Cutting down on transportation costs: Government agrees to give subsidy to cement sec

[Lahore_Real_Estate]

By Moonis Ahmed

KARACHI: The negotiations between the cement manufacturers and the government have finally come to an end as the government has agreed to give subsidy announced earlier in the Trade Policy 2009-10 on inland transportation of the commodity for export, Daily Times learnt Friday.

The government has agreed to give subsidy on transportation expenses for goods brought to the port from industries situated at least 100 kilometres away from the sea, sources said.

They said that talks continued for more than a year between exporters and the government and concluded positively in favour of the exporters, as the government agreed to give subsidy in Trade Policy 2009-10.

According to the agreement, the cement sector would be given 35 percent while other sectors will be given 50 percent subsidy on transportation charges, sources said. However, the light engineering, leather garments, furniture, soda ash, hydrogen peroxide, caustic soda and sanitary companies would be the beneficiaries of the announced subsidy.

As per the JS Research analyst report, the key terms and conditions mentioned in this agreement are that exports routed through sea would be eligible, shipments made during the issuance of the public notice between March 26, 2010 and June 30, 2010 would be eligible for the subsidy, products originating a minimum 100km from the seaport would qualify and the cement sector would be offered 35 percent, whereas all other sectors would be given subsidy at 50 percent.

This should help generate better volumes as it will strengthen Pakistan’s price competitiveness over other manufacturers, which in turn can provide an up tick to local cement prices as well, the analyst said.

Sources said that approximately Rs 42-43 per bag cost is incurred at the northern cement plants for transporting cement to the seaport. They said that cement manufacturers had sought 50 percent subsidy on the inland freight cost to boost cement export to more than $1 billion.

Pakistan’s cement exports through seaports in Karachi were estimated to increase from $422 million in 2008-09 to $781 million in 2009-10, but since the government has not agreed on the demanded 50 percent so the estimated export target may not be achieved, they said.

Sources said that the export target is likely to reach at $750-800 million by the end of the current fiscal year

However, some of the industry players were not happy with this decision and said that the decision is an unfair decision giving advantage to particular companies in the industry.

Attock Cement CFO Irfan Amaullah while talking to Daily Times said that the decision is a discriminatory one and may lead to chaos in the industry as cement plants of the south zone are not included in this subsidy. He said that the government has not given subsidy to the plants located in 100km from the sea and in south zone all four cement companies-Attock Cement, Lucky Cement, Pakland Cement and Al-Abbas Cement-are in the range of 100km. In this way Sindh and Balochistan cement companies would not benefit from this freight subsidy.

He was of the view that letter has been sent to the APCMA and government also in this regard and if the decision is not materialised then “we may go to the court for justice”. The sources explained that cement units located in the north constitute 82 percent of the total production capacity and inland freight cost of consignments to the port ranged from Rs 900 to Rs 1,400 per tonne. Cement factories located in the south are paying an inland freight at an average rate of Rs 300 per tonne. They maintained that the high inland freight costs of the units located in the north is a major impediment in the way of raising cement exports, particularly when cement prices have gone down in the international market.