Influx of Iranian cement likely to challenge the survival of local industry

Published on 30th May, Edition 22, 2016

 

APCMA seeks abolition of Gas Infrastructure Development Cess
Interview with Mr. Muhammad Ali Tabba – Chairman, APCMA

All Pakistan Cement Manufacturers Association (APCMA) is the apex body of the cement manufacturers of Pakistan. It is registered body under section 3 of the Trade Organization Ordinance 2007 wide license No. 14, dated April 26, 2008 issued by Ministry of Commence. It was incorporated on 14th of September 1992 under section 32 of the Companies Ordinance 1984.

Mr. Muhammad Ali Tabba is a Chairman of the All Pakistan Cement Manufacturers Association (APCMA). In an interview with Pakistan and Gulf Economist (PAGE), he shared his views about challenges faced by the cement industry. Following are details of his interview:

 

PAGE: How much cement was dispatched during this fiscal year and there is any growth observed in cement consumption this year?

MUHAMMAD ALI TABBA: Cement industry dispatched 31.901 million tons of cement during July 2015 to April 2016 period which is 9.71 percent higher than the corresponding period of last fiscal year.

The growth in cement consumption has been led solely by domestic markets. Statistics shows that the overall domestic dispatches in north based mills increased by 16.02 percent to 22.167 million tons and in south based mills by 23.56 percent to 4.806 million tons. In total, the domestic demand increased by 17.29 percent during the ten months of current fiscal year. Quantitatively, total domestic dispatches were 26.97 million tons from July 2015 to April 2016 compared to 23 million tons during same period of last fiscal year while exports dropped by 18.98 percent to 4.92 million tons during the first ten months of current fiscal against 6.08 million tons during same period of last fiscal year.

Cement dispatches to domestic markets during the month of April 2016 increased by 14.2 percent to 3.03 million tons compared with 2.65 million tons during same month last year. Exports during April 2016 were 520,500 tons against 640,000 tons during April 2015 showing decline of 18.66 percent. Total dispatches during April 2016 were 3.55 million tons compared to 3.29 million tons during same month last year showing increase of 7.81 percent.

A major factor that limited the growth in domestic demand is the ongoing harvesting season. Zone wise figures show that the domestic dispatches by mills located in North were 2.488 million tons compared with dispatches of 2.19 million tons during same month last fiscal depicting a growth of 13.21 percent. In South the domestic dispatches were 543,119 tons compared with dispatches of 456,616 tons in April 2015 depicting a growth of 18.94 percent.

PAGE: How would you compare the cement prices in Pakistan with other regional countries?

MUHAMMAD ALI TABBA: There is no possible comparison of Pakistan with China; Iran has electricity rates as low as 2 cents per unit against 10 cents per unit in Pakistan. Likewise in Iran, the furnace oil costs $50 a ton whereas in Pakistan furnace oil is priced at $280 a ton. Since energy is the major part in overall cement cost, the price per bag cannot be compared fairly between Pakistan and Iran.

In India, the wholesale prices of cement are around US$5.13 per bag contrary to negative propaganda of some people’s claim of Rs292/- (i.e. US$2.79) per bag. Some say that prices of cement in Pakistan are higher than the region. If cement was cheaper in the region than Pakistan, the Pakistani companies could not have been able to export their products in the region and other global destinations. Our exports to India have shown 25 percent growth during the first ten months of current fiscal.

 

PAGE: How much taxes are included in price of a cement bag?

MUHAMMAD ALI TABBA: The average price of a cement bag of Rs475 contains government levies worth approx. Rs135. The corporate tax of 32 percent in Pakistan is the highest in the region.

In addition to this, cement manufacturers are paying General Sales Tax @ 17%, Federal Excise duty @ 5% of Retail Price, Provincial Royalty and Excise Duties, Workers Profit Participation Fund @ 5%, Workers Welfare Fund @ 2%. Total impact of taxes is around Rs125 per bag.

PAGE: Is it true that Iranian cement is being imported and being sold at lower prices?

MUHAMMAD ALI TABBA: Iranian cement is being flooded into border areas of Balochistan and is being sold at lower prices as compared to locally-produced cement due to inferior quality of Iranian cement and its low cost due to export sanctions.

This phenomenon is very detrimental for local manufacturers and in the longer run can challenge the survival of local industry. Additional regulatory duty should be immediately imposed on imports of Iranian cement and some prior approval mechanism from the government should be in place regarding quality of Iranian cement being imported in Pakistan.

For this regulatory duty is a must to protect the local industry from the influx of Iranian cement. Also, recent increase in duty on import of coal from 1 to 6 percent has adversely hit the local manufacturers and has drastically increased cost of doing business.

PAGE: How can the cost of doing business for cement manufacturers be decreased?

MUHAMMAD ALI TABBA: There are certain services being taxed under independent Provincial Sales Tax laws, which are in vogue in Sindh, Khyber Pakhtunkhwa (KPK) and Punjab. Such services are still taxable under both the Federal Excise Act 2005 as well as under Provincial Sales Tax Laws, which tantamount to double taxation. It is recommended that FED on all services rendered in Sindh, KPK or Punjab may be abolished as it would eliminate double taxation and reduce cost of doing business.

PAGE: How GIDC Act 2015 is affecting the cement industry?

MUHAMMAD ALI TABBA: Gas Infrastructure Development Cess (GIDC) has increased the cost of doing business of the industrial sector, therefore, it should be abolished. In current market scenario of declining fuel prices including liquefied natural gas in the international markets, GIDC will render domestic products uncompetitive in export markets.

PAGE: We request that the charge/levy GIDC should be abolished ab-initio. It has increased the cost of doing business of the industrial sector. What are your demands from government now?

MUHAMMAD ALI TABBA: The government should take action against low quality imported cement of Iran as it is not only hurting the industry but causing revenue loss to the government. Also, the government needs to cut down duties and taxes on raw materials and cement to make it cheaper as these duties and taxes are around one fifth of the total cost of a cement bag.

STATEMENT OF INSTALLED PRODUCTION CAPACITY
As on April 2016
SR. NO.	NAME OF UNIT	OPERATIONAL CAPACITY
CLINKER CEMENT
1	Askari Cement Limited – Wah	1,050,000 – 1,102,500
2	Askari Cement – Nizampur	1,500,000 – 1,575,000
3	Attock Cement Pakistan – Hub Chowki, Lasbela	1,710,000 – 1,795,500
4	Bestway Cement Limited – Hattar	1,170,000 – 1,228,500
5	Bestway – Farooqia Cement Limited – Hattar	1,035,000 – 1,086,750
6	Bestway Cement Limited – Chakwal	3,428,571 – 3,600,000
7	Bestway-PakCem Company Limited – Chakwal	1,950,000 – 2,047,500
8	Cherat Cement Company Limited – Nowshera	1,050,000 – 1,102,500
9	Dandot Cement Limited – Jhelum	480,000 – 504,000
10	Dewan Hattar Cement Limited – Hattar	1,080,000 – 1,134,000
11	Dewan Hattar Cement Limited – Dhabeji	1,680,000 – 1,764,000
12	D.G. Khan Cement Limited – D.G. Khan	2,010,000 – 2,110,500
13	D.G. Khan Cement Limited – Chakwal	2,010,000 – 2,110,500
14	Fauji Cement Company Limited – Fateh Jang	3,270,000 – 3,433,500
15	Fecto Cement Limited – Sangjani	780,000 – 819,000
16	Flying Cement Limited – Lilla	1,140,000 – 1,197,000
17	GharibWal Cement Limited – Jhelum	2,010,000 – 2,110,500
18	Kohat Cement Company Limited – Kohat	2,550,000 – 2,677,500
19	Lafarge Pakistan Cement Company Limited – Chakwal	1,950,000 – 2,047,500
20	Lucky Cement Limited –Pezu	3,605,714 – 3,786,000
21	Lucky Cement Limited – Indus Highway, Karachi	3,428,571 – 3,600,000
22	Maple Leaf Cement Factory Limited – Daudkhel	3,210,000 – 3,370,500
23	Pioneer Cement Limited – Khushab	1,933,571 – 2,030,250
24	Power Cement Limited – Nooriabad, Dadu	900,000 – 945,000
25	Thatta Cement Limited – Thatta	465,000 – 488,250
	Total	43,446,428 – 45,618,750