Within four decades of its evolution, Nepal’s cement industry has prospered well becoming less risky and a potential sector for investment with prospects of further growth. A total of 68 cement industries are registered at the Department of Industry out of which 42 are operating and 2 are under construction. With around 500 billion rupees investment, these privately held cement factories (not including the state owned Hetauda Cement and Udayapur Cement) have been employing around 25,000 people.
It has gradually strengthened itself to cater to national needs, which presently stands at 6,500,000 metric tons per year. Nepali cement factories supply 4,000,000 metric tons of it annually, and though it is capable to meet the entire domestic need, the remaining 1,500,000 metric tons is imported from India. Indian cement is relatively cheaper than Nepali cement due exemption of tax and VAT.
There has been corresponding growth in cement import in the recent years. Trade and Export Promotion Centre (TEPC), claims that Nepal imported Rs 3.47 billion worth of cement in FY 2011/12 and Rs 3.94 billion of cement in 2012/13, an increase of 17.9 per cent. Similarly, it imported Rs 6.90 billion worth of clinker during FY 2011/13 and Rs 5.99 billion worth of clinkers during FY 2012/13, a decrease of nearly 12.0 per cent. The decrease in cement clinker shows that Nepal is moving towards self-sufficiency in cement.
“Contractors involved in large projects use imported cement as it is relatively cheaper than Nepali cement due to tax and VAT exemption,” said Bharat Kunwar, chairman of Rolpa Cement while pointing to unhealthy competition that the local cement industries are facing. Along with this, power cut, recurrent hurdles created by the locals of the mining and factory sites, syndicates, political obstructions, and other issues have been a huge setback to the overall growth of this industry.
Like other sectors of the country, entrepreneurs in this sector also claim that power cut has been one of the major factors affecting sectoral growth. “Load shedding is a major obstacle for cement industries. Increasing hours of load shedding have been raising the production cost of the cement and causing hurdles in using full capacity,” Dr. Tara Prasad Pokharel, managing director of Agni Cement Industries, said. He further informed that power shortage has been compelling them to use generators and as a result forcing them to raise the price of each sack of cement by 25 rupees.
Basically, there are two kinds of cement industries in Nepal. The first type of cement industry produces clinker, raw material for cement production, on its own, while the second type of industry imports clinker and grinds it into cement. Out of the 42 cement industries, 15 produce clinker on their own while the remaining 27 import clinker. They import clinker because clinker production is very costly.
Apart from the relatively cheaper prices ofthe Indian cement sold in local market, Nepali cement brands have been equally facing hardship in terms of quality disparity between local and the Indian cement brands. Increasing number of cement factories has escalated competition among them, Raju Shrestha, brand manager of Maruti Cement said. While mentioning that quality cement products have been prevailing in the market, he complained of unhealthy business practices among local entrepreneurs as a factor restricting the sector’s growth.
Cement self-sufficiency: reality or dream?
Investors claim that the industry can deliver national needs, if the government provides full support and addresses its needs. They accuse the government of actively discriminating the local cement industry by levying VAT and other taxes on them while exempting imported cements of all these taxes. This, they claim, make their produce costlier than imported cements. Due to cheaper cost, especially large projects prefer imported cements. Entrepreneurs claim that the cement industry’s growth could be ensured if the government stops exempting custom duty and other taxes on imported cements.
Similarly, clinker industries believe that the government should increase customs duty on clinker imports and reduce taxes on local clinker industries to become self-sufficient in clinker production and by extension to ensure the growth of the whole cement industry. The budget of this fiscal year 2012-15 has increased the cost of import of cement as well as clinker. Import of cement which was initially Rs. 3,750 has now increased to Rs. 4050. Similarly, the cost of imported clinker has been raised from Rs. 2200 to 2400.
Another factor that has been affecting the growth of this sector, like other sectors, is load shedding. Due to power cut, presently cement industries use generators in the manufacturing process. This has been pushing cement prices higher. With adequate power supply in place, this additional cost could be stripped off.