Capacity utilisation enhancement: Cement industry plans to invest $1 billion: APCMA chief

Cement industry has planned to invest up to $1 billion for capacity utilisation enhancement in three years aimed at feeding the rising demand of real estate and expected China Pakistan Economic Corridor (CPEC) projects. Mohammad Ali Tabba, Chairman All Pakistan Cement Manufacturers (APCMA), talking to newsmen here on Tuesday, said that under the current investment plan, domestic cement plants would invest some $700 million to $1 billion to increase production capacity by 10 million tons annually.
Presently, the production of capacity of domestic cement industry stands at 46 million tons compared to the demand of 38 million tons and the industry is running at 80-85 percent capacity. "Four companies have already announced their plans in this regard. Cherat Cement is going to do it from next year, and then Attock Cement, DG Khan Cement and Lucky Cement will materialise their plans, respectively," he informed.
The industry starts planning to add more capacity whenever the capacity utilisation touches 80-85 percent mark so that it could cater increasing domestic demand, he said and added that the last time a significant increase in the industry capacity was made in 2005-06 when it was increased from 17.91 million ton to 42.28 million ton in 2008-09, Tabba said.
He said that during this fiscal year, domestic dispatches posted some 22 percent growth supported by rising construction activities across the country and mega development projects while with initiating of CPEC projects the demand will grow further. The APCMA chairman also opposed the proposal of setting up of an Iranian cement plant in Quetta (Balochistan). "We will take up this issue with the federal government as this will directly hit the domestic industry," he said.
He informed that with increasing tax rate, the cement industry has paid some Rs 40 billion in terms of just three direct taxes (excise, sales, and income) during the first six months of this fiscal year, while the figure is likely to touch Rs 90 billion mark by the end of FY16 as against Rs 65 billion paid in FY15. Despite getting no support from the government, the domestic cement plants are investing and higher cement prices are attributed to higher tax rate for the cement sector, he mentioned.
The APCMA chairman said that cost of doing business is very high in Pakistan as compared to that in the regional countries. "Gas prices have been declined internationally and accordingly the federal government has passed on benefit of lower gas prices by reducing tariff for domestic consumers and fertiliser industry, but the other industries including cement are still paying heavily," he added.
Some industries may grow due to relaxation and relief from the government but despite no support from the government the cement sector has decided to invest heavily to cater the rising demand, he said. Talking about the cement prices, he said some plants have passed on benefit of lower coal price by reducing prices by Rs 5 to Rs 6 per bag, however the rising burden of taxes not creating more space for rate cut. As opposed to common belief, the prices of cement bags went down in past few years. The comparison of average maximum retail price per bag in 2016 against 2013 clearly shows reduction in prices, he mentioned.
He said the GIDC was imposed last year, industrial tax now is 5 percent from 4 percent two years back, one time super tax is also imposed and duty on coal import increased from 1 percent to 6 percent and these all resulted in higher cost of doing business in Pakistan and accordingly cement prices.
Replying a question, the APCMA chairman said that profit making is not a bad thing as investors always invest for profitability, adding "the cement industry has been accused of profiteering but the critics forget that businesses have to make money for their shareholders and they also support the national economy by paying taxes and duties".
He informed that during last few years, the profitability of the industry has increased mainly due to increase in local dispatches, improved efficiency and cost cutting measures as export market is more competitive. Moreover, the income of the industry is not solely from the cement sales but other investments, he said.
Talking about smuggling from Iran, he said Pakistan Business Council in its latest report stated that out of the total inflows from Iran, some 75 percent dispatches are undocumented. Some estimated shows that some 0.5 million tons to 0.7 million ton cement is being smuggled into Pakistan from Iran annually and the illegal import not only hurting the industry but the government is losing around Rs 10 to Rs 20 billion in terms of taxes. He urged the federal government to reduce duties and taxes on raw material and cement to make it cheaper as these duties and taxes are around one fifth of the total cost of a cement bag.