Karachi: Fiscal year 2010-11, proved to be a nightmare for cement sector as 80% of its manufacturers suffered huge losses on back of stagnant local consumption and government failed to honour its commitment to pay inland freight subsidy that could have boosted exports, All Pakistan Cement Manufacturers Association APCMA press release said Monday.
Consumption declined by 8.24% in fiscal 2010-11 as compared to last year. Dispatches of FY2010-11 reveal capacity utilization of industry was at its lowest at 76.12% in past eight years with total dispatches declining by 6.68% to 21.97 million tons, down from 23.55 million tons in 2009-10. Low consumption of cement mirrors low growth of GDP of economy.
APCMA says continuous losses are unbearable and might jeopardize servicing of Rs. 132 billion in loans industry owes to banks. Cement industry has been incurring massive losses due to high cost of production, declining exports, slack local demand and government provided no support. In FY2010-11, industry was under pressure in northern part and few plants in the south relatively better off. 19 cement units in the north have cumulative production capacity of 36.17 MT and dispatched only 17.892 MT in FY2010-11 which is less than 50% of installed capacity. In 2009-10, they dispatched 11.22% more – 20.154 MT. Total installed capacity of five plants in south is 6.381 MT who dispatched 4.083 MT in FY2010-11 which is 20% more than of 3.396 MT in 2009-10.
This lopsided development in geographical regions was mainly due to closure of plants in south to sea ports that enabled them to export at least some of their production. This is not feasible for large number of mills in north due to high transportation cost. Domestic uptake increased in Sindh that offset impact of lowered exports last fiscal. Law and order in the north may also have impacted adversely, sales in this region, he said.
Woes of plants in north were compounded by reduction in domestic demand in northern parts of country and inability to achieve breakthrough in land exports to India. Overall, exports declined by 11.69% while total dispatches trimmed by 6.68%. Two years back government agreed to share transportation cost from mills to sea port which boosted exports, provided some relief but promised support was never provided. Even in Budget, there is no mention to release inland freight subsidy of Rs 270 million to cement makers. Economic Coordination Committee & Trade Development Authority of Pakistan approved inland freight subsidy on cement export by sea. Government issued public notice on March 26, 2010 allowing inland freight subsidy at rate of 35% on exports till June 30, 2010. Export orders were taken up by manufacturers but government failed to honour its pledge.
He thanked government on reducing Federal Excise Duty on cement by Rs 200 per ton and bringing down GST from 17% to 16%, which has reduced worries of cement industry and consumers get much needed relief. He noted government provided road map to exempt this item from levy of excise duty over next two years was much needed and hoped it will spur activity in construction. He hoped government would encourage construction of concrete roads and use of cement blocks instead of bricks which is internationally recognized method.