Cement industry – concerns need to be addressed

Karachi: During the first four months of current fiscal year, cement industry has posted a growth of 8.87 percent in local sales compared with sales during same period of last fiscal year. Exports during July to October 14 recorded a decline by 4.43 percent compared with same period last year. The overall situation during first four months of current fiscal year showed growth of 5.16% compared to the same period of last fiscal year.

Analyzing zone wise despatches, the north based mills despatched 6.872 million tons to the domestic markets during July to October 14 that was 10.4 percent higher than the despatches during same period of last fiscal. Exports from north however declined during this period to 1.742 million tons i.e. by 12.3 percent over last fiscal year.

In southern region, the mills experienced slow growth in domestic markets as against despatches of 1.307 million tons during July-Oct 2013, the domestic dispatches inched up by only 1.4 percent to 1.325 million tons. However there was a definite turnaround in exports that increased by 12.5 percent to 1.048 million tons from 0.932 million tons during the corresponding period last year.

Cement dispatches to domestic markets during the month of October 14 were 2.094 Million Tons compared with 1.973 Million Tons during same month last year showing an increase of 6.13%. Exports during October 14 were 729,000 Tons against 676,000 Tons during October, 13 showing an increase of 7.87%. Total despatches during October, 14 were 2.823 Million Tons compared to 2.649 Million Tons during same month last year showing increase of 6.57 percent.

In October 2014, there was healthy growth in domestic consumption in north and also in exports from north as well as south. The north based mills despatched 1.809 million tons cement for domestic market and 0.464 million tons cement were exported against domestic consumption of 1.653 tons and exports of 0.442 million tons during the same month of last fiscal. In south, domestic cement consumption declined to 0.285 million tons against consumption of 0.320 million tons in October 2013. Cement exports from south increased in October 2014 to 0.265 million tons against 0.234 million tons during the same month last year.

A spokesman of APCMA deplored that the issues impeding the actual growth potential of the cement sector have not yet been addressed by the government. Still he added the overall growth in the sector is commendable in view of overall turmoil in the economy.

Spokesman of APCMA said that a totally wrong impression has been given in few news reports that cement sector is involved in tax evasion and has to pay Rs. 29.72 billion as income tax. He said that the sector despite being a huge contributor to GDP in the shape of direct and indirect taxes/duties, is being made a target of baseless criticism and accused of tax evasion. Whereas cement industry is the only sector which frequently requested the Federal Board of Revenue and Ministry of Industries to place supervised clearance system of cement dispatches. We again request the Federal Board of Revenue to place supervised clearance system of cement dispatches by posting excise inspector at cement mills as soon as possible, the spokesman added.

Such baseless allegation did not carry the weight as so many factors are missing and no input was taken from the industry experts while giving a generalized verdict against the industry which provides jobs and livelihood to more than half a million families. This will in fact damage the industry’s reputation and integrity and such articles without being vetted by a reputable chartered accountancy firm, should not be allowed to be printed in the media or to be circulated to our institutions.

The spokesman pointed out that the issues impacting cement sector have still not been addressed by the government. In federal budget 13~14, cement was brought within the purview of ‘3rd Schedule’ of Sales Tax Act 1990 that increased the overall tax burden and resulted in increase in the local prices. Representatives of cement industry had detailed meetings with Chairman FBR explaining the cement dynamics with the request to remove cement from 3rd Schedule. Chairman FBR however categorically refused to remove cement from 3rd Schedule but said that they will surely help out the industry by making two zones – north zone and south zone in the country allowing separate MRPs for each zone. Unfortunately this decision has not been implemented till date and no SRO has been issued. This is a very serious issue impacting growth of cement industry and resulting in high prices to the end user ultimately increasing the construction cost.

Recent federal budget 14~15 has further added to the worries of cement industry as government has imposed 1% duty on imported coal. The spokesman of APCMA stressed that coal is the only fuel on which import duty has been imposed in the recent budget which is direct injustice to the cement industry as cement industry is the main user of imported coal and consumes almost 95% of the 4.5 million tons annual imports. Due to unavailability of gas, other industries have switched to coal and many others are also converting to coal, so this custom duty is to nullify the positive initiative of the government to use coal as an alternate energy source. The spokesperson of APCMA further pointed out that cement industry has spent millions of dollars in converting its plants from the expensive furnace oil to coal in order to reduce the cost of production.

Budget 14~15 has also increased the excise duty on cement and the impact is around Rs. 2.5 per bag, said the spokesman of cement industry. He further added that electricity rates have already been increased to historic high level and considering the continuous increase in input costs coupled with the recent imposition of custom duty on coal, continued restriction on the trucks to load cement and coal according to the approved axle weight etc., would leave manufacturers with no choice but to pass on these costs to the consumers.

Cement sector is one of the few documented sectors of Pakistan. The cement companies are listed in stock exchanges and have annual internal and external audits from well reputed Chartered firms like A.F Ferguson, Ford Rhodes etc. besides all the relevant information being available on the websites of respective companies, says the spokesperson. Thus drawing illogical and ridiculous conclusions and releasing them as a conviction report not only puts industry’s integrity in question but that of the whole corporate sector which by the way is biggest contributor to such institution initiatives.

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