Punjab-based cement manufacturers have obtained a stay order from the court against imposing a 6% royalty on ex-factory cement and clinker prices for limestone and argillaceous clay.
The stay order, however, is contingent upon the manufacturer’s furnishing bank guarantees, according to a brokerage report.
Despite the stay order, companies are expected to account for the increased royalty cost in their financial statements, following prudent accounting practices. This will be recorded as a non-cash expense until the matter is resolved.
In anticipation of potential unfavorable legal outcomes, Punjab manufacturers have decided to increase cement prices by up to Rs75 per bag.
Additionally, it is worth noting that some manufacturers based in Khyber Pakhtunkhwa (KPK) also sell a portion of their cement in Punjab. This situation might present them with an opportunity to either sell higher volumes at a lower price or follow suit with a price increase, despite not facing the same royalty hike.
On August 2, the Government of Punjab announced a 6% increase in the royalty rate on limestone, crucial for cement manufacturing. This revised rate on the ex-factory sales price of cement or clinker, up from the previous fixed rate of Rs 250 per ton.
Topline Pakistan Research anticipated that these companies will likely opt to increase prices, benefiting those situated near the Punjab borders or within KPK, such as Bestway Cement, Lucky Cement, Kohat Cement, Fauji Cement, and Cherat Cement.
However, the long-term impact of this royalty cost disparity remains uncertain, the brokerage firm said.
“Any adjustment by other provincial authorities to equalise the royalty rates or a reversal of the increase in Punjab could restore equilibrium in the cost structure for manufacturers.”
Under the new royalty structure, the cost of limestone per bag of cement is projected to rise to Rs 55, up from the current Rs 19 per bag. As a result, regional cement prices are expected to increase from Rs 1,510 per bag to approximately Rs 1,560 per bag.
