Flawed policies, exorbitant taxes hampering cement sector’s growth

The sector's average profitability drops 123pc in 1Q2020

ISLAMABAD: The country’s cement sector has been incurring massive losses for the last nine months (FY20) owing to exorbitant taxes imposed in the budget 2019-20 coupled with a 50pc increase in transportation cost after implementation of the axle load policy.

Cement manufacturers started incurring losses after the government increased duty taxes by 33pc for the sector in the budget 2019-20. The freight cost was also increased from Rs50 per bag to Rs75 for end-users after the implementation of axle load policy in November 2019.

According to official data, the country’s prominent cement companies, namely Attock Cement, Bestway Cement, DG Khan Cement, Fauji Cement, Kohat Cement, Lucky Cement and Maple Leaf Cement, have declared massive losses in the third quarter (Jan-March) of the ongoing fiscal year.

During the first three months of 2020, the sector’s average profitability (after taxation) declined by 123pc, from a profit of Rs8.50 billion to a loss of Rs1.97 billion.

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Meanwhile, in the nine months (July-March) period, the profitability decreased by 106pc, from a profit of Rs27.6 billion to a loss of Rs1.56 billion.

Company-wise data shows that Attock Cement’s profit declined by 37pc, Bestway Cement -117pc, DG Khan Cement -214pc, Fauji Cement by -134pc, Kohat Cement -159pc, Lucky Cement -64pc and Maple Leaf Cement -466pc.

For the third quarter of FY20, Bestway Cement posted a loss of Rs441 million, DG Khan Cement -Rs1.003 billion, Fauji Cement -Rs210 million, Kohat Cement Rs381 million, Maple Leaf Cement -Rs1.281 billion. However, the Attock Cement and Lucky cement earned a profit of Rs353 million and Rs999 million, respectively, which was 37pc and 64pc lower than Rs\559 million and Rs2.793 billion earned in the corresponding period of last fiscal year.

It may be noted that suspension of trade with India last year was a major blow to the country’s cement sector; cement exports to India had restricted following the Pulwama attack in February 2019.

Further, in August 2019, Pakistan had completely suspended the bilateral trade after India’s lockdown of Kashmir.

Earlier, Pakistan was exporting 75,000 tonnes of cement to India per month.

On the other hand, sources said, in the backdrop of construction activities starting after China Pakistan Economic Corridor (CPEC) projects, the cement industry had increased their production capacity anticipating growing demands.

The production capacity of the cement sector has increased from 44 million tonnes in 2014 to 69 million tonnes in 2020.

However, sources added, due to political instability in the country after the Panama leaks, the CPEC projects were slowed down which adversely affected the economic activity in the country.

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