BOI

BOARD OF INVESTMENT
GOVERNMENT OF PAKISTAN

CEMENT SECTOR

CONTENTS

Sector Overview 1
Contribution to National Economy 2
Types of Cement Produced in Pakistan 3
Number of Units 4
North Zone Profile 5
South Zone Profile 6
Installed Capacity of North Zone 7
Installed Capacity of South Zone 8
World’s Cement Production 9
Pakistan’s Cement Production 10
Pakistan’s Share in World’s Production 10
Cement Production Capacity and Production 11
Major Exports of Cement Products 12
Cement Industry Present Scenario 13
Cost Break Down of Cement Production 14
Cost Comparison (Furnace Oil and Coal) 15
Duties Comparison (Pakistan v/s India) 15
Foreign Direct Investment 16
Demand 16
Price Comparison 17
Recommendations 18
Sector Overview

There are 29 cement production units in the country. Upto May 2007,
the total installed cement production capacity is 36.841 million tones. By the end of
June 2011, the installed cement production capacity will touch to the level of 49.579
million tonnes.

Due to political instability and lack of allocation of funds for public sector
development program, cement industry of Pakistan was in the recession phase had
registered an average growth rate of 2.96% for the period from 1990 to 2002. For the
period from 2003 to 2007 cement industry of Pakistan had registered an average
growth rate of 20%. The boost in cement sector is because of the rising
construction activity in the country, reconstruction activity in Afghanistan and
increasing development expenditure by the government.

Presently, the cement industry of Pakistan is heavily burdened due to

levy of Federal Excise Duty @ Rs. 750 per ton and General Sales Tax @ 15% on
duty paid value. In addition to Federal Excise Duty and General Sales Tax, cement
industry is also paying the provincial levies (Royalty and Excise Duty) on acquiring
of raw material for production of cement i.e. lime stone and shall clay. Per ton cost
impact of these taxes in four provinces of Pakistan is as follows:

Punjab NWFP Sindh Baluchistan

Lime Stone 24 21 17 65
Shall/Clay 3 4 3 11

A comparison of taxation and retail prices with other regional countries revealed that
taxation in Pakistan is highest while cement retail prices are lowest.

Housing sector has been looked upon as stimulator of economic

growth since there is a large estimated gap of 5.38 million housing units against
annual addition of 300,000 units in the country, many tax exemption and incentives
are provided to encourage new construction.
 Contribution to National Economy
By
Cement Sector

Direct and Indirect Taxes Rs. 23.50 Billion

Value of Fixed Assets Deployed Rs. 85.21 Billion

Loans from Financial Institutions Rs. 79.53 Billion

Shareholders Equity Rs. 80.00 Billion

Employment (Direct & Indirect) 150,000 (Approx.)

Source: All Pakistan Cement Manufacturing Association of Pakistan (APCMA)

TYPES OF CEMENT PRODUCED IN PAKISTAN
1 Ordinary Portland Cement (OPC)
2 Sulphate Resisting Cement (SRC)
3 Blast Furnace Slag Cement (BFSC)
4 White Cement

PRODUCTION PROCESS
1 Dry Process (In Pakistan most of the industry employs dry process)
2 Semi-wet Process
3 Wet Process
RAW MATERIAL

Main constituents of cement include:

1 Lime
2 Alumina
3 Iron
4 Laterite

These constituents are obtained from following raw materials:

1 Lime stone
2 Clay
3 Overburden
4 Shale
5 Gypsum
6 Iron ore
7 Bauxite
8 Slag / Fire Clay

Cement manufacturing consists of following four processing steps:

1 Crushing of Raw Material
2 Grinding of Raw Material
3 Pre-calcining / Pyroprocessing
4 Grinding of Clinker and Packing

MAIN UTILITIES USED FOR CEMENT PRODUCTION

1 Fuel Oil , Natural Gas and Coal
2 Electricity
3 Water
 Number of Units (Grey Cement)

North Zone 19
South Zone 10
Total 29
ANNUAL CAPACITY, NO OF LINES, YEAR OF COMMISSION & PROCESS
2005 2011
Proce
Sr. Name of Unit Annual Capacities BMR/New Upgraded Capacity % No. of Year of Year of ss Province
Commis upgradat
No. Clinker Cement Clinker Clinker Cement Age Lines sion ion

1 Askari (Wah) 900,000 945,000 150,000 1,050,000 1,102,500 2.22% 1 1994 Jan-06 Dry Punjab

2 Askari (Nzp) 1,200,000 1,260,000 300,000 1,500,000 1,575,000 3.18% 1 1995 Aug-06 Dry N.W.F.P

July,
3 Bestway (Hat) 990,000 1,039,500 180,000 1,170,000 1,228,500 2.48% 1 1998 Jul-05 Dry N.W.F.P

July,
4 Bestway (K.K) - - 1,725,000 1,725,000 1,811,250 1 2006 Dry Punjab
July,
New (K.K) - - 1,725,000 1,725,000 1,811,250 1 2008 Dry Punjab

- - 3,450,000 3,450,000 3,622,500 7.31%

July,
5 Cherat 750,000 787,500 240,000 990,000 1,039,500 2.10% 1 1985 Aug-06 Dry N.W.F.P

6 D.G.Khan
April,
Old Line 660,000 693,000 150,000 810,000 850,500 1 1986 Jul-05 Dry Punjab
June,
New Line 990,000 1,039,500 210,000 1,200,000 1,260,000 1 1998 Oct-05 Dry Punjab

1,650,000 1,732,500 360,000 2,010,000 2,110,500 4.26%

14-May-
7 D.G.Khan (k.K) - - 2,010,000 2,010,000 2,110,500 4.26% 1 07 Dry Punjab

April,198
8 Dandot 480,000 504,000 - 480,000 504,000 1.02% 1 6 Dry Punjab

Nov,
9 Fauji 900,000 945,000 210,000 1,110,000 1,165,500 1 1997 Aug-05 Dry Punjab

New Line - - 2,010,000 2,010,000 2,110,500 1 1-Aug-10 Dry Punjab

900,000 945,000 2,220,000 3,120,000 3,276,000 6.61%

Dec,
10 Fecto 600,000 630,000 180,000 780,000 819,000 1.65% 1 1988 May-06 Dry Punjab

Sep,
11 GharibWal 180,000 189,000 - 180,000 189,000 1 1964 Wet Punjab
Sep,
180,000 189,000 - 180,000 189,000 1 1964 Wet Punjab
Sep,
180,000 189,000 - 180,000 189,000 1 1964 Wet Punjab

New Line - - 2,010,000 2,010,000 2,110,500 1 Jan-08 Dry Punjab

540,000 567,000 2,010,000 2,550,000 2,677,500 5.40%

 April,
12 Kohat 540,000 567,000 - 540,000 567,000 1 1983 Dry N.W.F.P

New Line - - 2,010,000 2,010,000 2,110,500 1 Jul-07 Dry N.W.F.P

540,000 567,000 2,010,000 2,550,000 2,677,500 5.40%

June,
13 Lucky 628,571 660,000 91,429 720,000 756,000 1 1996 Jul-05 Dry N.W.F.P
June,
628,571 660,000 91,429 720,000 756,000 1 1996 Jul-05 Dry N.W.F.P

New Line I - - 1,142,857 1,142,857 1,200,000 1 Sep-05 Dry N.W.F.P

New Line II - - 1,142,857 1,142,857 1,200,000 1 Sep-06 Dry N.W.F.P

1,257,143 1,320,000 2,468,571 3,725,714 3,912,000 7.89%

14 Maple Leaf

Old Line 120,000 126,000 - 120,000 126,000 1 1956 Wet Punjab

" 171,000 179,550 - - - 0 1960 Wet Punjab
March,19
" 180,000 189,000 - 180,000 189,000 1 88 Wet Punjab
April,
New Line 990,000 1,039,500 210,000 1,200,000 1,260,000 1 1998 Aug-06 Dry Punjab

New Line - - 2,010,000 2,010,000 2,110,500 1 Jun-07 Dry Punjab

1,461,000 1,534,050 2,220,000 3,510,000 3,685,500 7.43%

15 Mustehkum - - 165,000 165,000 173,250 1 1965 Wet N.W.F.P

- - 165,000 165,000 173,250 1 1965 Wet N.W.F.P

- - 300,000 300,000 315,000 1 1981 Dry N.W.F.P

- - 630,000 630,000 661,500 1.33%

October,
16 Pioneer 600,000 630,000 105,000 705,000 740,250 1 1994 Jul-05 Dry Punjab
May,
New Line - - 1,228,571 1,228,571 1,290,000 1 2006 Dry Punjab

600,000 630,000 1,333,571 1,933,571 2,030,250 4.10%

July,
17 Pakistan - - 2,010,000 2,010,000 2,110,500 1 2006 Dry Punjab
July,
New Line - - 2,010,000 2,010,000 2,110,500 1 2010 Dry Punjab

- - 4,020,000 4,020,000 4,221,000 8.51%

18 Dewan Hattar 540,000 567,000 - 540,000 567,000 1 Feb-02 Dry N.W.F.P

- - 540,000 540,000 567,000 1 Jul-05 Dry N.W.F.P

540,000 567,000 540,000 1,080,000 1,134,000 2.29%
19 Flying 600,000 630,000 - 600,000 630,000 1 Jan-05 Dry Punjab

- - 600,000 600,000 630,000 1 Nov-06 Dry Punjab

600,000 630,000 600,000 1,200,000 1,260,000 2.54%

19 SUB TOTAL 13,008,143 13,658,550 24,922,142 37,759,286 39,647,250 79.97% 38

SOUTH ZONE
Proce
Sr. Name of Unit Annual Capacities BMR Upgrated capacity % No. of Year of Year of ss Province
Commis upgradti
No. Clinker Cement Clinker Clinker Cement Age Lines sion on

20 A.C.Rohri 50,000 52,500 - 50,000 52,500 1 1938 Wet Sind

180,000 189,000 - 180,000 189,000 1 1972 Wet Sind

230,000 241,500 - 230,000 241,500 0.49%

Baluchist
21 Attock. 720,000 756,000 - 720,000 756,000 1 1988 Dry an
Baluchist
New Line - - 990,000 990,000 1,039,500 1 Jun-06 Dry an

720,000 756,000 990,000 1,710,000 1,795,500 3.62%

22 Dadabhoy 504,762 530,000 - 504,762 530,000 1.07% 1 1985 Dry Sind

23 Al-Abbas 150,000 157,500 450,000 600,000 630,000 1 1989 Dry Sind

300,000 315,000 300,000 600,000 630,000 1 Aug-98 2006 Dry Sind

450,000 472,500 750,000 1,200,000 1,260,000 2.54%

-

24 Javedan 150,000 157,500 - 150,000 157,500 1 1964 Wet Sind

150,000 157,500 - 150,000 157,500 1 1965 Wet Sind

300,000 315,000 - 300,000 315,000 1 1980 Dry Sind

600,000 630,000 - 600,000 630,000 1.27%

-
May,
25 Lucky - - 1,142,857 1,142,857 1,200,000 1 2006 Dry Sindh

- - 1,142,857 1,142,857 1,200,000 1 Nov-06 Dry Sindh

- - 2,285,714 2,285,714 2,400,000 4.84%

26 Pakland 750,000 787,500 - 750,000 787,500 1 1985 Dry Sind

New Line - - 720,000 720,000 756,000 1 Oct-08 Dry Sind

750,000 787,500 720,000 1,470,000 1,543,500 3.11%

27 Pakistan Slag - 157,500 - - 157,500 0.32% 1 1994 Dry Sind

28 Thatta 300,000 315,000 - 300,000 315,000 0.64% 1 1982 Dry Sind

29 Zeal Pak 102,000 107,100 - 102,000 107,100 1 1956 Wet Sind

102,000 107,100 - 102,000 107,100 1 1956 Wet Sind

102,000 107,100 - 102,000 107,100 1 1960 Wet Sind

102,000 107,100 - 102,000 107,100 1 1963 Wet Sind

300,000 315,000 - 300,000 315,000 1 1969 Wet Sind

300,000 315,000 - 300,000 315,000 1 1969 Wet Sind

1,008,000 1,058,400 - 1,008,000 1,058,400 2.13%

10 SUB TOTAL 4,562,762 4,948,400 4,745,714 9,308,476 9,931,400 20.03% 22

29 GRAND TOTAL 17,570,905 18,606,950 29,667,856 47,067,762 49,578,650 100.00% 60

 World’s Cement Production (Qty = 000 tonnes)

Countries 2001 2002 2003 2004 2005

United States 90,450 91,300 92,600 99,000 99,100

Brazil 39,500 39,500 40,000 38,000 39,000

China 626,500 705,000 750,000 934,000 1,000,000

Egypt 24,500 23,000 26000 28,000 27,000

France 19,839 20,000 20000 21,000 20,000

Germany 28,034 30,000 28000 32,000 32,000

India 100,000 100,000 110,000 125,000 130,000

Indonesia 31,100 33,000 34,0000 36,000 37,000

Iran 26,650 30,000 31,000 30,000 32,000

Italy 39,804 40,000 40,000 38,000 38,000

Japan 76,550 71,800 72,000 67,400 66,000

Korea 52,012 55,500 56,000 53,900 50,000

Mexico 29,966 31,100 31,500 35,000 36,000

Pakistan 9,876 9,985 11,410 13,344 17,112

Russia 35,100 37,700 40,000 43,000 45,000

Saudi Arabia 20,608 21,000 23,000 23,000 24,000

Spain 40,512 42,500 40,000 46,800 48,000

Thailand 27,913 31,700 35,000 35,600 40,000

Turkey 30,120 32,600 33,000 38,000 38,000

Others 351,014 350,015 348,590 367,656 374,888

World total 1,700,000 1800,000 1,860,000 2,130,000 2,220,000

Source: U.S. Geological Survey, January 2006 & APCMA.

 Pakistan’s Cement Production
(Million Tonnes)
Year Cement Production
1991 (June) 7.649
1992 (June) 8.115
1993 (June) 8.348
1994 (June) 8.158
1995 (June) 8.159
1996 (June) 9.458
1997 (June) 9.539
1998 (June) 9.29
1999 (June) 9.546
2000 (June) 9.969
2001 (June) 9.876
2002 (June) 9.988
2003 (June) 11.410
2004 (June) 13.344
2005 (June) 17.112
2006 (June) 19.512
 Pakistan’s Major Exports of Cement Products
Year Value Qty (Quantity) U.V (Unit Value)
Rs mln. M/tonnes Rs/mt

2001-02 0.107 ..
2001-02 0.430 ..
2002-03 1.160 ..
2003-04 1.565 ..
2005-06 1.505
2006-07 (Upto April 07) 2.453 ..
 CEMENT INDUSTRY PRESENT SENERIO
(TAXES, INVESTMENT & CAPACITY UTILIZATION)
Cement Machinery is manufactured Locally
Concessions to Local manufacturers is provided under
• SRO 431(I)/97 C.D @ 10%
• SRO 435(I)/2001 C.D @ 0% on import of raw material not
manufactured locally.

TAXES
• There is no concession on import of cement or cement manufacturing
Machinery
• Excise Duty: Rs. 750 per ton..
• Sales Tax @ 15%

IMPORTS & EXPORTS

Cement Imports
• Nil (Custom Duty @ 25%)
Cement Exports

• In 2001, after five slack years, the industry has started picking up the
pace. According to the State Bank’s report, cement exports rose to
158,666 tones during first half (H1) of 2003–49% higher than the same
period of previous year–and earned $3.5 million against $0.6 million of
the same period in 2002.

INVESTMENT
• Presently the cost of a new project is around Rs 6 billion (Chinese Plant
of 3300 tonnes per day)

CAPACITY UTILIZATION
•Overall capacity utilization of the industry has increased to 88%, in
2006, as compared to 91%, in 2005.
DEMAND
• In domestic market, the demand also increased substantially. During the
first ten months of 2006-07, cement sector achieved record sales. The
sale rose to 19.713 million tons from 14.847 million tons as compared to
the same period in 2005-06, an increase of 32.78%. During March 2007,
the sales broke the previous records and reached to 2.3 million tons.
Moreover, a record export of 371,602 tons was also registered in the
same month.
 Cost to make and sell (Industry Average)
Based on Audited Accounts - June 30, 2006

Variable Cost Rs./Tonne Rs./Bag

1. Raw and Packing Material 328.10 16.41
2. Fuel and Power * 1,427.51 71.38
3. Stores & Spares Incl. Repair & Maint 154.96 7.75
Sub-Total: 1,910.57 95.53
Fixed Cost
1. Salaries & Wages 155.45 7.77
2. Depreciation 206.30 10.32
3. Admin & Selling Expenses 104.04 5.20
4. Financial Expenses 377.56 18.88
5. Misc. Expenses 94.80 4.47
Sub-Total: 938.15 46.91
Total cost of Production 2,848.72 142.44
Add: Federal Excise Duty 750.00 37.50
General Sales Tax @ 15% (Duty Paid Value) 540.00 27.00
Freight, Incidentals and Unloading 600.00 30.00
Margins of Distributor, Whole seller & Retailer 300.00 15.00
Manufacturers Profit @ 10% on Equity 500.00 25.00
Market Price 5,538.72 276.94
 COST COMPARISON (FURNACE OIL VS COAL)
Furnace Oil
Furnace oil consumption per ton of output 85.0 Kg

Cost of furnace oil per ton of cement produced * “A” Rs 2,083.00

Coal
Coal consumed per ton of output 155.0 Kg
Cost of using coal per ton of output “B” Rs 868.00

Saving per ton *** (A – B) Rs 1,215.0

Saving per bag Rs 60.75

* @ Rs 24500 per ton

** Blending 70 percent imported with 30 percent indigenous coal at prices of 5,700 and 5,500 per
ton respectively, and having 6,050 Kilo Calories/Kg
*** if industry use furnace oil as fuel then per bag retail price would increase by
Rs. 70 per bag.

Source: All Pakistan Cement Manufacturing Association

Duties Comparison

Duties Comparison Pakistan (Rs / Ton) V/s India (Rs / Ton)

Excise Duty 750 0

Sales Tax 540 200
Royalty @ Excise 25 32
duty on Lime Stone
Sales Tax on
packaging material 34 20
Octroi Nil 20
Duty on Power Tariff 22
Railway Freight (Lead 350 570
750 km)
Total 1699* 864
* Excluding Duty on Power Tariff
 Inflow of (FDI) Foreign Direct Investment
(Million US $)

July–March

Sector 1999-2000 2000-01 2001-02 2001-02 2002-03

Cement 0.1 15.2 0.4 0.4 0.5

Construction 21.1 12.5 12.8 9.9 11.1

Source: Economic Survey

DEMAND

Unfortunately, Pakistan the recent past was trailing behind all other developing
countries in the region with lowest per capita consumption of cement as shown
in the table

Country Per Capita

Consumption Per Capita Consumption (Kg)
(Kg)
Taiwan 1004 kg
Taiwan
Malaysia 870 kg
Malaysia
Thailand 600 kg
Thailand
Turkey 512 kg Turkey
China 410 kg China
Syria 369 kg Syria
Iran 274 kg Iran
Mexico 251 kg Mexico
Philippines
Philippines 220 kg
Vietnam
Vietnam 126 kg
Turkmenistan
Turkmenistan 159 kg
Indonesia
Indonesia 139 kg Sri Lanka
Sri Lanka 106 kg India
India 89 kg Pakistan
Pakistan 72 kg
Retail Prices of Cement in Different Countries
In Pakistan cement prices are lowest in the region while the cost of production
and taxation is high. A price comparison of 50 kg bag in Pakistan’s neighboring
countries is given below:

Sri
Pakistan India Afghanistan Dubai Iran
Lanka

Retail Price
240 215 253 17 550 45,000
Per Bag
(Pak (Ind (UAE (SL
(Pak Rupees) (Rial)
Rupees) Rupees) Dirham) Rupees)

Rate for
Conversion 60.95 44.12 60.95 3.67 108.70 9,241.00
in US $

Price Per
3.94 4.87 4.15 4.63 5.06 4.87
Bag ($)

Indircet
Taxes Per 1.07 0.47 0.39 - 0.76 -
Bag ($)

Net Price
2.87 4.41 3.76 4.63 4.30 4.87
Per Bag ($)

Net
Equivalent 175.00 268.62 229.00 282.18 261.86 296.80
Pak Rs.
RECOMMENDATIONS

We propose the following possible measures (Short term, Medium term and Long term) to save
the cement industry from collapse, restore the investor confidence and reduce the trade deficit.
Short Term Measures
ƒ Freight Subsidy
Vide public notice No. 2(6)2006-PPI dated 31st August, 2006 and in terms of the current
Trade Policy, 25% freight subsidy is provided to eligible products as defined in para 2(a)
and (b) of the subject order. A negative list of countries and of products has also been
specified in Annexures I & II of the order. Cement products classified under H.S. Code
25.23 in Chapter 25 of Pakistan Customs Tariff have been placed on the negative list. In
view of the value added nature of clinker and cement, these merit being added to the list
of Developmental Products (on 6 Digit H.S. Codes) as detailed in Annexure III of the
order.

It is requested that suitable amendments may kindly be made to the public order No.
2(6)2006-PPI dated 31st August, 2006 and its Annexures I, II, III & IV.

ƒ Duty Drawback
The present export rebate on cement of Rs. 25 per ton with no draw back for export of
clinker 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:
a For grey cement Rs. 142.48 per ton and Rs. 93.32 per ton for clinker. Calculation
attached annex-A
b For white cement Rs. 167.02 per ton and Rs. 93.32 per ton for clinker. Calculation
attached annex-B
Neighbouring 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.
ƒ 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
Tug gage 0.05 0.16 0.03
Berth age 0.08 0.04 0.01
Wharf age 0.66 0.28 0.00
Total 1.43 0.73 0.27

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.

Medium Term Measures

ƒ Abolishing of / reduction in Central Excise Duty
Presently cement despatches is subject to payment of central excise duty @ Rs. 750 per
ton. It should be abolished on cement, as cement is not a luxury item. The taxation on
cement in Pakistan is still highest in the region. Abolition / reduction in excise duty will
be passed on to the consumer and reduced price of cement is expected to stimulate
demand. This will also help to reduce the cost of development projects and facilitate the
housing sector. In case cement, excise duty cannot be abolished owing to budgetary
constraints, same should be phased out over a two-year period.
Long Term Measures
ƒ 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.
18