Cement in road construction will bring multifaceted
economic benefits
By AMANULLAH
BASHAR
Nov ,12 - 18, 2001
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 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.
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.
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.
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 longer life than
bitumen roads. Studies carried out in India have proved that vehicles
plying on concrete roads save 14 per cent on fuel consumption. Savings
on fuel consumption will run into billions of rupees annually.
Study
Driving on concrete highways reduces heavy truck
fuel consumption by as much as 11 per cent according to a National
Research Council (NRC) study conducted in Canada.
The study, commissioned by the Cement Association
of Canada, adds to growing evidence that concrete highways offer
greater cost efficiencies to both government and the taxpayers.
Concrete highways outperform and outlast other road surfaces in terms
of durability, maintenance and repairs. NIRC study concluded that less
fuel is used because concrete highways have rigid surface, which
creates less rolling resistance than asphalt. Rolling resistance is
considered a significant factor in fuel consumption. Using concrete to
build four lane highways and urban corridors makes good economic
sense. There are also environmental benefits to reducing fuel
consumption.
Canal lining is another area, which can consume
magnificent amount of cement. This will also save wastage of about 40
per cent of irrigation water besides easing out the problem of
waterlogging which is a constant threat to our agriculture lands.
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
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 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 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.
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