Table of Contents

Introduction..........................................................................................................................2
Review of growth.................................................................................................................4
A. Position at the time of Establishment..........................................................................4
B. First Phase of Development:.......................................................................................4
C. The Second Phase of Development:............................................................................4
D. Impact of Nationalization in 1972..............................................................................5
E. Performance up to the End of the 6th Plan..................................................................5
Fiscal Performance 2008-09................................................................................................7
Production Capacity.............................................................................................................9
EXISTING CEMENT PLANTS IN PAKISTAN............................................................10
Cement Industry-for the growth of Pakistan Economy....................................................11
Facts...................................................................................................................................12
Demand pattern of cement.................................................................................................14
Per capita consumption......................................................................................................15
Export.................................................................................................................................15
Taxation.............................................................................................................................16
Production cost...................................................................................................................17
Cement prices.....................................................................................................................18
Economic Factors...............................................................................................................19
Policies and Regulation......................................................................................................20
Natural Resources..............................................................................................................21
F.
Critical times for cement industry..................................................................................22
Crisis in cement industry...................................................................................................26
G. Production Cost.........................................................................................................26
H. Over-Supply Hangover.............................................................................................27
I. Cement Consumption.................................................................................................27
Conclusion ........................................................................................................................30
Recommendations..............................................................................................................31
Freight Subsidy .................................................................................................................31
Duty Drawback..................................................................................................................32
Port Charges.......................................................................................................................32
Long Term Measures.........................................................................................................33
Infrastructure at Ports....................................................................................................33
REFERENCES..................................................................................................................34

1
Introduction

The history of cement industry in Pakistan dates back to 1921 when the first
plant was established at Wah .In 1947, Pakistan had inherited 4 cement
plants with a total capacity of 0.5 million tons. Some expansion took place
in 1956-66 but could not keep pace with the economic development and the
country had to resort to imports of cement in 1976-77 and continued to do so
till 1994-95. The industry was privatized in 1990 which led to setting up of
new plants. Although an oligopoly market, there exists fierce competition
between members of the cartel today
The industry comprises of 29 firms (19 units in the north and 10 units in the
south), with the installed production capacity of 44.09 million tons. The
north with installed production capacity of 35.18 million tons (80 percent)
while the south with installed production capacity of 8.89 million tons (20
percent), compete for the domestic market of over 19 million tons. There are
four foreign companies, three armed forces companies and 16 private
companies listed in the stock exchanges. The industry is divided into two
broad regions, the northern region and the southern region. The northern
region has around 80 percent share in total cement dispatches while the units
based in the southern region contributes 20 percent to the annual cement
sales.
Cement industry is indeed a highly important segment of industrial sector
that plays a pivotal role in the socio-economic development. Since cement is
a specialized product, requiring sophisticated infrastructure and production
location. Mostly of the cement industries in Pakistan are located near/within
mountainous regions that are rich in clay, iron and mineral capacity. Cement

2
industries in Pakistan are currently operating at their maximum capacity due
to the boom in commercial and industrial construction within Pakistan.
The cement sector is contributing above Rs 30 billion to the national
exchequer in the form of taxes.
Cement industry is also serving the nation by providing job opportunities
and presently more than 150,000 persons are employed directly or indirectly
by the industry.
The industry had exported 7.716 million tons cement during the year 2007-
08 and had earned $450 million, while is expected to export 11.00 million
tons of cement during 2008-09 and earn approximately $700 million.

3
Review of growth

A. Position at the time of Establishment

The cement industry is the only industry which was liberated by Pakistan
because at the time of 4 cement factories in the country:
1. Dalmian Cement Factory-Karachi. 160,000 tones
2. Dalmian Cement Factory-Dandot. 500,000 independence there were tones
3. Associated Ltd.Cement Factory-Wah. 90,000 tones
4. Associated Ltd. Cement Factory-Rohri. 180,000 tones
Total production capacity of all the 4 factories = 4, 80,000 tones.

B. First Phase of Development:

The investment in the cement industry of Pakistan was initiated by the PIDC
with the setting up of 2 cement plants of which 1 was set up at Daud Khel.Its
name was Maple Leaf cement plant, with the annual production capacity of
300, 00 tones. The 2nd,Zeal Pak cement plant was set up at Hyderabad in
1965 which was later expanded in 3 stages and now has an installed capacity
of 108,000 tones.

C. The Second Phase of Development:

The second phase of development of cement industries started during the

sixties with the setting up of 3 cement factories in the private sector.

4
The demand for cement had been steadily increasing which induced the
private investors to further invest in this industry .Consequently, the annual
production capacity of cement which was 10,00,000 tones in 1959-60
increased to 2.7 million tones in 1969-70 ,registering an increase of 165%
during a period of 10 years.

D. Impact of Nationalization in 1972

In 1972, the units of cement industries were also nationalized along with
other industrial units consequently; the production of cement was limited
between 2.7 million tones to 3.1 million tonnes. All cement industries were
given under the control of a corporation named "Pak State Cement
Corporation. As a result cement had to be imported to meet the domestic
demand.

E. Performance up to the End of the 6th Plan

In 1978,the government undertook various development projects for the

reactivation of the private sector such as the completion of steel mills, port
qasim, construction of new dams, railway lines, expansion of highways,
development of the under developed regions. Those projects caused
unprecedented increase in the domestic demand for cement in the country
and we had to depend on large scale import of cement to meet this increased
demand. Consequently, in 1981-82,900,000 tones of cement was imported,
while in 1982-83, 6, 20,000 tones was imported.

5
In view of the steadily increasing demand for cement, the private sector was
induced to invest in this industry. In addition to that, the production capacity
of cement units in the public sector was also expanded during the 5th and
6th five Year Plans. Consequently, by the end of the 6th plan, the total
production of cement increased from 3.40 million tones in 1977-78,to 6.7
million tones in 1986-87.

Installed Capacity

At present 23 cement units are operating in the country with a capacity of

8135 thousand tonnes .Out of these,12 units with a capacity of 5169
thousand tonnes are in the public sector and 11 units with a capacity of 2966
thousand tonnes are in the private sector.

Production(000 tones):
1989-90- 7488
1990-91 - 7762
1991-92 - 8095
(July-March) Provisional

6
Fiscal Performance 2008-09

Business Recorder reported that Pakistans cement exports witnessed a

healthy growth of 65%, to over 6 million tons during 7 months of the current
fiscal year mainly due to rise in international demand. The exports may
reach to 11 million tones and earn approx $ 700 million during 2008-09.
The statistics of All Pakistan Cement Manufacturers Association also
showed that cement exports had mounted to over 6 million tons in 7 months
as compared to 3.62 million tons of same period of last fiscal year, depicting
an increase of 2.38 million tons. Cement exports during January 2009 went
up by 30% to 0.81 million tons as compared to 0.623 million tons in January
2008.

However, slow construction activities in the country during the period badly
upset domestic sale of cement, which depicted decline of 15%, to 10.77
million tons as compared to 12.59 million tons of last fiscal year.
On Moms basis, local dispatches of cement during January 2009 showed a
decline of 8%, to 1.51 million tons from 1.65 million tons of January 2008.
Overall dispatches, including export and local sales, reached 16.77 million
tons during July to January of 2008-09 as against 16.20 million tons of last
fiscal year, depicting an increase of 3%.

By September 2009, after witnessing substantial growth in all three quarters

of fiscal year (FY) 2008-09, cement sector concluded the fourth quarter with
a handsome growth of 1,492 percent on yearly basis, All Pakistan Cement
Manufacturers Associations report revealed on 29th September 2009.

7
Higher retention prices (up 59 percent) and high rupee based export sales
amid rupee depreciation (20 percent) drove profits up north. However, this
growth is magnified, as FY2007-08 was an abnormally low profit period for
the sector.

Moreover, the performance is skewed towards large players with export

potential as profitable companies in both years posted increase of just 109
percent, said analyst at JS Research Atif Zafar.
He said that cumulative profitability of companies in FY09 stood at Rs 6.2
billion or $78.2 million as compared to Rs 386 million or $6.2 million
depicting a massive growth of 1,492 percent. Companies with profits in both
the years posted 109 percent earnings improvement.
Though total dispatches were down 2 percent, net sales grew by 55 percent
to Rs 101.4 billion or $1.3 billion on the back of higher net retention prices
(up 59 percent) and improved export based revenues. Cost of sales/tonne
also rose by 33 percent on yearly basis amid higher realized coal prices and
inflationary pressures, the analyst maintained.

8
Production Capacity

The cement manufacturers in 2007-08 added above eight million tons to the
capacity and the total production was expected to exceed 45 million tons by
the end of 2010. It may result in a In Pakistan, there are 29 cement
manufacturers that are playing a vital role in the building up the countrys
economy and contribution towards growth and prosperity. After 2002-3,
most of the cement manufacturers expanded their operations, and increased
production. This sector has invested about $1.5 billion in capacity
expansion over the last six years.
The operating capacity of cement in 1991 was 7 million tons, which
increased to become 18 million tons by 2005-06 and by end of 2007 rose to
above 37 million tones, and currently the production capacity is 44.07
million tones.
Cement production capacity in the north is 35.18 million tons (80 percent)
while in the south it is only 8.89 million tons (20 percent).
supply glut of seven million tons in 2009 and 2010.
Actual Cement Production
5 There are 28 cement plants in the country presently . 23 of them are in
private sector and 5 of them in public sector.

9
EXISTING CEMENT PLANTS IN PAKISTAN

Company Annual Production Expansion Year of Total Production

(tones) (tones) Completion (tones)
Army Welfare 945,000 - 1997 945,000
Anwarzaib Cement 56,000 - 1988 56,700
Attock Cement 693,000 - 1986 693,000
Best Way Cement 1,008,000 - 1997 1,008,000
Chakwal Cement 550,000 - 1998 550,000
Cherat Cement 760,000 - 1985 760,000
D.G.Khan Cement 660,000 1,039,000 1997 1,669,500
Dadabhoy Cement 409,500 - - 409,500
Dandot Cement 504,000 - 1983 504,000
Essa Cement 150,000 - 1989 150,000
Fecto Cement 600,000 - 1989 600,000
Fauji Cement 990,000 - 1997 990,000
Gharibwal Cement 540,000 945,000 1997 1,485,000
Lasbella Cement 30,000 - - 30,000
Lucky Cement 1,260,000 - 1996 1,260,000
Mustehkam Cement 630,000 1,039,500 1997 1,699,500
Maple Leaf Cement 1,540,000 - 1940 1,540,000
Pakland Cement 504,000 504,000 1997 1,008,000
Pioneer Cement 660,000 100,000 1994 760,000
Pak.Slag Cement 180,000 150,000 1993 330,000
Saadi Cement 1,008,000 - 1997 1,008,000
Thatta Cement 330,000 - 1985 330,000
Zeal Pak Cement 1,134,000 - 1956 1,134,000
Javedan Cement 600,000 - 1997 600,000

10
Cement Industry-for the growth of Pakistan Economy

. Growth of cement industry is rightly considered a barometer for economic

activity. Cement industry, which generally plays a significant role in
development and growth of economy, is running below 50 per cent of the
installed capacity due to visible decline not only in the construction industry
but overall economic activity in the country.
The decline in this important sector is reflected in the fact that capitalization
worth Rs60 billion in 1994 has currently come down to the level of Rs2.5
billion which is enough to say about the state of affairs in this sector.

Out of the 18 cement units operating in the country two being to public
sector while the rest in the public sector are running below 50 per cent of the
production capacity. The cement industry, which is an important part rather
basic part of the construction industry, provides fuel for creating job
opportunities to the millions in every country.
Badruddin Fakhri, Director Finance of Pioneer Cement Limited told PAGE,
That out of the total capacity of 16 million tons the demand has been
relegated to the level of 10 million tons a year. The remaining surplus
capacity going without use.

Badruddin suggested that in order to activate this important sector, the

government should include this sector in its development plans especially in
road construction. He pointed out that the recently announced project of
Northern Bypass in Karachi if allowed to be constructed by using cement
can be helpful in generating economic activity in this sector. Citing the
example of other countries where cement has replaced the bitumen in road

11
construction, Badruddin said that cemented roads not only help the cement
industry to grow but also help in reducing fuel consumption as much as 14
per cent costing around $250 million every year
.

Facts

Pakistan is rich in the deposits of limestone, clay and gypsum, which

constitute basic raw materials for manufacturing cement. Although a large
number of cement varieties are produced in different countries of the world,
Pakistan has been producing following types of cement.
1. Ordinary Portland cement
2. Portland B.F. Slag Cement
3. Sulphate Resisting Cement
4. White Cement.

12
Production capacity

At the time of Independence in 1947, Pakistan had inherited four cement

plants having total installed capacity of 0.5 million tons, all of which were
controlled from India. These plants were however closed after operating for
more than 50 years.

Consequently, Pakistan had to import cement during 1976 to 77. After the
change in government in 1977, private sector was allowed to establish
cement plants. As a result, seven projects having a capacity of 2.54 million
tons were installed in private sector and simultaneously, State Cement
Corporation of Pakistan also put four projects having a capacity of 1.6
million tons, enhancing the total capacity of the country to over 8.5 million
tons by the end of 1990. Cement Production in 1997-98 is estimated at
9.799 million tones as compared to 9.536 million tones in the preceding year
. The present installed capacity of 28 cement plants is 17,312 million tones .
Total production at 10,384 million tones in 1998-99.

Year No. of units Production %change Capacity Utilization

1989-90 23 7488 5.0 92,000
1990-91 22 7762 5.0 95,300
1991-92 22 8321 7.2 96,200
1992-93 20 8558 2.7 98,900
1993-94 20 8100 (-)5.3 99,800
1994-95 20 7913 (-)23.0 97,500
1995-96 20 9567 20.9 117,900

13
1996-97 20 9536 - 117,500
1997-98 23 9799 2.7 107,600

Demand pattern of cement

During the decade ending in 1970 average demand of cement increased @

7.2 per cent per annum to 1.97 million tons. During the decade ending in
1980 growth in demand declined to 6.8 per cent per annum, whereas during
the decade ending in 1990 demand grew @ 7 per cent per annum to 7.47
million tons. Based on this trend, it was projected that demand will grow to
14.73 million tons by the year 2000. Unfortunately, due to political
instability the demand of cement declined from historical growth of 7 per
cent to 2.8 per cent during nineties and as a result demand could only touch
9.91 million tons by the close of year 2000. The capacity on the other hand
had gone up to 16 million tons by the end of 2000, leaving a huge idle
capacity of over 6 million tons
.

14
Per capita consumption

Cement consumption is considered to be a representative denominator of the

state of development of any country. Per capacity cement consumption in
Pakistan works out to 72 kg per head per annum which is one of the lowest
in the world.
A comparative view of per capita consumption
Pakistan 72, India 89, Sri Lanka 105, Philippines 220, Mexico 251, Iran 274,
Syria 369, China 410, Turkey 512, Thailand 600, Malaysia 870 and Taiwan
1004.
This state of affairs strongly suggests that Pakistan have to catch up in
its development plans by reallocating its resources to infrastructure
development, housing and industrialization. Furthermore, switching over to
concrete roads can also enhance cement consumption, which have much
roads. Studies concrete roads save 14 per cent on fuel consumption. Savings
on fuel consumption will run into billions of rupees annually.

Export

Pakistan with about 6 million tons surplus capacity is surrounded by a

number of countries which have to import cement, either because they do
not have limestone reserves or are short in limestone deposits.
Following is the annual demand of cement importing countries:
Bangladesh: 5 million tons
Sri Lanka: 3 million tons
Singapore: 5 million tons

15
Egypt: 4 million tons
Myanmar: 1 million tons
Vietnam: 1 million tons
Malaysia: 2 million tons

Pakistan has historically been exporting cement whenever it had surplus

capacity. Pakistan has exported considerable amount of cement during
decades of sixties and seventies besides meeting the entire need of the then
eastern part of the country, which are now Bangladesh.
Currently, the export of cement has almost come to a standstill mainly
because of high cost of production due to high rate of taxation and freight
charges. Pakistan can still export cement provided international prices are
viable for Pakistan cement companies. Unfortunately, cost of production in
Pakistan is higher than competing countries like Indonesia, China, Korea
and India due to higher cost of production. International prices of cement
have come down due to over capacity of about twenty million tons cement
in the Asia-Pacific region. With higher cost of production, Pakistan cannot
compete at these prices. Under the circumstances, cement export can only be
viable if cement companies are allowed export rebate to cover deficit in
variable-cost and meet the export expenses and some margin of to cover
fixed overheads.

Taxation

Although cement constitutes as one of the basic necessities for shelter, yet in
Pakistan taxation of cement is the highest in the region. India, excise duty is

16
being charged @ Rs350 per ton whereas in Pakistan it is charged @ Rs1000
per ton. Sales tax on cement in India is 10 per cent. Whereas in Pakistan it is
15 per cent.
Overall taxation on cement in Pakistan is 37 per cent, India 18 per cent,
Indonesia 10 per cent, Philippines 10 per cent, Iran Nil; Egypt 10 per cent
while it is 7 per cent in Thailand.

Production cost

Energy constitutes more than 50 per cent cost of production of cement. Until
fifties cement industry was using coal as fuel for clinkering of raw material.
After discovery of natural gas, all cement plants were converted into gas. In
early eighties, the then government decided to preserve gas for fertilizer and
domestic consumption. All the cement plants were advised to switch over to
furnace oil. Uptil now almost all the plants have been operating on furnace
oil except for 2/3 plants who succeed in getting gas for few months in a year.
Gas allowed to few plants in the recent past is being strongly contested by
other plants. Since furnace oil prices have taken a quantum jump during
recent years which have gone from Rs5000 to even 11500 per ton has
resulted in increasing the cost of production almost to double.

The increased level of furnace oil prices strongly suggests that Pakistani
cement industry should switch over to coal firing system. Almost 90 per cent
cement plants world over use coal for clinkering. Pollution is no more a
problem due to advance technologies arresting gas emissions. Cost of coal
firing is estimated to be 2/3rd of the cost of furnace oil, if imported and local

17
coal is used in the ratio of 50 per cent. However if huge coal deposits in Thar
and Sondha, which have lower sulfur content, are developed, saving in fuel
cost will be more than 50 per cent. The government will also be saving
foreign exchange if the industry switches over to coal.
Another factor enhancing cost of production is the electricity prices, which
is again the highest in Pakistan in the region. Exorbitant increase in
electricity charges during last couple of years not only resulting tremendous
increase in cost of production in every manufacturing sector but is
responsible for arresting the economic growth of the country.

Cement prices

After privatization in 1991-92, cement prices escalated exorbitantly from

Rs2, 055 per ton in 1992 to Rs3, 300 per ton in 1994, a rise of over 60 per
cent within a span of two years. Thereafter efforts were made to pass on the
impact of escalation in prices of furnace oil, electricity and other increases in
cost of production to the prices of cement, but due to fierce competition
amongst cement manufacturers prices never remained stabilized. The price
although went as high as Rs4,400 per ton in the year 2000 but started
declining since September 1999 when sales tax was levied which triggered a
price war amongst all the cement companies. At present the cement price is
between Rs220 to Rs230 per bag and is likely go down further due to sharp
decline in demand. Another factor, which may bring down cement prices, is
the trend of switching to coal fired system for which the government has
announced some better incentives for cement manufacturers.

18
Economic Factors

Market for Cement in Pakistan exists in two main dimensions: 1. product

type 2. And geographic area. Product type: Since cement is a specialized
product, requiring sophisticated infrastructure and production location. So,
most of the cement industries in Pakistan are located near/within
mountainous regions that are rich in clay, iron and mineral capacity.
Structure of Cement industry in Pakistan is as such that there is not much
substitutability to buyers. Which shows that the Cross elasticity of demand is
negligible. Geographical Area: The other factor i.e. geographic location also
doesnt affects a lot considering the flexibility of demand. Example can be
taken from the fact that if DG cement in DG KHAN raises its price and
MAPLE LEAF CEMENT in Daud Khel will raise its price to match DG
cements. This is due to cartel of all of the cement manufacturers in
Pakistan.

Thus the customer has no choice at all to switch between two brands of
cement. As the cement market is moving from a virtual 'sellers' market' to an
oversupply situation, it is expected that when prices stagnate and
profitability becomes a function of volume and economies of scale, location
advantage and proximity to markets will become extremely important
factors. At present the freight charges are a massive20% of the retail prices.
The plants located very close to each other and tapping the same market will
have to expand their markets which will increase their freight
expenses.tent/c050

19
Policies and Regulation

The policy of the Government is to keep a balance between rapid economic

development, on the one hand, and social justice and consumers protection,
on the other. There is a traditional conflict between these two aims. It is,
therefore, necessary to regulate trade, commerce or industry in the interest of
free competition therein. The Ordinance was promulgated to provide for
measures against un-due concentration of economic power, growth of un-
reasonable monopoly power and un-reasonably restrictive trade practices.
Thus cement industry too is monitored and answerable to rules and
regulations developed by the monopoly control authority of Pakistan. The
government is considering allowing further concessions and additional
incentives for cement export, with a view to increase overall export volume.
These measures will immensely help in promoting and protecting high
investments made in cement sector in recent years. In the wake of its huge
surplus production as a result of massive capacity expansion undertaken it
rather seems imperative for Pakistani cement industry, on one hand, to
sustain existing export markets and, on the other, explore new markets.

Export opportunities: The demand of Pakistani cement is expected to

continue to grow at the rate of 20 per cent for about four years to come. It
may then follow traditional growth rate of seven per cent per year.
Announcement of major dams will dramatically increase this demand.
Deregulation after accession of Pakistan to WTO is expected to open the
window of competition from cheaper markets. There may be no tariff after
this deregulation on import of cement allowing its entry into Pakistan from
cheaper

20
Restriction of Exports: Restriction of export of cement is deterring the full
potential of this sector. Keeping in view the huge cement production
capacity coming online in the next financial year, it is hoped that the
government will reconsider its cement policy on an urgent basis and prevent
the industry from going into a crisis owing to over supply.

Natural Resources

Manpower The direct labor that works on one shift is on average 70. There
are about three shifts in a day. The labors are provided accommodation in
the same place. Land The land that has the factory and used for
accommodation is owned by the company. There is enough space to
accommodate new plants if the need arises. Energy Initially the company
was relying on WAPDA for power supply but now the company has its own
electricity generation plant that provides up to 50% of the total requirements.
The services of the plant owned by the company is

21
Pakistan environment affect on cement industry

F.
Critical times for cement industry

As Pakistan tries to come to terms with the situation arising after the killing
of Benazir Bhutto, nervousness in business community has increased
regarding the future in a country struggling to revert to democracy after of
eight years of military-led government. No one is expecting a major
breakthrough or a turnaround in the industry in 2008. There are too many
ifs clouding the prospects of industry that failed to fully capitalise on the
surge in local demand, in a period of economic expansion and growth.

There might be some company level balancing and modernizing in certain

sectors but chances of anything big happening in the year ahead are remote
also because of political turmoil and readjustment, during which,
traditionally investment plans are put on hold, an informed professional
who interacts with trade bodies told Dawn from Islamabad. There is huge
scope for exports of cement to India that is going to give a boost to cement
makers. However, according to people in know of things instead of investing
in creating new capacity, the big wigs in the sector are currently focused on
marketing.

The restraining factors that inhibited the growth in industry are believed to
be both: internal and external, physical and temperamental. The industry will
have to break free of the old mindset and adopt a futuristic approach to face

22
the competition at local as well as international levels. The government will
also need to shun short-term ad hoc measures adopted for political
expediency in favour of a long- term sustainable industrialization strategy
that addresses real issues such as ensuring supply of quality cotton for
textile, flow of credit to small and medium sized industry, etc.

Industry performed well in 2005 but the pace of growth lost momentum
and in 2006 and 2007 its performance was below the official target. Though
the regional environment is not hostile, it would take the next government
some time even with best of intentions to jump start industrialization on a
significant scale Chaudhry Mhd Saeed, ex-president Federation of Pakistan
Chamber of Commerce and Industry commented from Mirpur, Kashmir.

Optimism, if any, was tempered by anxiety over the sustainability of growth

because of tight monetary policy, high inflation, current account deficit and
rising trade deficit. Amongst entrepreneurs, there were also concerns about
the policies of the next democratic government that assumes power after
populist measures to appease their supporters, increasing pressure on current
accounts forcing the country to go back to IMF for budgetary support.

The credit squeeze has started to impact the investment plans of

manufacturing sector. The weakening of dollar will lend some support to
exporters especially because of appreciation of Indian and Chinese
currencies against the greenback. The impact of high international oil prices
(90 per cent of the oil needs are imported), could impact the countrys
reserves. It will limit the capability of the government to provide public
subsidies to cushion the rises in food and fuel prices.

23
Majyd Aziz, a former president of the Karachi Chamber of Commerce and
Industry, felt that the problems faced by the industry cannot be wished away
or disappear quickly as a political government will not be equipped with a
magic wand.

They will need to take hard decisions and opt for a well thought out long-
term strategy. This would take time and it would be unrealistic to expect
anything before June next when the budget will be announced, he said. He,
however, expected major foreign investment pouring in the construction
sector once the political situation stabilises. If his expectation is materialized
it would prop up 36 allied industries besides creating job opportunities for
people linked to this sector. He saw good performance in pharmaceutical
and cement sectors but a promising future for agro-based industries in years
ahead.

Shafqat Illahi, President All Pakistan Textile Mills Association APTMA, the
most influential business lobby, was cautiously optimistic. He, however, felt
that there is lack of preparedness on the part of industry to take advantage of
the government supported increase in consumer demand.

He emphasized the importance of attaining critical mass through

amalgamation and consolidation to face the challenge thrown up by intense
competition. He felt that government should create conducive environment
for industrial growth and for the progress and sustainability of textile sector
in particular.

24
Recently Dr Shamshad Akhtar Governor State Bank of Pakistan speaking
during her visit to FPCCI said: 2000 onwards, by and large, the world
economy enjoyed a fairly benign economic environment ... Among the key
factor impacting global economy is the financial market turmoil.

With this backdrop, I propose to provide briefly Pakistans economic

update attempting to lay down some emerging trends for FY08 which
require stronger vigilance at economic policy-making level and industry and
private sector to be more responsive. In general, it has to be underscored that
despite domestic and international events, Pakistan economic prospects
remain strong.

She said, July-October 2007 data for industrial production, while

preliminary, reflects mixed picture. Production growth in construction
related industries appear reasonable including cement, wood, paints and
varnish units, followed by fertilizer, pharmaceuticals, petroleum refining and
few metal and engineering goods. In these sectors, Pakistan can reduce rate
of import dependency (such as petroleum refining where production capacity
is 13.2 million tons relative to consumption which is 18 million tons)
through capacity augmentation and even consider exploiting export
markets.

She suggested that industry and the Government need to take measures to
improve competitiveness of domestic goods. Ensuring quality through
innovation, skill development and technological up-gradation, reducing
costs through scale, diversifying product-line in line with the market

25
demand, and achieving self-sufficiency in raw materials etc. are some of the
areas where entrepreneurs need to concentrate.

Dr Afra Sajjad, head of education and policy development, ACCA, Pakistan

sent in her comment via mail: Like the rest of Pakistan, 2008 is a crucial
year for the industry. Its survival depends upon a government that
appreciates that the sustainable development depends upon industry
generating employment, attracting foreign investment, increasing
productivity, exploring new markets for exports and most importantly,
generating sustainable profits.

Crisis in cement industry

G. Production Cost

Besides fall in prices of cement, escalation in prices of inputs namely

furnace oil, electricity and paper bags have played havoc to the cement
industry.
Furnace Oil: Price of furnace oil increased from Rs.2843 per ton in
November 1994 to Rs.26297 per ton in February 1997 within a period of
21/4 years registering a rise of 119% as depicted in Chart A.

Electricity: Electricity tariff for cement industry has gone up by 71% during
the last three years as shown in Chart 'B'.
Paper Bags: Due to taxes on import of paper & levy of Excise Duty on paper
bags and massive devaluation of Pak Rupee during last three years, price of

26
paper bags has gone up from Rs.7 per bag in November 1994 to Rs.12.92
per bag in November '97 registering a rise of 85%, as reflected in Chart 'C'.
Cumulative effect of above escalation on of cement works out to well over
Rs.500/-per ton, which could not be passed to the consumers due to stiff
competition amongst cement manufacturers.

H. Over-Supply Hangover

The above scenario presents the current status of cement industry in the
country. New plants appearing in Table-II are expected to commence
commercial production in the near future raising the capacity of
manufacturing cement of Northern region of the country by 4 million tones
per annum by the end of current financial year. Old and wet process plants
on becoming unviable due to increase in energy cost and expected to close
down. Their capacity is however so small that their closure will not make
much difference. The oversupply is expected to be of the order of about 5
million tones, whereas production of wet process plants is not more than one
million tones.

I. Cement Consumption

Per capita cement consumption is one of the denominators of the

development of any country. Per Capita Consumption at 70 kegs. In
Pakistan is one of the lowest in the world. According to a study conducted
by Q-Consult, 42 countries of the world having similar per capita income as
that of Pakistan have DOUBLE per capita cement consumption than that of

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Pakistan. This is indicative of the fact that in Pakistan resource allocation of
the Government is not development oriented. This problem needs to be
addressed by the Planning Division in Islamabad.

Besides above, another area where massive amount of cement can be

consumed is construction of motorways. New motorways should be made of
cement which has 3/5 times higher life than stone-bitumen roads. Planning
Division of the Government and the All Pakistan Cement Manufacturers'
Association should join hands to work on this idea because surplus capacity
to a great extent can be absorbed in road construction. Like Indonesia and
Malaysia highways/motorways of 50 km each can be constructed on BOOT
basis.

CANAL refurbishment in Punjab has been pending for a very long time due
to lack of funds, but devastating effect of depleting conditions of canals have
been adversely affecting the yield of our agricultural output. If this job is
undertaken on priority, a good amount of cement can be consumed in this
area as well. Again APCMA should pursue this matter with the concerned
Ministries of the Government, so that additional areas of cement
consumption could be explored. The additional consumption of 5 million
tons of cement will not only increase the existing revenue of the
Government by over Rs.7 billion per annum, but will also greatly help in
bringing the cement industry out of its existing crisis.

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Table-I

Cement Share Prices at Karachi Stock Exchange

Market Price of Share of Rs.10/-

March November (%age)

1994 1997 Decline

Cherat 172.00 17.00 90.1

Dadabhoy 81.25 6.50 92.0
Dandot 185.00 3.50 98.1
D.G. Khan 107.00 10.10 90.6
Essa 109.00 9.50 91.3
Fecto 88.5 8.75 90.1
Javedan 104.00 15.90 84.7
Pakland 154.00 7.5 95.3
Pioneer 63.00 6.00 90.5

Average: 118.17 9.40 92%

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Conclusion

In our conclusion the importance of productivity is imminent and is the need

of the hour. Real gains in productivity are important then simply measuring
success in meeting objectives.

Improvements in productivity have a significant impact on lives

whether the change occurs at the national level, within the given
industry or a company or even at the individual level.
Changes in productivity within an industry or at the company level are
closely related to success and survival.
The profit margins realized by an industry or a specific company are
related to its ability to make productivity gains ahead of the
competition. Industries where competition helps to propel
improvement often experience greater growth.
Companies that fail to keep in pace will fail. In either case, all
stakeholders are directly impacted.
Now keeping in view the analysis of Maple Leaf with respect to its
productivity of labor, capital and growth, we have concluded that the
current expansion of its capacity and induction of newer plant with
capacity of 6700tons might have caused short term costs.
Now this time it would provide higher returns in the form of sales and
revenue earned. Secondly, the current management is actively
resorting to international set of quality standards so that to meet the
upcoming competition with regards to WTO. So the productivity and
efficiency with regards to effectiveness of the plant is satisfactory.

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Recommendations

Cement manufacturing in Pakistan was never as buoyant as it has

become in the preceding couple of years. Though an oligopoly, there
exists immense competition between members of the cartel. Critical
success factors of the industry have unanimously become utilization
of idle production capacity, additions to which have started sending
threatening signals to market participants.
Cement manufacturers have undertaken counter offensive strategies
by introducing capacity enhancements of their own to capture extra
market share and achieve economies of scale from production
activities.
Short Term Measures

o Freight Subsidy

The current Trade Policy, 25% freight subsidy is provided to eligible

products as defined in the subject order. A negative list of countries and of
products has also been specified in order. Cement products classified under
H.S. Code 25.23 in Pakistan Customs Tariff have been placed on the
negative list. In view of the value added nature of Lucky and cement, these
merit being added to the list of Developmental Products.

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Duty Drawback

The present export rebate on cement of Rs. 25 per ton with no draw back for
export of Lucky has led to cement export by sea to come to a grinding halt.
To make the exports viable and increase the capacity utilization in the
country, it is proposed that present export rebate on cement of Rs. 25 per ton
be increased to:

o For Lucky cement Rs. 142.48 per ton and Rs. 93.32 per ton for

clinker. Calculation attached annex-A

o For white cement Rs. 167.02 per ton and Rs. 93.32 per ton for clinker.
Calculation attached annex-B

Neighboring countries like Bangladesh, Myanmar, Sri Lanka, and some of

the Gulf States, are regularly importing cement and if duty draw back rates
are fixed as stated above then, 4 to 5 million tons of cement / clinker can be
exported every year.

Port Charges

Port charges in Pakistan are very high as compared with other countries.
Detail of these charges is as under:

Charges Pakistan India Qatar

(US $) (US $) (US $)
Port dues 0.34 0.09 0.12
Pilot age 0.30 0.16 0.11

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We urge you to kindly look into the above and take necessary measures to
reduce the charges in Pakistan to bring them in line with other countries.

Long Term Measures

o Infrastructure at Ports

APCMA has the capacity to exports 4 to 5 million tones of clinker and

cement per annum but the Ports do not have the storage and loading
facilities for export of bulk cement and clinker. The Trade Policy 2006-2007
has also highlighted the export of surplus cement and clinker through a
separate terminal. Since the operation of this separate terminal would take at
least 2 to 3 years some interim arrangements would greatly facilitate the
export of cement and clinker in the meantime. It is proposed that 5 to 6 acres
of land for the setting up of fabricated storage silos with storage capacity of
30,000 tones of cement be provided within the Port Qasim vicinity so that
we can store cement in the idle time and efficiently load the ships upon its
arrival within the shortest possible time at a loading rate of 8 to 10 thousand
tones per day being offered by other competitors including India.

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REFERENCES
Date 11-5-2010 time (11:15pm)
http://www.paktechsearch.com/suppliers.asp

Date 19-5-2010
http://www.google.com.pk/search?
hl=en&source=hp&q=lucky+cement+in+pakistan+history&meta=&aq=f&a
qi=&aql=&oq=&gs_rfai=
http://www.pioneercement.com/social-responsibility.html
http://www.descon.com/Sectors/Cement/faujiCementPlant.aspx
http://www.kmlg.com/kmlg/cement_history.php

EDB (2007c), Growth Strategy for the Engineering Industry to Achieve

Rapid Industrialization and Economic Growth. Viewed at
http://www.engineering pakistan.com/EngPak1/vision.php
[11 October 2007].

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