village Trustees have to approve any planned construction after which the Building Inspector takes over. There are other state-level regulations such as for oil tanks and asbestos as well as federal laws and guidelines. All these are factored in. And when a property changes hands, for its ownership title to be insured, the Village must provide a certification that the property is in compliance. Sometimes, even construction materials and methods can be specified by the local municipality but the quality of any products are generally governed by state or federal agencies who also have enforcement power. I hope this rather long answer addresses your question.

AK:  Yes, this is very useful information indeed. Generally, Georgia seems to be open to using the best international practices in many sectors. In your view, what precludes Georgia from using a similar approach in the construction sector?

PR: As you can see from the foregoing answer, the US practices involve a lot of steps and a lot of people and there has to be a political will to make it happen. For the purposes of this interview, perhaps we should focus on the product integrity of certain construction materials such as cement rather than the construction sector itself. There are approximately 30 manufacturers of cement in Georgia quite a number of whom produce both bagged and wholesale cement. Our country represents a fairly small market. If any of these manufacturers is found to produce and sell sub-standard cement products and are prevented from doing so, the owner of such a company is most likely to object and will complain. Correspondingly, some years ago Georgia was being flooded with cheap imports of clinker (the main ingredient of cement) and many small manufacturers took advantage of this fact by producing sub-standard cement in order to “compete” more effectively against the domestic producer of clinker. The result was that, at the peak of that period, Heidelberg Cement stopped the production of some of its lines with the corresponding laying off of employees. The timely intervention of the Georgian government fortunately put a stop to this predatory practice in order to secure the sustainability and viability of our national cement sector.

AK: But is it the absence or insufficiency of governmental regulation that made you and other cement producers form your business association? What are the missions of your organization?

PR: Our company, Kavkaz Cement, has always monitored competing products on the marketplace by testing them as did Heidelberg Cement. As it turned out, we both independently ascertained that the labeling on many bagged products misrepresented the quality of the products inside. The result was the sale to unsuspecting consumers of sometimes catastrophically sub-standard products and cheating them by selling them at close to the price of the genuine product. This story needed to be told so that the government could take appropriate action. 
Our mission is four-fold: 

Advocate that all Georgian producers and marketers of cement in the Georgian market compete fairly.
As to product quality and the resulting price gouging of the consumer.
 3.  DANGERS     
Educate consumers about the dangers of using fake sub-standard cement in construction.
At their request, inform all appropriate Georgian agencies of our findings.

AK: Now it seems like a right moment to talk about what GCA is doing to help in solving the problem of fake cement. I have heard about the blind testing conducted by your organization. By the way, I also know that you are a “boutique” winemaker – did the idea of blind testing emerge thanks to your winemaker experience? Just joking…

PR: Others have joked that wine- and cement-making are complementary businesses, so I can also appreciate your excursion into humor… but, more seriously, “blind testing” and “blind tasting” do have exactly the same mission in their respective sectors: achieving an objective and equitable result. We have hired an independent third-party organization “Geoexpertize”, daughter company of Georgian Chamber of Commerce and Industry (GCCI), to purchase, on a roughly quarterly basis, approximately 30 bagged cement products anonymously in different markets in different cities. These samples are then separated into several 5kg sample bags for testing. The accredited labs that conduct the testing – Georgian Technical University or Samkharauli National Forensics bureau – only see bags identified by number. They test these samples to the EN 196-1 European Standard and provide this information to GCCI. These results are then cross matched to the manufacturer and the actual product. That “blind testing” methodology is the only way we know of to produce guaranteed objective answers to what goes on in the bagged market.
An alarming 63% of cement samples have failed to meet European Standard specifications.

AK: Can you summarize your findings, please. What’s the approximate market share of fake cement in Georgia?

PR: Since this is a technical discussion, I will stick to using “sub-standard” cement as my term of choice. The sad part for us, now, after almost four years of testing, is the persistence of this problem. Out of the 299 samples that we have tested since our inception in 2017, only 37% exceeded its relevant EN standard. That means that an alarming 63% of samples have failed to meet EN specifications. This statistic indicates that up to 350,000 tons of sub-standard cement may reach the market annually. I also have to note that, this last time around, almost 20% of the samples tested, proved to show a critically low 28-day compressive strength.

AK: Is counterfeit cement always a low-quality product?

PR: Yes, and sometimes disastrously so. But I must qualify: some failing products are fairly close meeting specifications and their quality may result in some sort of production or other problem and not be intentional. Certain other failing products are so far short of the standard that there can be no real doubt as to what the motives of its producer were.

AK: How does the illegal commodity find its way to the local market?

PR: First of all, let’s be clear: most bagged cement sold in Georgia is produced in the local market. It is therefore simply delivered in the normal course of that producer’s business to local markets, sometimes in bags designed to mimic unquestionably quality brands. I must also note that, at this point in time, all sub-standard products tested were made using imported clinker. In the case of imported bagged cement products, we have on occasion tested some of those as well. We were surprised to learn that, notwithstanding the myth that all imported cement is better than domestically-produced ones, a number of those products also fell short of their advertised specification.

AK: What in fact may happen to a building that was built using such material?

PR:  Let’s not go there.  I do want to note, however, that larger structures are customarily built with concrete which uses wholesale cement as a major ingredient but other mineral components also comprise the concrete used in such construction.  Responsible builders and producers take sample cubes from each mixer truck delivery for testing to ensure that the concrete meets the necessary specifications. 

AK:  A private person has no way to test the quality of cement, or distinguish it visually from a counterfeit product. How can ordinary people protect themselves?

PR: By definition, it takes 28 days for cement to reach its rated compressive strength. The test prism is then broken to determine its quality. Such laboratory work is beyond what an ordinary consumer can be expected to do so he has to rely on what is written on the bag. And you are correct: it is impossible to tell visually whether a cement is sub-standard or top quality. Consumers should trust only reputable and experienced producers so they must avoid any products where no recognizable factory name, website, or other contact information is provided. They should not base their purchasing decision solely on a lower price or because the bag “looks familiar” to well-known brands. They should also keep track of our test results!

AK: What’s your piece of advice to someone moving to an apartment in a newly erected building, like to demand a specific certificate from the builder, perhaps?

PR: I suppose that is certainly one step that could be taken. Another is to verify the reputation of the builder and to check whose concrete was used in construction. An independent engineer’s report can sometimes be useful. I have always been told that, if the builder does not want to live in that building with his family, you should make sure that this is for a good reason!

AK:  Indeed! When I moved in, I was encouraged by the fact that the next door apartment belonged to my builder's daughter... But is there anything that can be done to stimulate the government to better control the construction sector? Can your association play a role in this?

It appears that the Technical and Construction Supervision Agency, Financial Police, General Prosecutors Office and Revenue Service have become aware of the problem and will be taking appropriate measures.

PR: We are doing all we can in that regard. After our having made it publicly-known that the issue of sub-standard bagged cement products existed, governmental agencies have requested to receive all of the underlying information (product, producer, where purchased, etc.) related to our testing results. That was a big step forward because it appears that the Technical and Construction Supervision Agency (formed in January 2019), Financial Police, General Prosecutors Office and Revenue Service officers have now become fully aware of the problem and will be taking appropriate measures. In addition, NGOs should play a key role in raising awareness of and adoption of international standards in the Georgian market. The media – such as yourselves - also have a very important role in educating the public, the construction sector and the government as regards quality and safety of cement products. Furthermore, Georgia has needed a strong tool to fight against dumping prices from neighboring countries in the future. This anti-dumping legislation went through the last parliament session and will most probably come into force during June 2021. It should be noted that the provisions of this law will only be triggered if harm results to any domestic industry as a result of truly unfair international competition internationally. We believe that the Georgian government has an obligation, in the interest of all of its citizens, to ensure that viable and sustainable businesses that produce jobs and products needed in Georgia are protected against unfair competition, both from unscrupulous domestic as well as international players.

AK: Last but not the least – and I hope you forgive me for a question about possible conflict of interests. Your organization is formed by cement producers, who are obviously interested in preserving the price level, and getting rid of potential competitors. What would you say to reject such allegations?

PR: What you ask here is very important. Specifically, the GCA was formed by two producers who realized that, for a variety of reasons, unfair domestic and international competition in this sector could jeopardize thousands of jobs as well as cheat the consumer. So, what to do? If you recall the saying “like Caesar’s wife” which stems from his saying that “Caesar’s wife must be above suspicion”, then you will understand why we adopted the procedure of anonymous purchases of cement bag samples on the open market and the blind testing of those samples. In addition, our rules are very simple: any company that, as a result of such blind testing, establishes that it produces only quality products is welcome to join the GCA. That approach should establish a level playing field for all producers and help create a sustainable domestic cement market. I do take a mild exception to your formulation about being “interested in preserving the price level”. As mentioned at the beginning of this interview, cement is a commodity item. Its cost structure is entirely understandable. Cement production is not only capital intensive but it is also characterized by a cyclical market largely driven by construction. Because of the competition both from bona fide cement imports as well as among local producers, Georgia has a history of being the regional market with generally the lowest cement prices. These are market forces at work and the ultimate guarantee that there will be no gouging of consumer on the domestic cement market – unless someone cheats by labeling their sub-standard products as new Rolls Royces when in fact the have packaged broken-down Chevrolets….. I hope that this answer successfully rejects the possible allegations that you reference.

AK: Thank you. And if you would like to add any other comments, the floor is yours.

PR: One topic we have not discussed is why producers would want to make sub-standard products that they attempt to pass off in the market as quality products. The answer is very simple: the perceived opportunity to make much larger profits than could normally be earned from a commodity product like cement. In one word, greed. Clinker is the most expensive component of cement and, to achieve international standards, each grade of cement (32.5/400 or 42.5/500 for example) has to contain a specific minimum amount of clinker in order to achieve its rated compressive strength. If a producer skimps on the amount of clinker, its quality will suffer dramatically but their costs will likewise decrease. So let’s all cooperate in ensuring that the Georgian cement market represents a level playing field for all of its domestic producers. Our goal is for all Georgian cement producers to qualify for membership in the GCA!

AK: I wish to thank you for making this excellent interview.

Read the Georgian language version here
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