Private sector forms cartel to dictate cement prices

July 28 - Aug 03, 2003

Despite a substantial cut of 25 per cent in the central excise duty on cement announced by the government in the recently announced federal budget for 2003-04, the cement manufacturers are reluctant to pass on the benefits to the end users.

Instead of bringing down the cement prices, the cement manufacturers in the private sector have formed a cartel to resist the decline in the prices. They are restricting the capacity utilization of the cement manufacturing units so that the limited supply could be used to retain the prices at a certain level.

The cement manufacturers while denying the charges of not passing on the benefit of duty reduction on the cement have said that there is a price mechanism through which the duty cut has already been passed on the consumers. However, contrary to their claim, the cement prices in the market are still at the pre-budget level and no sign of reduction is found anywhere in the market.

The cement manufacturers also maintain that they have suffered heavily during the days of economic crisis in the country and the banks were still charging the financial charges at the previous rates of the mark up. Although the lending rates of the commercial banks have steeply come down, but the cement industry except the NDFC loans, servicing their debt on the old rates.

The construction industry, however, has described the reasons of the cement manufacturing units as the lame excuses. The construction industry feels that the trade conduct of the cement industry was contrary to the government policies of economic revival in the country.

This highly unfair trade tactics on the part of the cement manufacturers but it is also a failure of the government organization responsible for controlling prices of various commodities in the country.

Commenting on the situation, Hafeezur Rehman Butt, Chairman Association of Builders and Developers (ABAD) said that apart from incentives announced by the government in the budget, the cement industry has been enabled to reduce cost of production to a great extent with the shift of the cement industry from gas or oil to coal-based system.

Despite all these incentives offered by the government as a part of its policy to give a spark to the economic activity at a massive scale by activating the construction sector, however the attitude of the cement manufacturers may prove counter productive to all these efforts.

The cement producers are reluctant to reduce the cement prices, which constitute the principle ingredient of the construction activity.

In a representation to the Ministry of Production as well as the Ministry of Commerce, ABAD has strongly recommended that if the cement industry fails to bring down the prices despite all incentives, the government should allow the private sector or to the public sector organization to import cement which would help creating a healthy trade competition in the country. ABAD chairman declined to name the country for importing the cement as certain quarters are suggesting to import cement from India where the cost of cement is much below as compared to Pakistan. Hafeezur Rehman Butt, however, said that cement might be imported from the countries wherever it is available at a cheaper price.

The Monopoly Control Authority (MCA) has, however, initiated an inquiry against the alleged formation of a cartel by the cement manufacturing units to maintain cement prices at their will.

ABAD while welcoming the initiative of the MCA has demanded of the government that representatives of ABAD should also be included in the inquiry committee so that meaningful results could be produced of the investigations. ABAD chairman said that MCA had conducted inquiries against alleged formation of cartel of the cement manufacturers but the findings of the investigations never made public or it shelved the investigations. There is a need of transparency into the investigations to avoid recurrence of such events in future also in the best interest of the country and the economy.

According to a spokesman of a leading cement manufacturing unit, currently, the cement industry is running at 62 per cent of the capacity utilization and in view of the growth in the demand for cement, the industry may enhanced its capacity utilization at 66 per cent in near future.

Regarding the reports about tremendous demand for cement in Afghanistan, he said some reports have exaggerated regarding demand for cement in Afghanistan. In fact, one can imagine that how in the face of persistent disturbed conditions, how any sort of trade can grow in the disturbed conditions. There is of course demand for cement in that country but not to that level being publicized in the country. Whatsoever the demand in Afghanistan is, the cement units located in the northern part of the country meet it. However, due to public sector development projects plus increased activity in the private sector within the country, the demand for cement is growing and the industry is fully alive to the situation and increasing its capacity utilization in accordance to the demand in the market.