Final Report Cement Industry Pakistan

TABLE OF CONTENT CHAPTER 1 INTRODUCTION TO THE INDUSTRY
TYPES OF CEMENT PRODUCED WORLDWIDE TYPES OF CEMENT AVAILABLE IN INTERNATIONAL MARKET TYPES OF CEMENT PRODUCED IN PAKISTAN LIST OF CEMENT MANUFACTURED IN PAKISTAN AND GLOBALLY LIST OF CEMENT COMPANIES SITUATED IN PAKISTAN CEMENT FIRMS IN PAKISTAN CEMENT PRODUCTION IN INDUSTRY MARKET SHARE OF THE FIRMS IN CEMENT INDUSTRY
4 8
8 8 9 11 12 14 17 19
CHAPTER 2 INDUSTRY DIMENSION AND STATISTICS

GEOGRAPHICAL LOCATION OF CEMENT INDUSTRY TOTAL PRODUCTION IN PAKISTAN CEMENT INDUSTRY TOTAL EMPLOYMENT TOTAL EXPORT BY PAKISTAN CEMENT INDUSTRY TOTAL IMPORTS PAKISTAN TRADE STATISTICS OF CEMENT INDUSTRY NEW PLANTS OPENED IN CEMENT INDUSTRY PAKISTAN PLANTS CLOSED IN CEMENT INDUSTRY PAKISTAN
20 20
20 22 23 24 28 28 29 30
CHAPTER 3 HISTORY OF THE CEMENT INDUSTRY

AT THE TIME OF INDEPENENCE AYUB KHANS ERA NATIONALIZATION IN BHUTTOS ERA DE-NATIONALIZATION IN ZIA-UL-HAQS ERA PRIVATIZATION IN NAWAZ SHARIFFS ERA GENERAL MUSHARRAFS ERA HISTORICAL DEVELOPMENT OF CEMENT INDUSTRY CHRONOLOGY
31 31
31 31 32 33 33 34 35 35
CHAPTER 4 PROFILES OF MAJOR PLAYERS

LUCKY CEMENT D.G.KHAN CEMENT BEST WAY CEMENT TRADE UNION OF CEMENT INDUSTRY
37 37
37 40 43 45
All PAKISTAN CEMENT MANUFACTURERS ASSOCIATION (APCMA)
45
CHAPTER 5 WTOS REGULATIONS AND ITS ECONOMIC IMPACT

REGULATIONS OF THE OTHER INTERNATIONAL TREATIES LAWS RELATED TO THE CEMENT INDUSTRY ECONOMIC IMPACT OF WTO ON CEMENT INDUSTRY PAKISTAN ECONOMIC IMPACT OF WTO ON CEMENT INDUSTRY IN OTHER COUNTRIES
48 48
50 50 51 53
CHAPTER 6 INCENTIVES
INCENTIVES OFFERED TO CEMENT INDUSTRY IN PAKISTAN INCENTIVES OFFERED TO CEMENT INDUSTRY PAKISTAN IN PAST INCENTIVES ASKED BY CEMENT INDUSTRY PAKISTAN BENEFITS PROVIDED BY CEMENT INDUSTRY TO OVERALL SOCIETY INCENTIVES OFFERED TO CEMENT INDUSTRY IN OTHER COUNTRIES
54 54
54 54 55 56 57
CHAPTER 7 PRODUCTION PROCESS

MATERIALS AND ENERGY PRODUCTION PROCESS OF CEMENT
58 58
58 60
CHAPTER 8 PRICING AND COSTING

PRICE LIST OF PRODUCTS IN CEMENT INDUSTRY PAKISTAN CEMENT PRODUCTION COST CLASSIFICATION DETERMINANTS OF FIXED AND VARIABLE COSTS PROPOSED PRICING MODEL COST OF PRODUCTION {C(x)}
61 61
61 63 64 65 66
CHAPTER 9 KEY ISSUES AND THEIR SOLUTIONS

KEY ISSUES IN THE ECONOMY THAT IMPACT CEMENT INDUSTRY IMPACT OF POLITICAL PARTIES ON THE CEMENT INDUSTRY KEY HURDLES IN MARKETING PROPOSED SOLUTION AVAILABILITY OF FINANCE TRADE ISSUES KEY HUMAN RESOURCE ISSUES IN CEMENT INDUSTRY
67 67
67 68 68 69 69 70 71
CHAPTER 10 HUMAN RESOURCE REQUIREMENTS AND KEY ISSUES

HUMAN RESOURCE REQUIREMENTS JOB TITLE, DESCRIPTION AND SPECIFICATION TRAINING INSTITUTE THAT PROVIDES TECHNICAL/ MANGERIAL HUMANRESOURCE
72 72
72 74 76
CHAPTER 11 PORTERS SIX FORCES MODEL

INTERNAL RIVALRY BETWEEN EXISTING PLAYERS BARGAINING POWER OF SUPPLIERS BARGAINING POWER OF BUYERS THREAT OF NEW ENTRANTS THREAT OF SUBSTITUTES GOVERNMENT INTERVENTION
77 77
77 79 80 81 82 82
CHAPTER 12 CONTEXT ANALYSIS

DEFINING THE MARKET TREND ANALYSIS COMPETITION ANALYSIS COMPETITOR STRATEGIES INDUSTRIAL ANALYSIS INTERNAL ANALYSIS SWOT-I MATRIX OPPORTUNITIES THREATS STRATEGIC PLAN
84 84
84 85 89 91 91 93 95 95 95 96
OTHER STRATEGIES CONCLUSION ANNEXURE 1 ANNEXURE 2 ANNEXURE 3 ANNEXURE 4 ANNEXURE 5 ANNEXURE 6 ANNEXURE 7 ANNEXURE 8 BIBLIOGRAPHY
3
96 98 99 101 105 112 114 117 118 123 127
TABLE OF FIGURE
Figure 1: OPC ......................................................................................................................................................... 9 Figure 2: Slag Cement .......................................................................................................................................... 10 Figure 3: SRPC ...................................................................................................................................................... 10 Figure 4: White Cement ....................................................................................................................................... 10 Figure 5 ................................................................................................................................................................ 12 Figure 6: Askari Cement Plant .............................................................................................................................. 14 Figure 7: D.G. Khan Cement Plant ........................................................................................................................ 14 Figure 8: Lucky Cement Plant ............................................................................................................................... 14 Figure 9: Maple Leaf Cement Plant ...................................................................................................................... 14 Figure 10: Pioneer Cement ................................................................................................................................... 15 Figure 11: Attock Cement .................................................................................................................................... 15 Figure 12: Kohat Cement Company ...................................................................................................................... 15 Figure 13: Fauji Cement Company ..................................................................................................................... 15 Figure 14: Dandot Cement ................................................................................................................................... 15 Figure 15: Bestway Cement ................................................................................................................................. 16 Figure 16: market share of cement in Pakistan .................................................................................................... 19 Figure 17 .............................................................................................................................................................. 23 Figure 18 .............................................................................................................................................................. 31 Figure 19: Plant sites of Lucky Cement ................................................................................................................. 38 Figure 20 .............................................................................................................................................................. 40 Figure 21 .............................................................................................................................................................. 43 Figure 22 .............................................................................................................................................................. 45 Figure 23 .............................................................................................................................................................. 56 Figure 24 .............................................................................................................................................................. 61 Figure 25: Cement industry Cost classification ..................................................................................................... 63 Figure 26 .............................................................................................................................................................. 72 Figure 27 .............................................................................................................................................................. 84 Figure 28 .............................................................................................................................................................. 87 Figure 29 .............................................................................................................................................................. 89
TABLE OF TABLES
Table 1: Cement produced in Pakistan and globally ............................................................................................. 11 Table 2: Firms in cement industry in Pakistan ...................................................................................................... 13 Table 3: Different types of Cement produced by different firms in Pakistan ........................................................ 17 Table 4: Production of cement in Pakistan in last 4 years .................................................................................... 18 Table 5: Geographical location of cement industry .............................................................................................. 20 Table 6: total production in Pakistan Cement industry ........................................................................................ 23 Table 7: total employment in Pakistan Cement industry...................................................................................... 23 Table 8: Export of cement by Pakistan ................................................................................................................. 24 Table 9: Expected export cement demand ........................................................................................................... 25 Table 10: cement exports .................................................................................................................................... 26 Table 11: cement exports in 2007-08 ................................................................................................................... 27 Table 12: cement exports in 2008-09 ................................................................................................................... 27 Table 13: imports & exports analysis ................................................................................................................... 28 Table 14: Pakistan Trade statistics of cement industry......................................................................................... 28 Table 15: NEW PLANTS OPENED IN CEMENT INDUSTRY PAKISTAN ...................................................................... 29 Table 16: Evolution of cement industry in Pakistan ............................................................................................. 29 Table 17: Historical development of cement industry .......................................................................................... 35 Table 18: chronology of Cement Industry ............................................................................................................ 36 Table 19 ............................................................................................................................................................... 37 Table 20: head office and principal offices of Lucky Cement ................................................................................ 37 Table 21: key financial ratios of Lucky Cement..................................................................................................... 39 Table 22: export and local sales of Lucky Cement ................................................................................................ 39 Table 23: location of head office and principal office of D.G.khan Cement .......................................................... 41 Table 24: income statement of D.G.khan Cement ................................................................................................ 42 Table 25: balance sheet of D.G.khan Cement ....................................................................................................... 42 Table 26: location of head offices and regional offices of Bestway Cement ......................................................... 43 Table 27: key data of Bestway Cement Company, 2001-08 .................................................................................. 44 Table 28: location of head office and other office of APCMA ............................................................................... 45 Table 29: average cement price (yearly) .............................................................................................................. 62
Table 30: firms selling price, 2009 ....................................................................................................................... 62 Table 31: selling price of products in cement industry, 2009 ................................................................................ 62 Table 32: Determinants of fixed and variable costs of a cement industry ............................................................ 64 Table 33: average cement manufacturers cost .................................................................................................... 65 Table 34: job descriptions of cement industry ..................................................................................................... 74 Table 35: Market shares of cement firms ............................................................................................................. 79 Table 36: SWOT i Matrix ...................................................................................................................................... 95
TABLE OF EQUATIONS
Equation 1: cost of production for cement industry ............................................................................................. 66 Equation 2: Pricing Model for a cement industry ................................................................................................. 66
CHAPTER 1 INTRODUCTION TO THE INDUSTRY
TYPES OF CEMENT PRODUCED WORLDWIDE

Cements that are used for construction are divided into two main categories based on cement properties, hydraulic or non-hydraulic. Although only certain types of cement are commonly utilized today, there are several different types of cement that can be created. Various types of cement are possible by blending different proportions of gypsum, clinker, and other additives together.
Non-Hydraulic Cement
Non-hydraulic cement is cement which cannot harden while in contact with water, as compared to hydraulic cement which can. When non-hydraulic cement is utilized in construction, it must be kept dry so that it will hold the structure. Due to the difficulties related with waiting long periods for drying, non-hydraulic cement is rarely used in current market.
Hydraulic Cement
Hydraulic cements are cements that have the ability to set and harden after being combined with water. Hydraulic cement is made mainly from limestone, certain clay minerals, and gypsum, which are burned together in a high temperature. Hydraulic cement is the main cement utilized in modern day construction.
TYPES OF CEMENT AVAILABLE IN INTERNATIONAL MARKET

1. Portland cement 2. Portland cement blend 3. Portland Blast furnace Cement 4. Portland Fly ash Cement 5. Portland Pozzolan Cement 6. Portland Silica Fume cement 7. Masonry Cement 8. Expansive Cement 8
9. White blended cement 10. Colored cement 11. Very finely ground cement 12. Pozzolan-lime cement 13. Slag-lime cement 14. Super sulfated cements 15. Calcium aluminate cements 16. Calcium sulfoaluminate cements 17. Natural Cements 18. Geopolymer cements 19. Sulphate resistance cement
TYPES OF CEMENT PRODUCED IN PAKISTAN

Cement industry is indeed a highly important segment of industrial sector that plays a vital role in the socio-economic development. Since cement is a specialized product, requiring sophisticated infrastructure and production location. Mostly of the cement companies in Pakistan are located near mountainous regions that are rich in clay, iron and mineral capacity. Cement industries in Pakistan are currently operating at their maximum capacity due to the boom in commercial and industrial construction within Pakistan. Although a large number of cement varieties are produced in different countries of the world, Pakistan has been producing following types of cement. 1. Ordinary Portland cement 2. 3. 4. Portland Blast Furnace Slag Cement Sulphate Resisting Cement White Cement
1. Portland cement
It is the most popular type of cement, formerly known as Ordinary Portland Cement (OPC), CEM I. It is the cement that has been most commonly used throughout the world in building works.
Figure 1: OPC
2. Portland blast furnace slag cement

The Slag Cement of the Portland Blast Furnace is a type of cement that is hydraulic and is manufactured in a blast furnace. The manufacture of Portland Blast Furnace Slag Cement requires 75% less energy than that for the production of the Portland cement. The low cost of production of Portland Blast Furnace Slag Cement makes it cheaper than Portland cement. It is for this reason that in recent years, the sales of Portland Blast Furnace Slag Cement have increased.
Figure 2: Slag Cement
3. Sulphate Resistance
SRPC is a special type of CEM I cement. However, it is not the only sulphateresisting cement available; various factory-made composite cements are also sulphate-resisting. SRC is specially used in sea and coastal areas as it offers greater resistance to chemical attack from sulphate and dissolved salts and alkalies present in sea and saline waters.
Figure 3: SRPC
4. White Cement
White Portland cement is a unique kind of Portland cement. It is different from ordinary Portland cement. It is of white color, instead of a dull grey one. White cement is frequently chosen by architects for use in white, off-white or coloured concretes that will be exposed, inside or outside buildings, to the public's gaze.
Figure 4: White Cement
10
LIST
OF
CEMENT
MANUFACTURED
IN
PAKISTAN
AND
GLOBALLY
The table below describes the types of cement manufactured in Pakistan and Worldwide:
Cement
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Portland cement Portland cement blends Portland Blast furnace Cement Portland Fly ash Cement Portland Pozzolan Cement Portland Silica Fume cement Masonry Cement Expansive Cement White blended cement Colored cement Very finely ground cement Rapid Hardening Portland Cements Pozzolan-lime cement Slag-lime cement Super sulfated cements. Calcium aluminate cements Calcium sulfoaluminate cements "Natural" Cements Geopolymer cements Sulphate resistance cement
Manufactured Pakistan
in Manufactured Globally
Table 1: Cement produced in Pakistan and globally
11
LIST OF CEMENT COMPANIES SITUATED IN PAKISTAN
Figure 5 The industry comprises of 29 firms (19 units in the north and 10 units in the south), with the production capacity of 44.09 million tons. The norths with production capacity of 35.18 million tons (80 percent) while the south with production capacity of 8.89 million tons (20 percent), compete for the domestic market of over 19 million tons. There are four foreign companies, three armed forces companies and 16 private companies listed in the stock exchanges. The industry is divided into two broad regions, the northern region and the southern region.
The table below shows the companys included in the Cement Industry of Pakistan:
12
S. no 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 8 29
Company Northern Zone Askari Cement Ltd Bestway Cement-I Cherat Cement* Dandot Cement Limited* Dewan Cement Limited* D.G. Khan Cement (KK)* D.G. Khan Cement-II * Fauji Cement Company* Flying Cement Limited* Fecto Cement* Gharibwal Cement Ltd* Kohat Cement Company Limited* Lucky Cement (Karachi)* Maple Leaf Cement Mustehkam Cement* Pakistan Cement Pioneer Cement* Bestway Cement Chakwal-II Askari Cement Ltd. (Nazimpur) Southern Zone A.C. Rohri Cement Limited Al-Abbas Cement Limited* Attock Cement* Dadabhoy Cement Limited* Javedan Cement Limited* Pakistan Slag Cement Limited Thatta Cement Limited* Zeal Pak Cement Limited Lucky Cement (pezu)* Bestway Cement (Chakwal)
Table 2: Firms in cement industry in Pakistan * Companies listed with KSE
13
CEMENT FIRMS IN PAKISTAN

Askari Cement
Askari cement has two plants, one in Wah and the other in Nizampur which has been installed by Army Welfare Trust. The main product is ordinary Portland cement which is supplied in polypropylene as well as in paper bags of 50kg each. Total Capacity of both lines is 4000 tonnes per day.
Figure 6: Askari Cement Plant
D.G. Khan Cement

D.G. Khan Cement Company Limited (DGKCC) is one of the largest cementmanufacturing units in Pakistan with a production capacity of 5,500 tons clinker per day. It has a countrywide distribution network. Its main products are ordinary Portland cement and sulphate resistance cement.
Figure 7: D.G. Khan Cement Plant
Lucky Cement
Lucky Cement has been successful in establishing its brand in several export markets including Middle East, India, Sri Lanka and East and South African countries. It has a daily production capacity of 4,200 tons per day. Its main products are Ordinary Portland cement (OPC), Sulphate resistant cement and Slag cement.
Figure 8: Lucky Cement Plant
Maple Leaf Cement

Maple Leaf produces Ordinary Portland Cement (OPC), white cement and sulphate resistance cement. It is the largest producer of White Cement in the country with the market share of 80% in the production of White Cement.
Figure 9: Maple Leaf Cement Plant
14
Pioneer Cement
The Company's factory is located at Khushab. Its major products are
Ordinary Portland Cement Sulphate Resistant Cement

Figure 10: Pioneer Cement
Attock Cement
Main business of the Company is Manufacturing and sales of cement. Its main products are ordinary Portland cement, sulphate resistance cement and Portland blast furnace slag cement.
Figure 11: Attock Cement
Kohat Cement Company Limited

It is engaged in manufacturing of Grey (OPC) and White Cements. The plant is located in Kohat about 60 kilometers from Peshawar.
Figure 12: Kohat Cement Company
Fauji Cement Company

The Headquarter of Fauji Cement Company is located in Islamabad; it operates a cement plant at District Attock in the province of Punjab. Its main product is ordinary Portland cement.
Figure 13: Fauji Cement Company
Dandot Cement Limited

The Plant is situated at P D Khan, District Jhelum, in the province of Punjab, in northern Pakistan. It is a superior dry process plant. They produce Ordinary Portland Cement.
Figure 14: Dandot Cement
15
Bestway Cement
Bestway Cement Limited is a part of the renowned Bestway Group of UK. In response to the Government of Pakistan call for non-resident Pakistanis to Invest in Pakistan, Bestway Group invested in cement sector in the shape of Bestway Cement Limited. It has two production plants, one is in Hattar, Haripur in NWFP and the second plant is in chakwal. The Groups cement manufacturing capacity is set to exceed 6.0 million tonnes per annum, making Bestway the second largest cement producer in the country. It manufactures Ordinary Portland Cement, Sulphate Resistant Cement and Low Alkali Ordinary Portland Cement.
Figure 15: Bestway Cement
16
CEMENT PRODUCTION IN INDUSTRY

S. no Company Northern Zone Askari Cement Ltd Askari Cement Ltd. Nizampur Bestway Cement Bestway Cement- chakwal Cherat Cement Dandot Cement Limited Dewan Cement Limited D.G. Khan Cement D.G. Khan Cement KK Fauji Cement Company Flying Cement Limited Fecto Cement Gharibwal Cement Ltd Kohat Cement Company Limited Lucky Cement (Karachi) Maple Leaf Cement Mustehkam Cement Lafarge Pakistan Cement Pioneer Cement Southern Zone A.C. Rohri Cement Limited Al-Abbas Cement Limited Attock Cement Dadabhoy Cement Limited Javedan Cement Limited Pakistan Slag Cement Limited Thatta Cement Limited Zeal Pak Cement Limited Lucky Cement (pezu) Pakland cement limited Types of Cement Produced OPC B.F Slag 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 SR White
Table 3: Different types of Cement produced by different firms in Pakistan
17
The bar chart below shows the production of cement in Pakistan in last 4 years. Cement tons) 18.22 24.22 23.59 44.09 Production (Million
Year 2006 2007 2008 2009
Table 4: Production of cement in Pakistan in last 4 years
Chart 1: Production of cement in Pakistan in last 4 years
18
MARKET SHARE OF THE FIRMS IN CEMENT INDUSTRY

The market share of the cement companys in Pakistan is as follows:
Figure 16: market share of cement in Pakistan
Cement Company Fauji cement Maple leaf Askari cement DG cement Bestway cement Lucky cement Others
Market Share (%)

6 7 11 13 12 16 35
Chart 2: market shares of firms in cement industry
19
CHAPTER 2 INDUSTRY DIMENSION AND STATISTICS
GEOGRAPHICAL LOCATION OF CEMENT INDUSTRY

LOCATION Karachi Islamabad Hyderabad Sukkar Chakwal Lasbela Lahore Kohat Dadu khushab Pezu Attock D.G.Khan Haripur Nowshera Wah Thatta Total NO.OF COMPANIES 3 2 1 1 4 1 1 1 2 2 1 1 1 4 2 1 1 29
Table 5: Geographical location of cement industry
20
Below is the geographical location of firms present in Pakistan cement industry
Chart 3: Geographical locations of firms in cement industry
21
TOTAL PRODUCTION IN PAKISTAN CEMENT INDUSTRY

Year Cement Production
(million tons) 1991 (June) 1992 (June) 1993 (June) 1994 (June) 1995 (June) 1996 (June) 1997 (June) 1998 (June) 1999 (June) 2000 (June) 2001 (June) 2002 (June) 2003 (June) 2004 (June) 2005 (June) 2006 (June) 2007 (June) 2008(June) 2009 (June) 7.649 8.115 8.348 8.158 8.159 9.458 9.539 9.29 9.546 9.969 9.876 9.988 11.41 13.344 17.112 19.512 36.841 35.01 44.09 After 2002-3, most of the cement manufacturers expanded their operations, and increased production. This sector has invested about $1.5 billion in capacity expansion over the last six years. The operating capacity of cement in 1991 was 8 million tons, which increased to become 18 million tons by 2005-06 and by end of 2007 rose to above 37 million tones. Recently, the industry comprises of 29 firms with the production capacity of 44.09 million tons. The north has production capacity of 35.18 million tons while the south has production capacity of 8.89 million tons. The northern region contributes 80% to the annual cement sales while the unit based in the southern region contributes 20% to the annual cement sales.
22
Table 6: total production in Pakistan Cement industry
TOTAL EMPLOYMENT
Figure 17
The company in cement sector takes their people as one of the most valuable assets, they view their human resource as the competitive advantage therefore they ensure that they employ only those people who are self-motivated and professionally qualified. They also take into consideration that their business goal are realized through such diverse work force providing equal opportunities without any discrimination on the basis of cast, creed, gender and religion.
Table 7: total employment in Pakistan Cement industry
Cement industry is also serving the nation by providing job opportunities and presently more than 150,000 persons are employed directly or indirectly by the industry. 23
TOTAL EXPORT BY PAKISTAN CEMENT INDUSTRY

The industry had exported 7.716 million tons cement during the year 2007-08 and had earned $450 million. Cement exports during January 2009 went up by 30% to 0.81 million tons as compared to 0.623 million tons in January 2008. Pakistan is ranked 5th in the worlds cement exports. According to the Global cement report, China maintained first position, while Japan got second position. Third largest cement exporter in world is Thailand, followed by Turkey. Pakistan now at 5th position has left Germany behind which now stands at 6th position.
Table 8: Export of cement by Pakistan
The cement industry of Pakistan entered the export markets a few years back, and has established its reputation as a good quality product. In 2007, 130,000 tons cement was exported to India. In 2007, the exports to Afghanistan, UAE and Iraq touched 2.13 million tons. Sri Lanka has recently shown interest to import 30,000 tons cement from Pakistan every month. At present, the economies of major countries are facing recession, but Pakistans cement sector is still maintaining a healthy growth. Below is the estimated export demand to neighboring countries
24
Table 9: Expected export cement demand
Popular destinations for export of cement from Pakistan
Chart 4: popular destinations for export in cement industry
We are leading exporter of Ordinary Portland Cement, Sulphate Resistant Cement (SRC) and Slag Cement from Pakistan. Our popular export destinations are India, South Asia, Gulf region, Afghanistan, South Africa and many African countries. 25
Below is the chart of cement exports during HY08:
Table 10: cement exports
PERCENTAGE SHARE OF FIRMS IN EXPORT
Chart 5: percentage shares in exports market, 2008
26
EXPORT DISPATCHES
2007-2008 Months |----------Cement----------| Afghanistan July Aug Sept Oct Nov Total 221,028 265,620 257,354 192,774 257,598 1,194,374 11,316 37,557 47,363 96,236 India Other (Sea) 194,739 260,488 226,158 194,711 176,738 1,052,834 25,330 49,402 53,804 35,455 84,955 248,946 Clinker
Table 11: cement exports in 2007-08
2008-2009 Mon |----------Cement----------| Afghanistan July Aug Sep Oct Nov Total Growth-% 268,334 262,968 219,202 238,336 275,410 1,264,250 5.85% India 54,300 59,498 75,221 37,567 67,534 294,120 Other (Sea) 384,210 370,840 457,307 509,469 506,555 2,228,381 Clinker (Sea) 106,159 93,888 145,198 214,894 115,387 675,525 171.35% 813,002 787,194 896,928 1,000,266 964,886 4,462,275 72.13% Total
205.62% 111.66%
Table 12: cement exports in 2008-09
27
TOTAL IMPORTS
IMPORTS & EXPORTS ANALYSIS Cement Imports Nil Cement Exports The export may reach to $ 500 million increase during 2008. Because Afghanistan is Pakistans largest cement export market.
Table 13: imports & exports analysis
PAKISTAN TRADE STATISTICS OF CEMENT INDUSTRY

YEAR 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009(up to October) IMPORT Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil EXPORT(million tons) 0.990 0.100 0.101 0.104 0.107 0.430 1.160 1.565 1.505 2.453 2.689 7.716 11.00
Table 14: Pakistan Trade statistics of cement industry
28
NEW PLANTS OPENED IN CEMENT INDUSTRY PAKISTAN

In FY08, Pakistan cement industry brought in 5.84 million tons of new capacity of cement production taking the total cement capacity to 36.1 million tons. This includes:
Table 15: NEW PLANTS OPENED IN CEMENT INDUSTRY PAKISTAN
D.G.Khans new khairpur plant Maple leafs new productions line of 2.1 million tons each and some other additions of 1.8 million tons. Lucky cement with its two new lines of 1.26 million tons capacity of each. Fuji cement with its 2.1 million tons new line is expected to come online. The Chakwal Group, which acquired management control of Dandot Cement, is setting up another cement plant, Chakwal Cement
The figure below shows the change in the industries of the Cement sector till 1997
Table 16: Evolution of cement industry in Pakistan
29
PLANTS CLOSED IN CEMENT INDUSTRY PAKISTAN

The cement industry was not performing well in 90s and mid 90s. they had to bear huge losses because of overall low economic activity causes low demand of cement both from private and public sector. Costly furnance oil, increase in electricity price and imported craft paper was the main reason of poor cashflow of the cement sector. Due to massive losses number of units closed down because of their poor cashflow.
30
CHAPTER 3 HISTORY OF THE CEMENT INDUSTRY
AT THE TIME OF INDEPENENCE

The development of cement sector has made rapid strides, both in public and private sectors during last two decades. The history of cement industry in Pakistan dates back to 1921 when the first plant was established at Wah. Pakistan has come a long way since independence in 1947 when the country had inherited four cement plants having total installed capacity of 0.5 million tons, all of which were controlled from India. These units were located at Karachi, Rohri, Dandot and Wah. During the decade of 1948-58, the number of cement units increased to six.
Figure 18
AYUB KHANS ERA

During the Ayub era the economy started to grow and the construction activities underwent a boom. In 1956 Pakistan Industrial Development Corporation (PIDC) established two plants at Daudkel and Hyderabad and subsequently more plants were established in the private sector. However these expansions that took place in 195666 could not keep pace with the economic development and the country had to resort to imports of cement in 1976-77 and continued to do so till 1994-95.
31
Pakistan is fortunately rich in the deposits of limestone, clay and gypsum, which constitute basic raw materials for manufacturing of cement. In spite of having abundant raw materials and rising growth in demand of cement, only five cement factories were established during the initial thirty years of independence, with aggregate capacity of 3.2 million tones.
Among these units one was established in Hyderabad (Sind) in the public sector. It was called Zeal Pak and was set up in 1956. Another unit in the public sector was known as Maple Leaf which was established in the province of Punjab in the same year. Three units were set up during 1965-66 in the private sector. These were Javedan in Sind, Gharibwal and Mustehkam in the province of Punjab.
NATIONALIZATION IN BHUTTOS ERA

After nationalization of industries in early seventies, cement industry remained under the control of government till late seventies. During this period, growth in demand of cement was around 7 per cent per annum, whereas new capacities were not coming up to match with the demand. Consequently, Pakistan had to import cement for a long period, which reached to a level of 1.3 million tones in the year 1981-82. Import of cement continued from 1971 to 1985. Its scarcity also hampered the development process in the country.
During the period of Zulfiqar Ali Bhutto all the industrial units, including cement industry, were nationalized, therefore, no new unit was set up during 1971-77. The industry was nationalized in 1972 and the State Cement Corporation of Pakistan (SCCP) was established following the Economic Reforms Order, 1972, and was given the responsibility to manage the production of cement in the country.
As a result of nationalization, a total of 10 cement units with an installed capacity of 2.8 million tones per annum were transferred to the SCCP. Effective price control was also vested with the SCCP and for a long time the industry operated under a regime of strict regulation and price control. While the cement industry was working under state control, the SCCP established five new units with an installed capacity of 1.8 million tones per annum.
32
DE-NATIONALIZATION IN ZIA-UL-HAQS ERA

During the period of General Zia-ul-Haq, 1977-88, denationalization of industrial units boosted the investments. Housing and construction industries picked up and the demand for cement increased. Thus, the number of cement units increased from 9 to 23 and finally 24. After the change in government in 1977, private sector was allowed to establish cement plants. As a result, seven projects having a capacity of 2.54 million tons were installed in private sector and simultaneously, State Cement Corporation of Pakistan also put four projects having a capacity of 1.6 million tons, enhancing the total capacity of the country to over 8.5 million tons by the end of 1990.
PRIVATIZATION IN NAWAZ SHARIFFS ERA

During the regime of Nawaz Sharif the industry went through major transformation. The industry was privatized in 1990 which led to setting up of new plants. The government embarked upon an ambitious privatization programme and eight units were privatized. The units working under the SCCP control are old and inefficient using 'wet process' whereas the units established in the private sector are new, efficient and use 'dry process'. With the privatization of cement units after 1990, The SCCP lost its control over the supply of cement and controlled less than 25% of the total installed capacity in the country which was shrinking with the establishment of more plants in the private sector and expansion in the privatized units.
At that time there was an acute shortage of cement in the Northern areas of the country. In the first half of nineties, Pakistan had to import cement which led to the increase in cement prices exorbitantly making cement companies to earn very high profits. This tempted some of the existing units like Cherat, Pakland, Dadabhoy, Ac Wah, D.G. Khan, Maple Leaf and Kohat to go for expansion in their plants.
Simultaneously, 5 more new projects with aggregated capacity of 5 million tons came on the stream. As such, production capacity went up to 16 million tons by the end of 2000. The five new units in the private sector were Pioneer (Punjab) 1994, Lucky (NWFP) 1996, Askari (NWFP) 1997, Fauji (Punjab) 1997 and Best Way (NWFP) 1998. Privatization and effective price decontrol in 33
1991-92 heralded a new era in which the industry has reached a level where surplus production after meeting local demand is expected in 1997.
GENERAL MUSHARRAFS ERA

In the year 1999-2000 the cement industry survived from its earlier crisis of excess production and low demand and resultant under cutting and unhealthy competition. It came out of red because of joint strategy to tailor production to the market requirements. This helped the industry to achieve a price level which not only covered the cost of production but also left some margin of profit to the manufacturers. This agreed sale price was also accepted by the consumers.
Chart 6: Growth in no. of units
The industry is again on the war-path against its own members. The dispute arose in Sept. 2000 when the government levied sales tax on the cement industry. Immediately after, however, the government allowed 4 cement units established in the NWFP and Baluchistan extension from payment of sales tax till June 2001.
The remaining 19 cement plants operating in Punjab and Sind who were bound to pay sale tax amounting to about Rs. 20 per bag, could not compete with the four privileged one. These four units Best Way, AWT Cement, Lucky Cement were allowed sales tax exemption under an SR0 issued between 1992 and 96 allowing tax exemption to all industrial units set up in NWFP & Baluchistan. The present government allowed this exemption to only cement industries located in these areas till June 2001.
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HISTORICAL DEVELOPMENT OF CEMENT INDUSTRY

1947(Bad era): country. 1948-58: 1958-68(Boom era/Ayub era): 1971-77(Nationalization/Bhutto era): 1977-78(Denationalization): The number of cement units increased to six The cement units increased from 6-9 No new units were setup Cement units increased from 9 to 23 24 units Only four units were producing grey cement in the
90s(Dark era /Cement sector had to bear massive losses): Current scenario:
29 players are operating
Table 17: Historical development of cement industry
CHRONOLOGY
YEARS 1921 1947 1948-58 1956 1956 1961 1965-66 1976-85 1972 1972 1981-82 1977-88 1977 EVENTS The first cement plant established at Wah. Pakistan inherited four cement plants having total installed capacity of 0.5 million tons The number of cement units increased to six PIDC established two plants at Daudkel and Hyderabad Zeal Pak and Maple Leaf were established Javedan Cement factory was installed as vallika cement Javedan , Gharibwal and Mustehkam cement were set up in the private sector Started importing cement * Industry was nationalized and no new units were set up State Cement Corporation of Pakistan (SCCP) was Established Imports reached 1.3 million tons Denationalization of industrial units boosted the investments. Number of cement units increased from 9 to 24
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1981 1990 1992 1992-96 1994-95 1996 1999-00 2000 2000 2005-06 2006-07 2006-07 2007 2008 2008 2008 2009 2009 2009
Attock Cement factory was established industry was privatized and eight units were privatized Production increased by 96% to 7.2 million tons than the previous years tax exemption to all industrial units set up in NWFP & Balochistan till June 2001 Pakistan continued to import till 1995 to meet the acute shortage of cement in the northern areas, which led to increase in prices Production increased by 21% approx than the previous year crisis of excess production and low demand production capacity went up to 16 million tons government levied sales tax on the cement industry two new units were installed The installed capacity increased by 44% to 35 million tons from 24.3 million tons Exports increased by 41.5% to 2.13 million ton from 1.505 million tons Cement sales registered a growth of 31% to 17.53 million tons versus 13.25 million tons in 2006 Highest ever dispatches in the history of Cement industry of Pakistan with the growth if 25% same time last year from 1,823,496 to 2,821,216 metric tons Custom duty over import of coal exempted. Import duty over pet coke reduced to 5% Excise duty increased from Rs. 750 to Rs. 900 in April which later was decreased to Rs 700 per ton in July. General sales tax increased from 15% to 16% Pakistan is ranked fifth in worlds cement export
Table 18: chronology of Cement Industry
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CHAPTER 4 PROFILES OF MAJOR PLAYERS
There are three major players in the Cement industry of Pakistan Lucky Cement, D.G. Khan Cement and best way cement. According to the market share of 2008 lucky Cement occupy 18%, D.G. Khan 13% and Best way Cement 12%
LUCKY CEMENT
Table 19
YEAR OF FORMATION
Lucky Cement Limited is a Pakistan- based company engaged in manufacturing and marketing of cement. It first factory was established in 1996 in Pezu, district of North West Frontier Province (N.W.F.P). According to Wikipedia, it is the largest cement producer in Pakistan and is the only company with presence in both zones (north and south)
LOCATION OF HEAD OFFICE AND PRINCIPAL OFFICES

Offices Karachi (Head office) Islamabad (Marketing Head Office) Lahore Quetta Peshawar Multan D.I.Khan
Table 20: head office and principal offices of Lucky Cement
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PRODUCTS OFFERED
The Company offers three types of cement: 1. Ordinary Portland cement 2. Sulphate resistant cement 3. Slag cement. These products are offered under various brand names, including Lucky Cement (Regular), Lucky Star, Lucky Gold and Lucky Sulphate Resistant Cement (SRC). Ordinary Portland cement is available in darker shade, as well as in light shades with different brand names. Slag cement is also available for specific user requirements.
LOCATION OF MAJOR FACTORIES

There are two factories of lucky cement Plant 1: Pezu, District Lakki Marwat in North West Frontier Province (NWFP), Plant 2: Main Highway in Karachi Sindh.
Figure 19: Plant sites of Lucky Cement
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KEY FINANCIAL RATIOS

Below is the key financial ratios of lucky cement limited, 2008-09
Table 21: key financial ratios of Lucky Cement
IMPACT ON INDUSTRY
The strength of lucky cement is its largest capacity and better coverage because of its two plants. Lucky Cement Limited is the largest manufacturer and exporter of cement in Pakistan. The company has the highest export market share of 30% Jul08 Jun 09 Jul07 - Jun08
Table 22: export and local sales of Lucky Cement
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Chart 7: lucky cement exports 2009
D.G.KHAN CEMENT
Figure 20
YEAR OF FORMATION
DGKCC was established under the State Cement Corporation of Pakistan Limited (SCCP) in 1978. DGKCC started its commercial production in April 1986 with 2000 tons per day, clinker based on dry process technology. Plant & Machinery was supplied by Industries of Japan. Nishat Group acquired DGKCC in 1992 under the privatization initiative of the government.
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Head office Lawrence road, Lahore
Regional Offices
sales
D.G.Khan Karachi Rawalpindi Multan
Table 23: location of head office and principal office of D.G.khan Cement
PRODUCTS OFFERED
The Company's main activities are to manufacture and distribute: Ordinary Portland Sulphate resistant cement.
These products are marketed through two different brands, DG brand & Elephant brand Ordinary Portland Cement and DG brand Sulphate Resistant Cement.

There are two factories of D.G.Khan Cement Company FACTORY 1: khofli sattai, Distt. Dera ghazi khan FACTORY 2: choa saidan shah road, khairpur, tehsil kallar kahar, distt. Chakwal
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FINANCIAL RATIOS
Below is the income statement of D.G.khan Company, 2004-08
Table 24: income statement of D.G.khan Cement
Below is the balance sheet of D.G.Khan Company, 2004-08
Table 25: balance sheet of D.G.khan Cement
IMPACT ON INDUSTRY
D.G.Khan has a high impact over cement industry as it has maximum market at southern Punjab and northern Sind. It is the second largest manufacturing Company of cement in Pakistan. D.G.Khan cement holds second position in cement industry after lucky cement; this is because the company has second largest installed capacity in the industry. Its the first one to explore exports to the Indian market through sea.
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BEST WAY CEMENT
Figure 21
YEAR OF FORMATION
Bestway Cement Limited is part of the Bestway Group of the United Kingdom. In response to successive governments efforts to attract foreign investment in the country Bestway Group has invested heavily in Pakistan. In 1994 Bestway Group started work on the cement plant in the under developed area of Hattar, Haripur in the North West Frontier Province, Pakistan. Its initial investment was of US$120 million.

Head office Regional Offices Islamabad( head office) Rawalpindi( marketing head office) Lahore Peshawar
Table 26: location of head offices and regional offices of Bestway Cement
PRODUCTS OFFERED
The Company's principal activity is to produce and sell cement in Pakistan. Its main products are Ordinary Portland cement Sulphate Resistant Cement.

Factory 1: Bestway Cement Hattar, Haripur Factory 2: Chakwal unit 1&2, village Tatral Factory 3: Mustehkam Cement, Haripur 43
IMPACT ON INDUSTRY
Bestway Company has a positive impact on cement industry as it has latest technologies for its quality assurance and most of its product is exported to Afghanistan. Apart from the usual quality control equipment, Bestways laboratories are equipped with technologies such as X-ray Fluorescent Analyzers and Diffractometers which were introduced in Pakistan for the first time by Bestway.
FINANCIAL RATIOS
Below is the key data of Bestway Cement Company, 2001-08
Table 27: key data of Bestway Cement Company, 2001-08
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TRADE UNION OF CEMENT INDUSTRY

All PAKISTAN CEMENT MANUFACTURERS ASSOCIATION (APCMA) YEAR OF FORMATION
APCMA is the collective voice of all the cement manufacturers of Pakistan. It is registered under Trade Organization Ordinance 2007. It was established on 14th of September 1992 under the Companies Ordinance 1984.
Figure 22
LOCATION OF HEAD OFFICE AND PRINCIPAL OFFICES OF APCMA

Offices Lahore (Head office) Karachi
Table 28: location of head office and other office of APCMA
KEY RESPONSIBILITIES OF APCMA

1. To create an understanding amongst the private sector cement manufacturers of Pakistan for the following purpose : a. To increase the production of cement b. To improve the quality of cement produced and to increase exports c. To avoid undercutting in the sales price d. To create healthy circumstances for production and sales of cement. 2. To protect, safeguard and promote the interest of its members 3. To help coordination and ensuring co-operation amongst its members to attain primary objectives. 4. To identify and strengthen industrys role in the economic development of the country 5. To help and solve all the problems either faced by the cement manufacturers as a whole or by individual cement manufacturers 6. Provides up-to-date statistical data/information to the industry and other agencies 45
7. To make representations to the government or other authorities for and on the behalf of cement manufacturers in general and the trade in particular 8. To convene when necessary conferences and seminars at such times and such places as may be determined for the promotion of cement industry in Pakistan. 9. Focuses infrastructural problems (Rail, Coal, Power, etc) and suggests suitable measures for their solution. 10. Interacts for Industry's problems with the Government and co-ordinates various activities with other bodies.
REGULAR EVENTS OF APCMA

Annual elections The elections for the management and President are held every year in which 80% participation of the members is mandatory. Annual General Meeting The General Meeting of the association is held annually at the head office of APCMA in Karachi. The meeting is presided by the Chairman APCMA and upcoming issues , yearly progress, The Announcement of final result of election of members of executive committee and office bearers and Approval of annual audited accounts of APCMA.
FAILURE OF APCMA
Price war was started in 2006 which was resulted due to market saturation by major cement plant expansion. DGKK was the first player to destabilize the established industry, set prices in order to transfer its excess production capacity On 21st Feb, 2007 the govt. has given one week deadline to APCMA to bring down the unjustified cement prices or face action including ban on export. The government of Pakistan held a detailed inquiry and ordered All-Pakistan Cement Manufacturers Association (APCMA) to increase production and reduce the price of cement to its original level. APCMA Expected the yearly sale to grow by five per cent however total dispatches had increased by an insufficient two per cent in 2008-09. Competition authorities in Pakistan fined about $77 million on 20 cement companies found guilty of operating as a cartel and raising prices under mutual agreement.
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ACHIEVEMENTS OF APCMA
Took measures to bring prices to normal levels on in 2006 Suspend export of cement from the 6th April 2006 to 30th April 2006, which resulted in the availability of additional 200,000 tons of cement in the domestic market Increased the capacity utilization from 86% to 92 % of total installed capacity, which brought an additional 91,000 tons of cement every month. Reduction in excise duty by Rs 10 per bag which enabled stability in cement prices this year (2009)
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CHAPTER 5 WTOS REGULATIONS AND ITS ECONOMIC IMPACT
Pakistan was one of the WTOs members when it was established in 1995. There is a considerable impact of WTO on all sectors of Pakistan's economy. Pakistans domestic industry faces problems of increased imports and unfair practices under the global trade regime. Pakistan through national legislation has come up with anti-dumping laws against dumping, countervailing duties laws against subsidies and safeguard action laws against surge of imports in order to protect its domestic industry.
1. DUMPING
A product is considered dumped if the export price is less than the price charged for the like product in the exporting country. Thus, one identifies dumping simply by comparing prices in two markets. Anti-Dumping Duties Ordinance 2000 Pakistan through Anti-dumping Ordinance, 2000 has repealed the Import of Goods Ordinance, 1983 and has given effect to WTO provisions relating to imposition of anti-dumping duties in order to offset dumping. This Ordinance has also provided a framework for investigation and determination of dumping and injury in respect of goods imported into Pakistan. The rules made by Pakistan in this regard are Anti-Dumping Duties Rules, 2001. Agreement on Anti-Dumping The Agreement on Anti-dumping elaborates the provisions of Article VI of GATT 1994. The GATT provides the right to the contracting parties to apply anti-dumping measures i.e. measures against imports of a product at an export price below its normal value, if such dumped imports caused injury to a domestic industry in the territory of the import contracting party.
2. SUBSIDY
Subsidy contains three basic elements: (i) A financial contribution (ii) By a government or any public body within territory of a WTO Member 48
(iii) Which confers a benefit? All three of these elements must be satisfied in order for a subsidy to exist Countervailing Duties Ordinances, 2000 The basic aim of these provisions is either to prohibit or to restrain the use of subsidies by a WTO Member that affects the interests of other Members. However, the rules permit the importing country to take remedial measures, which could take the form of countervailing duties on subsidized imports. Pakistan through Countervailing Duties Ordinance, 2000 has given effect to WTO provisions relating to imposition of countervailing duties to offset such subsidies. This has been done by providing a framework for investigation and determination of such subsidies and injury in respect of goods imported into Pakistan. The rules made by Pakistan in this regard are Countervailing Duties Rules, 2002. Agreement on Subsidies and Countervailing measures The Uruguay Round Agreement on Subsidies and Countervailing Measures (SCM) lays down rules on the subsidies for industrial products and on countervailing duties to counteract the effects of subsidies. Subsidies are divided into three categories; prohibited subsidies, actionable subsidies and non-actionable subsidies. Export subsidies and those contingents on the use of domestic as opposed to imported products are categorized as prohibited subsidies. However, least developed countries (LDCs) and developing countries with per capita income of less than $ 1,000 are exempt from this restriction and may use prohibited subsidies. Non-actionable subsidies include those for research and development, for backward regions and for environmental regions. All the remaining subsidies are actionable subsidies.
3. SAFEGUARD ACTIONS
Safeguard measures are defined as "emergency" actions with respect to increased imports of particular products, where such imports have caused or threaten to cause serious injury to the importing Member's domestic industry. Safeguard Measures Ordinance of 2002 Pakistan through Safeguard Measures Ordinance, 2002 has given effect to the provisions of Article XIX of the General Agreement on Tariffs and Trade, 1994, and to the WTO Agreement on Safeguards for the imposition of safeguard measures. This has been done by providing a framework for investigation and determination of serious injury or threat of serious injury caused by products
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imported into Pakistan. The rules made by Pakistan in this regard are Safeguard Measures Rules, 2003. Agreement on Safeguards Whereas the agreements on anti-dumping and SCM provide remedies for domestic producers if they are hurt by unfair imports, the Agreement on Safeguards provides remedies for domestic producers injured by fairly traded imports. It allows the use of temporary protective measures but sets rules to guard against the abuse of such measures.
REGULATIONS OF THE OTHER INTERNATIONAL TREATIES

There was increasing pressure from international governing bodies, such as the ILO and WTO and other organizations like the International Confederation of Free Trade Unions (ICFTU), with regard to the issues of labour rights, the role of unions and labour standards involving the Therefore, it is crucial for both the international community and the Pakistanis people to seek a more informed perspective on the current situation and the future engagement of the Pakistanis economy into the global economic system, as well as Pakistans future economic and political reforms.
LAWS RELATED TO THE CEMENT INDUSTRY

S.R.O. 386 (I)/94.- In exercise of powers conferred by section 230 and 506 of the Companies Ordinance, 1984 (XLVII of 1984), read with the Finance Division Notification No. S.R.O. 698 (I)/86, dated the 2nd July, 1986, the Corporate Law Authority is pleased to make the following Order, the same having been previously published as required by sub-section (I) of section 506 of the said Ordinance, namely:-
CEMENT INDUSTRY ORDER 1994

A. Short title, application and commencement (1) This Order may be called the Cement Industry, Order 1994. (2) This Order shall apply to every company engaged in production, processing and manufacturing of clinker or cement or both. (3) It shall come into force on such date as the Corporate Law Authority may, by 50
Notification in the official Gazette, appoint.
B. Maintenance of records (1) Every company shall, in respect of each financial year commencing on or after the commencement of this Order, keep cost accounting records, containing inter-alia the particulars specified in the Schedule to this Order.
(2) The records referred to in sub-paragraph (1) shall be kept in such a way as to make it possible to calculate from the particulars entered therein the cost of production and cost of sales of each of the products referred to in sub-paragraph (2) of paragraph (1) separately, during a financial year.
(3) Where a company is manufacturing any other product in addition to clinker or cement or both, the particulars relating to the utilization of materials, labor and other items of cost in so far as they are applicable to such other product shall not be included in the cost of clinker or cement or both.
(4) It shall be the duty of every person referred to in sub-section (7) of section 230 of the Companies Ordinance, 1984 (XLVII of 1984), to comply with the provisions of subparagraph (1), (2) and (3) in the same manner as they are liable to maintain financial accounts required under section 233 of the said Ordinance.
C. Penalty If a company contravenes any of the provisions of this Order, such company and every officer thereof referred to in sub-paragraph (4) of paragraph 2 shall be punishable under sub-section (7) of section 230 of the Companies Ordinance (XLVII of 1984), 1984.
ECONOMIC IMPACT OF WTO ON CEMENT INDUSTRY PAKISTAN

Pakistan follow must follow the role of WTO. Before WTO agreement there was a serious disconnect between the needs of the industry and the availability of special skills suited to the needs of the industry. There was no data available so that the industry could match the needs and the skills available in the domestic manpower market. It was also pointed out that the existing 51
number of technical and vocational centers had been languishing for the past several years. These were usually run and managed by the Provincial the Governments while the provincial the Governments do not. Industries that have recently developed and have become capable of competing with foreign firms are more likely to meet the challenge of increased Changing patterns of HRM in Pakistan trade and undergo restructuring to consolidate their businesses and become more competitive.
The demand of Pakistani cement is expected to continue to grow at the rate of 20 per cent for about Four years to come. It may then follow traditional growth rate of seven per cent per year. Announcement of major dams will dramatically increase this demand. Deregulation after accession of Pakistan to WTO is expected to open the window of competition from cheaper markets. There may be no tariff after this deregulation on import of cement allowing its entry into Pakistan from cheaper market at lower rate. Cement from cheaper markets may also block Pakistans export of cement to its neighboring countries.
WTO regime will have no negative impact on the operation of the cement sector. On the other hand it is felt that WTO might offer opportunities for exporting cement/clinker to the neighboring countries.
Pakistan is a signatory to the WTO and cannot keep its eyes shut to the realities. What Pakistan needs to do is to make the best of a given situation and try and develop a strategy to get maximum benefit from globalization and WTO. The local industry now cannot be protected with the use of quotas or very high tariffs. The government needs to build a very strong network of Anti-dumping and countervailing duties to protect the local industry against the onslaught of unfair foreign competition. The developing countries including Pakistan face problems in hiring law firms to advice on WTO related issues, which is a constraining factor in seeking relief from Dispute Settlement Body (DSU). This underscores the need to train local lawyers with WTO expertise. Our survival lies in enhancing credibility through adoption of international quality standards, but Pakistan has a long way to go in obtaining certification of ISOs and other
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standards. A proper policy is required in this direction which should involve both public and private quarters to address this issue. Special policies are needed for sectors which are working under deletion program such as automobiles and engineering goods so that they could become efficient in shortest possible time.
ECONOMIC IMPACT OF WTO ON CEMENT INDUSTRY IN OTHER COUNTRIES

CHINA
China has benefited from joining WTO others have suffered due to the loss of domestic industries. In China, foreign investment is playing an increasingly important role in shaping up the Chinese market. China is the world's second largest cement exporter, accounting for about 17% of total global cement trade. WTO accession should not have much of an impact on the cement industry, as tariff on cement and clinker dropped only from 12 percent to 10 percent in 2001 and is not due to fall any further. In sum, China's experience reveals a success story because domestic protection has not stood at high levels before joining WTO.
INDIA
As India accepts the WTO norms of free trade, the cement industry's survival, similar to the whole industrial sector, in the changing scenario grossly depend on the competitiveness of the Indian product in comparison with major cement producing countries in the world like Korea, Indonesia, Japan and others. Domestically, the growth of cement plants at various stages in the Indian cement industry is always affected by the government policies. The policies of control on cement for a long time followed by consecutive partial and total decontrol have contributed to the gradual opening up of the market for cement producers. Countries that have already reduced their tariff rates before joining WTO, more likely will benefit from entry, though, countries with high tariff rates that need to liberalize their domestic markets to imports suddenly will more likely tackle with potential losses.
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CHAPTER 6 INCENTIVES
INCENTIVES OFFERED TO CEMENT INDUSTRY IN PAKISTAN

Government has charged Rs.750 excise duty on per ton, plus 15 percent sales tax on cement. It is proposed that the government should reduce excise duty by Rs 450 per ton in the forthcoming budget while the remaining half should be eliminated altogether along with the special excise duty. Besides this, sales tax should not be charged on excise duty paid value. The government has reduced customs duty on Pet Coke to 5% Customs duty on imported coal has been exempted. The share for development projects have increased. The Budget for Annual Development Plan has been improved.
INCENTIVES OFFERED TO CEMENT INDUSTRY PAKISTAN IN PAST

During the period of General Zia-ul-Haq, 1977-88, denationalization of industrial units boosted the investments. Housing and construction industries picked up and the demand for cement increased. Thus, the number of cement units increased from 9 to 23. Excise duty on cement was reduced by 25 percent to reduce the cost of construction. The government has followed the policy of deregulation and decontrol under which the price of cement was determined by market forces In order to promote growth in the cement sector, the Government of Pakistan has allowed duty-free import of plant and machinery not manufactured locally. The ban on export was lifted as the completion of new cement plants reduced prices down to Rs300 and below. The government's proposal to shift export of cement from Karachi to Gwadar to give business to Gwadar. Cement exporters are facing heavy demurrages at Karachi ports and therefore shifted 20 percent workload of Port Qasim and Karachi Port to Gwadar Port.
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INCENTIVES ASKED BY CEMENT INDUSTRY PAKISTAN

Although things are improving but much is needed to be done to sustain the strength of the sector in the days to come. With the full conversion of cement sector to the coal firing system, Pakistan is saving about $70 million on the import of furnace oil per annum. This is resulting in a low price per bag of cement and is encouraging domestic demand for cement. The annual demand for cement in the neighboring countries, which are not the producers of the cement, always offer good prospects for export of cement from Pakistan, provided the government agrees to allow moderate relaxation in taxes. Besides current export trend to Afghanistan, there is sufficient scope of export in the countries like Bangladesh, Sri Lanka, Singapore, Egypt, Myanmar, Vietnam, Malaysia and Nepal. All these countries are not the producers of the cement and meet their cement needs through imports. Another factor to keep this sector alive is to use cement in the construction of the huge national project of Gwadar port in Baluchistan, Karachi-Makran coastal highways. The use of cement in the huge network of irrigation canals and new dam projects can also contribute in bridging the gap between demand and supply in the cement sector. Government of Pakistan should provide subsidies to the cement industry for the purchase of electricity. Government of Pakistan should provide infrastructure to the cement industry to setup new factories. Proper workshops that are held under the supervision of experts so that the practical knowledge is properly imparted to the labor. The cement industry can use reward and bonuses to increase the motivational and performance level of the labor force. Foreign and local experts should be hired to do the research and development. Plants that have completed their working life should be phased out and new plants should be imported or setup up locally. Government of Pakistan should provide funds to the cement industry so that they can import new plants. Better machinery and management should be used to become cost efficient and competitive. 55
BENEFITS PROVIDED BY CEMENT INDUSTRY TO OVERALL SOCIETY
Figure 23
The capacity of cement plants increased to 33 million tons at the end of year 2006 as compared to 21 million tons in January 2006, showing an increase of about 57 per cent. On the other hand, the countrys domestic demand is around 22 million tons. Demand is expected to remain strong with the continuation of major infrastructural projects. Pakistan ranked 5th cement exporter in World. The cement industry of Pakistan has established its reputation as a good quality product. Despite an excess supply of 11 million tons in 2008, it is estimated that the price would increase in domestic as well in regional markets that may surely boost the profitability and give relief to the industry on its new investment. Cement industry has been playing significant role for the uplift of our economy by contributing billions of rupees into the national exchequer in the shape of sales tax, excise duty and income tax. The Company has been earning precious foreign exchange for the country through export proceeds. The Company also brought foreign investment of US $110 million in the year 2008. Cement has made a significant contribution for the export of cement and earning of precious foreign exchange for the country which was needed badly. And cement industry have 35% share in the overall export of cement from the country
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INCENTIVES OFFERED TO CEMENT INDUSTRY IN OTHER COUNTRIES

India is offering tax incentives for setting up new cement capacities which offers an advantage to the new players by allowing them to retain the sales tax collected from consumers. New entrepreneurs have chance to enter the field. This is why the Indian cement industry is the most fragmented in the world. It is a peculiar situation where none of the players have a market share of over 12 per cent making it impossible to maintain a price discipline. Government of India has increased allocation for national highways, Jawaharlal Nehru National Urban Renewal Mission and urban housing which have boosted confidence among the cement industry. To encourage local production of cement, the Nigerian government has approved a series of measures. a. It has banned the importation of bagged cement and made restrictions on the issuance of cement import licenses b. A levy has been introduced on 500 naira (US$3.37) per tons on all cement imports to assist in the development of local capacity through the establishment of a cement training institute in Nigeria. c. Reinstatement of tariff incentive for imported spare parts and machinery to cement manufacturers. d. Two to three years duty-free period of importation for machinery, equipment and spare parts to cover the plant building phase and the first two years of commencement of production. e. f. g. Tax deductible incentives on investments in system conversion to coal firing Removal of all forms of restrictions on the importation of gypsum. Reduction of import duty on gypsum to a maximum of 5% until local production on commercial basis is achieved. Venezuela nationalized its cement industry in order to boost construction because the foreign companies exported cement while the Venezuelan market suffered from high prices and shortages. 57
CHAPTER 7 PRODUCTION PROCESS
MATERIALS AND ENERGY

The following raw material is required in the production process 1. Lime stone: This raw material is company owned and is extracted from the near by mountains. Limestone has the highest composition in the cement product. 75% to 80% of the cement constitutes of limestone 2. Clay: Clay is another natural resource. This raw material is also company owned. 15% to 20% of cement composition comprises of clay 3. Iron Ore: Iron Ore is the only resource that is bought from contractors. Iron Ore is added in small quantities and it helps to strengthen the cement. 4. Gypsum: Gypsum acts as a retarding agent. It slows down the hardening process which in turn gives the constructor enough time to use it which in turn gives the constructor enough time to use it. Again it is taken from nearest mountains. 5. Fuel: It is used mainly for power generation. Furnace oil is used mainly for power generation. Initially the companies was relying on WAPDA for power supply but now the companies have their own electricity generation plant that provides up to 50% of the total requirements. With the increase of furnace oil prices the companies are expected to move to adopt coal as a more cost efficient and environmentally friendly fuel for kiln firing. Today the management is exploring possibilities of alternative and cheaper fuel such as waste firing etc.
1. PORTLAND CEMENT
Two different processes, "dry" and "wet," are used in the manufacture of Portland cement in Pakistan. Rock is the main raw material in the production of cement and the first step after quarrying in both processes is the primary crushing. Mountains of rock are fed through crushers capable of handling pieces as large as an oil drum. The first crushing reduces the rock to a 58
maximum size of about 6 inches. The rock then goes to secondary crushers or hammer mills for reduction to about 3 inches or smaller. Wet process: In the wet process, the raw materials, properly proportioned, are then ground with water, thoroughly mixed and fed into the kiln in the form of a slurry" (containing enough water to make it fluid). Dry process: In the dry process, raw materials are ground, mixed, and fed to the kiln in a dry state. In other respects, the two processes are essentially alike. The raw material is heated to about 2,700 degrees F in huge cylindrical steel rotary kilns lined with special firebrick. Kilns are frequently as much as 12 feet in diameter large enough to accommodate an automobile and longer in many cases than the height of a 40-story building. Kilns are mounted with the axis inclined slightly from the horizontal. The finely ground raw material or the slurry is fed into the higher end. At the lower end is a roaring blast of flame, produced by precisely controlled burning of powdered coal, oil or gas under forced draft. As the material moves through the kiln, certain elements are driven off in the form of gases. The remaining elements unite to form a new substance with new physical and chemical characteristics. The new substance, called clinker, is formed in pieces about the size of marbles. Clinker is discharged red-hot from the lower end of the kiln and generally is brought down to handling temperature in various types of coolers to lower the clinker to handling temperatures. Cooled clinker is combined with gypsum and ground into a fine gray powder. The clinker is ground so fine that nearly all of it passes through a No. 200 mesh (75 micron) sieve. This fine gray powder is Portland cement.
2. WHITE PORTLAND CEMENT

In addition to the eight types of Portland cement, a number of special purpose hydraulic cements are manufactured. Among these is white Portland cement which is produced in Pakistan. White Portland cement is identical to gray Portland cement except in color. During the manufacturing process, manufacturers select raw materials that contain only negligible amounts of iron and magnesium oxides, the substances that give gray cement its color. White cement is used whenever architectural considerations specify white or colored concrete or mortar. 59
PRODUCTION PROCESS OF CEMENT
Chart 8: flowchart of cement manufacturing process
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CHAPTER 8 PRICING AND COSTING
After having a detailed analysis about the regulatory requirements and incentives provided to the industry, it is essential to understand the basic cost structure of a cement industry. It explains the cost classification of a cement industry, determinants of fixed and variable costs and average price range of different types of cement produced in Pakistan. Finally a pricing model has been proposed which might be applied by any cement industry.
PRICE LIST OF PRODUCTS IN CEMENT INDUSTRY PAKISTAN

In April, 2009 a bag of cement was being sold at Rs 310 on average at retail level, which was decreased to Rs. 270 per bag due to a large stock of cement bags left with the cement manufacturers. APCMA has reduced prices to dispose of its huge stock, which left with them, as the India has recently cancelled an order of over 25,000 tons of cement.
Figure 24
While the main reason of this reduction is that there are reports that Government has slashed its development budget by Rs 118 billion which shows that construction work in future will go downward further. The cement prices might further decline due to market circumstances.
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AVERAGE CEMENT PRICE In 2005 In 2006 In 2007 In 2008 In 2009 Rs.335 5okg/bag Rs. 430 50kg/bag. Rs. 315 50kg/bag. Rs. 220 50kg/bag. Rs. 270 50 kg/bag
Table 29: average cement price (yearly)
After the decline in cement rate different companies are selling their brands at Rs.270 per 50kg bag.
FIRMS SELLING PRICE, 2009 Maple leaf Cement DGK Cement Lucky cement Rs.270 50 kg/bag Rs. 270 50 kg/bag Rs. 270 50 kg/bag
Table 30: firms selling price, 2009
PRODUCT LINE Ordinary Portland Cement White Cement Slag Cement Sulphate resistant Cement
50KG PER BAG (Rs) 270 350 250 315
Table 31: selling price of products in cement industry, 2009
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CEMENT PRODUCTION COST CLASSIFICATION
Fixed Costs Total Cost of Production Direct Cost Variable Costs Indirect Cost
Figure 25: Cement industry Cost classification
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DETERMINANTS OF FIXED AND VARIABLE COSTS

The following table shows the determinants of fixed and variable costs for a cement industry
TYPE OF COST
VARIABLE COSTS
DETERMINANTS
DIRECT COST Purchase of raw and packing material Fuel and power cost Store and spares (including repair and maintenance) Purchased equipment cost Purchases equipment installed Instrumentation installed conveyer belt installed Electrical installed Building (including services) Land Yard improvement Services facilities INDIRECT COST Engineering and supervision Construction expense Legal expense Contractor fee Contingency
FIXED COSTS
Salaries and wages Depreciation Selling and administrative expense Financial expense Miscellaneous expense
Table 32: Determinants of fixed and variable costs of a cement industry
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Following are the average cement manufacturers costs with respective percentage components. In 2008 Average industry cost of cement bag/50Kg = Rs.193
Source: CCP Internal Research
Table 33: average cement manufacturers cost
PROPOSED PRICING MODEL

The pricing model we have formulated has the following cost components: COST OF PRODUCTION (C)
Its total fixed cost and total variable cost for producing cement. (Base price) EXCISE DUTY (ED)
Tax charged on the Cement manufacturers for the cement produced within the country. The federal excise duty is Rs 900 per ton SALES TAX (GST)
Tax based on the cost of the cement purchased and collected directly from the manufacturers. The general sales tax is 16% on the duty-paid price of cement per ton in Pakistan. AVERAGE FREIGHT AND UNLOADING (FR)
Transportation of cement to the end-user, the freight and transport cost up to Rs 500 per ton or Rs 15-25 per 50-kg bag depending upon the distance involved WHOLESALER /DEALERS COMMISSION (C)
Producers sell 50-kg, paper-sack bags of cement to wholesale dealers for cash payment in advance. In this way, manufacturers can recover their working capital investment and, in the process, pass off the title and risk to dealers who bear all costs related to transport, insurance, in-carriage
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damage, if any, and stock spoilage due to lack of use. Dealers margins range around Rs 175-200 per ton or Rs 4.50-Rs 5.00 per 50 kg bag. Retailer margin is a relatively low Rs 2-3 per 50 kg bag. MANUFACTURERS PROFIT (MP)
The overall demand-supply matrix allows some cement manufacturers earn 10 per cent return on equity, which ensures sufficient profitability for them to continue to manufacture and sell cement.
COST OF PRODUCTION {C(x)}

C(x) =V.C(x) +F.C(x)
Equation 1: cost of production for cement industry
Where V.C(x) is the variable cost of cement per ton F.C(x) is the fixed cost for of cement per ton
The model thus formulated is as follows: P(x) = C(x) +ED +GST +FR +C +MP
Equation 2: Pricing Model for a cement industry
Where, P= Price of Cement per ton C(x) = Cost of production of cement per ton or the base price ED=Excise Duty per ton GST= General sales tax FR= Freight charges per ton C= Wholesaler/dealers commission MP= Manufacturers Profit
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CHAPTER 9 KEY ISSUES AND THEIR SOLUTIONS
KEY ISSUES IN THE ECONOMY THAT IMPACT CEMENT INDUSTRY

The Pakistani currency has been depreciating. This has caused a greater problem to the industries who have taken loans in the foreign exchange currencies. According to the federal bureau of statistics, Pakistan hit record inflation during 2008. The SBP, in order to control the inflation, tightened the monetary policies by increasing the interest rates. The increase in the interest rates made the industries pay more interest against the long term loans that they had borrowed at lower interest rates. The investors in the cement sector are well aware of the importance of technology in the present day and they realize the returns they can get using advance technologies. The cement factories such as D.G. cement, lucky cement and may other factories is using latest technologies. However, the old cement industries such as maple leaf are now shifting towards the new technology as well. Main component of the cost is fuel. Pakistan's cement industry has converted their plants to coal considering it to be the cheapest fuel, but its price in international markets has gone up by more than 300 percent in the last one year, which directly relate increasing the cost of Production. Certain factors that affect the growth of cement industry are as follows: Slow construction activities in the country badly upsets domestic sale of cement. Higher GDP growth has positive impact on cement demand. Reconstruction work in result of earthquake boosts construction material demand Four large Dams (Bhasha Daimer Dam, Munda Dam, Akhori Dam and Neelum Jhelum) are announced by government. Construction of these dams will generate demand of 3.7 million tons.
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PROPOSED SOLUTION
Federal Excise Duty and GST over Cement industry should be reduced. Its being treated as a luxury item for the purpose of taxes and duties. The local cement industry faces high fuel costs. The government has given incentives in order to facilitate their conversion to coal, which is widely available in the country. High Freight charges should be reduced as its affecting negatively the domestic demand of cement. Government of Pakistan should stress on factors that increase the GDP Government of Pakistan should do its upmost to control the instability in the country. Government of Pakistan should provide infrastructure to the cement industry to setup new factories Government of Pakistan should provide incentives to the cement industry so that they can import new plants.
IMPACT OF POLITICAL PARTIES ON THE CEMENT INDUSTRY

Low domestic cement demand in the country is due to the political uncertainty. The political stability in Pakistan is at unrest. Due to this, the cement factories are facing problems regarding the investments they have made. The stock market has shown sheer down fall since the political unrest. Although the market share index showed improvement after the resignation of Pervez Musharraf on 18th of August. But still the failure to restore the judges on time and many other issues has made the share index to slope downward once again.
KEY HURDLES IN MARKETING

Since cement is a specialized product, requiring sophisticated infrastructure and production location. So, most of the cement industries in Pakistan are located near/within mountainous regions that are rich in clay, iron and mineral capacity. Structure of Cement industry in Pakistan is as such that there is not much substitutability to buyers. Which shows that the Cross elasticity of demand is negligible. 68
Consumers face a tough decision with regards to prefer which brand over which because of the similar pricing of cement industry. A price war was witnessed which ended up with no conqueror. Similar apprehensions exist for the future. Any hurdle in the growth of cement demand may force the sector into the price war. Yet, we expect cement manufacturers to act wise and learn lesson from the history. Any mistake, similar to the one made in the last decade, will again drive the sector into the era where all are losers with no winner.
Containers are used for transportation purposes and even trains when cement is required urgently from north to south or vice versa. As for exports, ships are launched from ports but the cost of transportation faced by firms is so high that at maximum they can reach till South Africa for exports and the price gets out of budget when the ship reaches USA
Not much of innovation is possible in this industry. Intense rivalry can make it difficult for smaller firms to survive. Firms cannot compromise much on the prices. It is hardly possible for any firm to get an edge due to price.
PROPOSED SOLUTION
Measures should be taken to insure that the customers are not exploited by the cement industry. Cement industry should enter into long term contracts with cement transporters to gain discounts and seek reduced transport prices. Cement industry can enter in to contracts with international logistics transportation companies such as Mersk to export cement to USA in huge volumes at low cost When the big companies are forming an association, small manufactures should be also considered as otherwise they would go out of business.
AVAILABILITY OF FINANCE
Cement plant is a highly capital intensive business which requires a lot of investment which only a Giant company or Group can afford. In old times, when cement plants were established, comparatively less investment was required. There were also banks, bankers equity etc that
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provided loans easily. Now only self financing exists which a bank provides and they sees the feasibility of the project. A new plant should be established after wide market research in an industry where the capacity is already in surplus. This could be possible only if production cost is targeted. The old cement plants were not established keeping in mind the production cost. Nowadays about 70% cost constitutes the energy cost. If a company focuses on lowering the energy cost, making efficient use of technologically advanced machinery then the production cost would apparently be low. There is always a potential for such plants.
Types of loans provided to the industry Short term loans: Short term loans are obtained against the current assets of the company. When the company requires a short term loan it sends a request for the loan to the bank. The banks or other financiers put down their facilities in a term sheet against which they can provide the loan to the company. Long term Loans: The long term loans are obtained against the fixed assets of the company. These assets must be insured by the insurance company. This is the basic requirement for the bank. When the company requires a huge amount of loan it contacts to the bank for the loan. The bank than forms a group with other banks in order to arrange the amount. A finance agreement is signed by both the parties and the loan is given under the agreed terms and conditions.
TRADE ISSUES
Import policy regarding construction equipment is not reorganized. Trade policy does not facilitate contractors. Regulatory framework discourages international contractors/consultants. Shortage of Electricity or power break down is a major constraint as the frequent restoring to load shedding is causing an adverse effect on the trade and industry. Duties on import of Fuel Strict procedures for registration of contractors by Pakistan Engineering Council (PEC). Audit should play a positive role. 70
PROPOSED SOLUTIONS
Custom duty over the import of pet coke should be withdrawn as its negatively affects the cement industry.
KEY HUMAN RESOURCE ISSUES IN CEMENT INDUSTRY

Shortage of qualified and skilled manpower at all levels is an important issue. Another issue is lack of training facilities for the development of required human resources. Human resource policies of clients, contractors and consultants need improvement. Fully skilled and semi skilled workers in search of opportunities have gone to the Middle East and other foreign countries. Some contractors and consultants lack professional management. Inadequate research and development. Limit use of IT in industry.
PROPOSED SOLUTIONS
Availability of qualified and skilled manpower should be given priority by government The training facilities should be developed at fast track. Foreign and local experts should be hired to do the research and development. Proper workshops that are held under the supervision of experts so that the practical knowledge is properly imparted to the labor. The cement industry can use reward and bonuses to increase the motivational and performance level of the labor force. Better machinery and management should be used to become cost efficient and become competitive.
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CHAPTER 10 HUMAN RESOURCE REQUIREMENTS and Key Issues

Human resource is a critical element of any industry. It is one major cost as well as an asset for an industry and therefore the human resource requirements must be studied for a complete analysis of any industry. This chapter therefore explains the human resource requirements of the cement industry of Pakistan.
HUMAN RESOURCE REQUIREMENTS

The human resource requirements of the cement industry are generalized and explained below. They include all the basic factors required to build an efficient human resource and to look after the welfare of the employees. Better performance can improve companys reputation and can lead the company up to a certain benchmark. The requirements include:
Figure 26
RECRUITMENT AND SELECTION

The recruitment is done on the basis of experience and qualification and having extra skills and abilities in order to work in the cement industry. There are two sources to recruit employees: 1. Internal search 2. External search The source of recruitment depends on the nature of the job, whether it is for the upper management or for the lower staff.
1. Internal Search The very first preferred source of recruitment by the company is the internal search. The policy of the company is to promote from within when ever possible. When ever there is any vacancy in the company, the upper management posts the notice for the position open on the bulletin board in the factory or the office. The internal search depends on the nature of the job, i.e. what sort 72
of qualification and skills are required for the job available. Incase, no candidate from with in the company is eligible for the job according to the job specifications, or the companys management wishes to look for diversified and variety of talented candidates, then the company moves towards the external search.
2. External Search The company does recruitment for the out side candidate through advertisements in the news papers. This is the most frequently used channel by the company. How ever the company can also advertise on the internet as well on their companys website And selection is done on two bases: Through source basically from the upper management and political party pressure On merit basis
TRAINING AND DEVELOPMENT

Basically training of employees is done after the recruitment and selection process. Training is provided to those who are newly employed and old employees who need training in order to learn the newly introduced technology, to cope with the increasing trends of the cement industry worldwide. In Maple leaf, management training takes place regularly at the head cities from where the technical operations are controlled. The head cities include Lahore and Islamabad. Training is also conducted abroad mostly in Denmark since most of the industries machinery has been imported from Denmark. Technical collaboration for skill development programs are also being conducted in Germany, Sweden, Turkey and Egypt.
PERFORMANCE APPRAISAL
The performance appraisal is done according to the employees work progress and providing their best output in achieving the companys desired goals. The appraisal criterion that is being used by the company is the feed back from the supervisor about the subordinate.
EMPLOYEE BENEFITS AND COMPENSATIONS

The human resource management plans for employees salaries and compensation and providing them incentives on the basis of their performance. The general employee salary and benefit package includes 73
Basic Salary Bonuses House allowance Free medical benefits Subsidized utility bills Education allowance for employee children
JOB TITLE, DESCRIPTION AND SPECIFICATION

JOB TITLES
Project Manager Civil Engineer Sales Executive Business Development Executive Marketing Executive Accountant Project Engineer Quantity Surveyor Safety Officer Site Engineer Front Officer Executive Executive Assistant Purchase officer Sales Engineer
JOB DESCRIPTIONS
Skilled Labor Electrical Engineers Mechanical (Killens Crushers, Packers) Civil Engineers Operators, Unskilled Labor Helpers Trolley Men Loaders
Table 34: job descriptions of cement industry
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KEY DUTIES OF SKILLED EMPLOYEES: Responsible for safety, health and environmental activities including implementation of policies and procedures to provide a safe work place. Responsible for manufacturing maintenance, product quality control, administrative and human resources. Responsible for assuring available staff is qualified Consults with the General Manager on variation to agreed policies and financial matters Responsible to assure reliable and safe equipment operation according to cement industry standards. Assures produced cement meets market requirements. Maintains good employee relationship. Initiates actions to improve profit performance. Prepares and reviews annual operating budget according to policy and under the guidance of the General Manager. Obeys company policy.
JOB SPECIFICATIONS
Required knowledge, skills and abilities: Knowledge of: Concrete tools, techniques, and practices Concrete and cement mixtures and their elementary properties. Concrete pipe installation. Ability to: Perform a broad range of supervisory responsibilities over others. Read simple plans, make measurements Understand and follow oral and written instructions in the English language (for skilled labor) Work in a variety of weather conditions with exposure to the outdoor elements. Move heavy objects (50 pounds or more) long distances (greater than 20 feet). Operate trucks and equipment in a skilful and safe manner. 75
Bend or stoop repeatedly or continually over time. Travel across rough, rocky, or uneven surfaces at construction sites. Additional Requirements: Individuals must be physically capable of operating the vehicles safely, possess a valid driver's license and have an acceptable driving record. Pre-employment drug testing is required ACCEPTABLE EXPERIENCE AND TRAINING: One year of experience as a skilled cement finisher in this work is required. Other combinations of experience and education that meet the minimum requirements may be substituted.
TRAINING
INSTITUTE
THAT
PROVIDES
TECHNICAL/
MANGERIAL HUMANRESOURCE
There is not any specific institute available for training of individuals in cement industry in Pakistan. Training is being conducted by particular firms usually provided to the skilled labor, designed to meet the objectives of the organization.
In its ongoing activities to provide effective services, firms are seeking to attract high caliber professionals to take up and achieve its objectives. This initiative is aimed at strengthen its presence to further enhance its effectiveness. Human Resources Department is responsible for various activities that include manpower planning, recruitment and selection, formulating, developing and implementing Human Resources Policies and procedures, managing employee benefits and compensation etc.
On the other hand Pakistan Institute of management (PIM) is an institute which is working under government and individuals can attend short managerial courses conducted by the institute. PIM is playing an important role in promoting the management training/education. It effectively covers very sharp and important courses related to different areas. It is part of ministry of industries and production. 76
CHAPTER 11 PORTERS SIX FORCES MODEL

After an extensive study of regulatory requirements, incentives, pricing, costing and issues of the industry, now we need to provide an analysis and formulate a strategic plan for the Cement industry. The first model for the analysis is the Porters six forces model which essentially includes six forces. These six forces include: Internal Rivalry Bargaining power of suppliers Bargaining power of buyers Threat of new entrants Threat of substitutes Government intervention
INTERNAL RIVALRY BETWEEN EXISTING PLAYERS

Concentration
The Rivalry exists on the basis of increased productivity. There is a strong competition among the local manufacturing firms including Lucky Cement, D.G.Khan Cement, Bestway Cement and Askari Cement. Local competition is so strong that there is no fear of international rivalry.
Fixed / Variable Cost

The cement rates are set by Government and All Pakistan Cement Manufacturing Association (APCMA). The cost of production includes 60% the cost of Energy sources. Coal, furnace oil and Gas are used as a source of Energy. Gas is obtained from gas lines and whereas Pakistan has huge Coal resource but still we import coal because our coal contains high percentage of sulphur. We have been using furnace oil as fuel earlier but due to increase in its prices we have started using coal as its substitute. Coal is used however because the pressure required for using gas to heat the kiln is not adequate. The factors which increases the cost for cement include the inflationary trends, increasing construction work in the country, the increase of oil prices in international 77
market and political circumstances of the country. Better machinery and management should be used to become cost efficient and competitive.
Differentiation
All manufacturers compete on the basis of quality. Inter firm competition is so intense that major players compete with each other on marginal product differentiation.
Capacity
Pakistan cement industry is expanding its capacity to get the proper advantage of strong demand of cement in different countries. Capacity of cement production varies from company to company. The capacity of cement production is 37 million tons last fiscal year. The production capacity of cement in 2009 is 44.09 million tons. This sector has invested about $1.5 billion in capacity expansion over the last six years. Cement production capacity in the north is 35.18 million tons (80 percent) while in the south it is only 8.89 million tons (20 percent). The cement manufacturers in 2007-08 added around eight million tons to the capacity.
Pricing Behavior
Firms cannot compromise much on the prices. It is hardly possible for anyone to get an edge due to price. The pricing behavior mostly depends upon the market trend. Pricing behavior changes with the change in the fuel prices and with political instability in the country. The cement price in our country keeps on changing. Recently, reduction has been done in cement prices. In April 2009, the 50 kg bag of cement was sold at Rs 310/- which has reduced to Rs 270/The change in cement price occur because the cement manufacturers wants to dispose the huge stock of cement left with them as India has recently cancelled an order of 25,000 tons. On the other hand there are reports that Government of Pakistan has cut the budget therefore there are chances that construction work will go down further and the cement price will be further reduced.
Market/ Company Growth

Housing sector is one of the major drivers of growth for the cement industry, it consume roughly 40% of cement demand. Lucky cement has production facilities in Pezu (Production capacity: 13,000 Tons clinker per day) as well as in Karachi (Production capacity: 8000 Tons clinker per day) it has the tendency to become the hub of cement production in Asia.
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Whereas D.G.khan has a production capacity of 5,500 ton clinker per day. It has a countrywide distribution network and its products are preferred due to the consistent quality. It is list on all the Stock Exchanges of Pakistan. Bestway Cement is a Company driven by quality consciousness and efficiency. At Bestway, quality is assured through systematic and effective adoption, implementation, monitoring and continuous enhancement of quality control systems using latest methods of analyses. Cement Company Lucky cement DG cement Bestway cement Market Share
16% 13% 12%
Table 35: Market shares of cement firms
Formation of cartels becomes a problem for small manufacturers as they are left alone in the market and their due share in the market is not respected. Not much of innovation is possible in this industry. Intense rivalry can make it difficult for smaller firms to survive.
BARGAINING POWER OF SUPPLIERS

Supplier Concentration
The cement supply chain is dominated by coal or fuel and power. The price of fuel is directly related to the cost of oil. The price is determined by international market and an individual company does not have the power to influence it. The Prices of both coal and power are determined by the government. To mitigate the high costs of power the cement players have set up captive power plants. Monopolistic control of these external cost elements result in high bargaining power with government. Coal is found in all the four provinces of Pakistan but because our coal contain high percentage of sulphur, our cement industry is not able to use local coal as a source of energy and therefore has to import coal from different countries at high prices like for example china. However the domestic coal is not of a very high quality but the processing and blending the local coal with the imported one can produce required heating content that is much cost-effective than the furnace oil. 79
According to the data of the All Pakistan Cement Manufacturing Association of mid-2007, the cost of cement production per tons by furnace oil was around Rs2, 083 whereas the cost of production per tons by coal was Rs8, 68, saving Rs1, 215 per tons. Similarly, the saving per bag was Rs60.75, which is a huge difference. Pakistan is fortunately rich in the deposits of limestone, clay and gypsum, which constitute basic raw materials for manufacturing of cement and the country can feed these material to existing cement plants for more than 100 years. This ensures both cheap and smooth supply of raw materials but proximity to raw materials supply is not a major competitive advantage. Iron Ore is the only resource that is bought from contractors. Iron Ore is added in small quantities and it helps to strengthen the cement.
Threat of forward integration

Since coal or fuel and power are supplied by the government there is minor threat of forward integration.
BARGAINING POWER OF BUYERS

Availability of Information
The cement industry has very low bargaining power of buyers as it is a government regulated industry. Cement rates are set by Government and APCMA. Buyers can choose cement on the base of marginal product differentiation e.g. high commission.
Switching Cost
Cost-cutting strategy is followed by almost all cement manufacturers. Though, some large manufacturers like Lucky Cement also follow the differentiation strategy, but only to some extent. The switching cost of buyer in cement industry is low because cement prices offered are almost same; the only thing which matters is the quality and durability of cement.
Price Sensitivity
Prices of cement vary due to geographical location however it effects very little price changes due to 20% freight cost in the total cost of cement manufacturing. Recently, Freight charges of 50 Kg bag of cement are between Rs 15 -25 (depending upon the distance). Containers are used for transportation purposes and even trains when cement is required urgently from north to south or 80
vice versa. As for exports ships are launched from ports but the cost of transportation faced by firms is so high that at maximum they can reach till South Africa for exports and the price gets out of budget when the ship reaches USA. Retail sales constitute about 80 percent of the total sales and the rest is institutional sales. The retail buyers dont have any bargaining power while the institutional buyers get a discount of 5 to 10 percent as they buy cement in bulk.
THREAT OF NEW ENTRANTS

Absolute Cost Advantage
The cost and exports may be affected due to weakness of the US dollar. Companies which can have a sustainable low cost position will have a competitive advantage. The major players in Pakistan do seem to have a similar cost position. The cost advantage in cement industry is critical. Since
pricing is similar so production capacity can provide a vague idea with regards to the market share of all the players.
Economies of Scale
The key barriers would be economies of scale which would favor the bigger players like lucky, D.G.Khan cement Company etc. Economies of scale are mostly achieved through maximum utilization of installed capacity of cement plants. While the firms did encourage a competition, the biggest problem of cement industry is the idle capacity of various players. As many cement players are not operating at there full capacity.
Brand Equity/Reputation
Lucky cement does have large brand equity since it is the largest cement manufacturing firm of the country. However, since the people are not price sensitive, they are brand loyal to that cement firm which provides them better quality.
High Capital Requirements

Entry barriers are not too high in the cement industry. The technology is also available but the major constraint is capital which a big player will have access to. Cement plant is a highly capital intensive business which requires a lot of investment which only a Giant company or Group can afford. 81
In old times, when cement plants were established, comparatively less investment was required. The loans were provided easily however now the bank provides the loan after they see the feasibility of the project. A new plant should be established after extensive market research in an industry where the capacity is already in surplus.
Strict Policies and Regulations

Due to higher interest rates and inflationary concerns are likely to make it disadvantageous for investors to enter the construction industry. Government has imposed high excise duty over cement. Government has imposed custom duty over import of petcoke. Reduction in the capital budget is expected in the coming year due to which the construction work will go down and there will be a decrease in cement demand.
THREAT OF SUBSTITUTES
Available Alternatives
There is no threat of direct substitutes for cement. However, bitumen in road and engineering plastic in building offer some element of competition
GOVERNMENT INTERVENTION
The government policies are in favor of cement industry. Due to government favorable policies the cement sector got the highest growth rate of 21.11% among all industries in Pakistan in the year 2006-07. The government is considering allowing further concessions and additional incentives for cement export, with a view to increase overall export volume. These measures will immensely help in promoting and protecting high investments made in cement sector in recent years. The Government is improving its Law & Order to Support Export. Pakistan has sought USD 17billion funding from international lenders for the construction of three dams by 2016 which will be needed to avert flood, drought and energy crisis. Construction of these large dams will generate demand of 3.7million tons of cement. Government should reduce the duties over import of petcoke. 82
APCMA is the trade union of cement industry in Pakistan. It is the collective voice of all the cement manufacturers of Pakistan. It is registered under Trade Organization Ordinance 2007. Its main responsibilities are To increase the production of cement. To improve the quality of cement produced and to increase exports. To avoid undercutting in the sales price. To create healthy circumstances for the production and sales of cement.
According to the budget policy of 2008-09 by the end of June 2011, the installed cement production capacity will touch to the level of 49.579 million tones. A specialized coal, clinker & cement terminal is planned to be setup in Port Qasim Karachi. The exercise duty will remain at preceding level.
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CHAPTER 12 CONTEXT ANALYSIS
The last and the most extensive analysis of the industry is the Context Analysis. This analysis includes all the issues and factors identified throughout the project. In the end, a strategic plan is proposed for the cement industry to be followed. Context analysis for the cement industry is done in the following steps: Defining the market Trend Analysis (PESTLE) Competition Analysis -Competition level -Competition forces -Competition strategies Opportunities and Threats Industrial Analysis -Strength and Weaknesses SWOT-i matrix Strategic Plan
DEFINING THE MARKET

The cement industry mainly provides the services of construction. These services include the following: House building Building roads Construction of Dams, Bridges etc
Figure 27
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TREND ANALYSIS
The trend analysis is done on the basis of all the factors influencing an industry which are not in the control of individual players. These include political, economic, social, technological, legal and environmental factors.
POLITICAL FACTORS
Political factors include Government regulations and define both formal and informal rules under which the firms operate. The rule and regulations that the cement industries follow are as follows:
Employment Laws
The labor policy issued by the Government of Pakistan lays down the limitation for the growth of trade unionism, the protection of workers' rights, the settlement of industrial disputes, and the right of workers' grievances. At present, the labor policy as approved in year 2002 is in force. The minimum wages for unskilled worker is Rs. 2,500. The minimum threshold of income for taxation of salaried individuals has been enhanced from Rs. 150,000 to 180,000 per annum.
Political stability
The present situation regarding the political stability is negative in Pakistan. This political instability has been in process since attack of 9/11, 2001. This instability has affected the businesses adversely. The poor security situation and uncertainty leading up to the parliamentary elections in February have caused a capital flight from Pakistan, and its rupee currency has fallen 13% against the US dollar since January 2008. However, the stepping down of Pervaiz Musharraf as president has shown some hope for the reviving of the political stability. More over, the geographical region where Pakistan is located, having the neighbors such as India and Afghanistan, and the pertaining international situation regarding the war against terrorism, not only the direct investors have stepped back even the investors who have made investments in the country are backing up. The demonstrations, social unrest, suicidal attacks and terrorists attacks on different areas as well are highest risks to the companys operations.
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ECONOMIC FACTOR
Economic factors affect the purchasing power of potential customers and the firms cost of capital. Following are the factors affecting the macro economy: Economic growth The manufacturing sector growth continued 8.4 % in 2007, which is slightly more moderate than 10 % for the year 2006. The industry also suffered from a drastic decline in profitability as the combined industry profits declined by 56% from Rs 12.3 billion in FY06 to Rs 5.3 billion in FY'07. Growth in Pakistans exports and imports slowed sharply in 2007. The rate for exports fell to 3.4%, for imports to 6.9%. Pakistan has formulated economic policies that will help the Pakistani economy to grow stronger but the recent political violence and uncertainties could slow down the growth.
Inflation rate
Pakistan, with a population of about 16 million people has undergone a remarkable macro economic growth during last few years, but the core problems of the economy are still unsolved. Inflation is one of these core problems. The inflation in year 2008 has recorded to be the highest according to the Federal Bureau of Statistics. Consumer Price jumped to 17.21% in March 2008 according to the statistics given by Federal Bureau of Statistics. The Pakistan inflation accelerated at its fasted speed and the inflation is still increasing. The reason behind this is that in April 2008 the fuel prices climbed 8.6 percent and the tension among the political leaders increase. Interest rates The monetary policy of Pakistan is controlled by the state bank of Pakistan. The state bank, in order to control the inflation has taken measures and tightened up the monetary policies. Pakistan has raised its main interest rate by 1 percentage point to 13 % to help fight inflation. Exchange rates 86
The exchange rates of Pakistan with respect to the U.S. dollar, has declined. The Pakistani rupee has depreciated in 2007. In other words we can say that the value of the rupee has fallen as the time passed by.
SOCIAL FACTORS
Figure 28
Health consciousness Health consciousness among the people of Pakistan has been increasing day by day. The citizens of Pakistan are getting aware of their duties in order to maintain the healthy environment. Government is taking several steps in order to educate, how important it is for the people to live in the healthy environment. The government discourages the operation of the industries with in the city by charging these factories with environmental charges. In spite of this discouragement, there are many factories that are running inside the city, discharging poisonous gases and chemicals. By the passage of time, the people as well along with the government are discouraging such activities.
TECHNOLOGICAL FACTORS
Automation This is the era of high competition The Pakistani industries not only have to compete among them selves but with the international market as well. Pakistan is steadily automating particularly its development sectors to rouse quality production and ensure skilled management, as it would ensure a good place for the country in the global competitive market. Technology incentives
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According to the report issued by the ministry of technology, the government will invest in various fiscal and non-fiscal incentives to nurture, develop, and promote the use of IT in organizations, to increase their efficiency and productivity.
The strategies focus on promotion of industry through incentives, recognition of software development, creation of investment friendly environment, and building investors confidence
Rate of technological change In recent years, technology has been seen to be progressing at very fast rate all over the world. It has helped to raise income and lessen poverty in the developing countries. The change in technology can be seen in the Pakistani industries as well.
LEGAL FACTORS
Tax Policies According to the tax memorandum 2008, the cement industries have to bear the following rules: The tax rates on telephones will be collected at the rate of 10 % of the amount exceeding Rs. 1000. General sales tax is enhanced from 15 % to 16 % including sales tax on services under the Provincial Sales Tax Ordinance, etc. Due to the increase in the general rates of sales tax, the rate sales tax on the natural gas has been increased from 24 % to 25 %. Excise Duty on cement (that includes Portland cement, slag cement, sulphate cement and white cement) has been reduced from Rs. 900 to Rs. 700 per ton. The rate of tax for the collection at the import stage for all imports of goods has been reduced to 2 % from 5 % except that of petcoke. According to the tax memorandum 2008, the importer will not be taxed at the importing stage of goods such as mineral fuels.
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ENVIRONMENTAL FACTOR
Figure 29
Emission of carbon dioxide and sulphur dioxide are making some of air pollution at thermal power plant and in the cement industry in Pakistan. These not only cause nausea and potential health hazards to human beings. They also damage landscape and wildlife. The Government is restricting the industries to minimize the pollution. So changes are required in plants to remove the pollution creating methods of production and introduce new technology which are user friendly. Environment regulations At present Pakistan industries follow the Pakistan Environmental Protection Act, 1997. The Pakistan government has now become conscious of the environmental pollution. It has set some specific laws that all the manufacturing industries have to follow according to the Pakistan Environmental Protection act, 1997.
COMPETITION ANALYSIS
COMPETITION LEVEL
The competition level in cement industry of Pakistan is always high. All the firms are competing with each other by providing better services and offering lesser prices. The competition level can be studied on the following basis: Need of customer 89
Brand Competition Product Quality
Cement firms are putting more efforts to meet buyers requirement and provide superior quality of services. The main attribute buyer associate with cement is its durability.
COMPETITOR FORCES
The competitor forces analysis is done on the basis of six forces: rivalry, substitutes, threat of new entrant, buyer power, and supplier power and government interventions. Substitutes There is no threat of direct substitutes for cement. However, bitumen in road and engineering plastic in building offer some element of competition. Internal Rivalry In cement industry the Rivalry exists on the basis of increased productivity. The cement rates are set by Government and APCMA therefore all manufacturers compete on the basis of quality. Inter firm competition is so intense that major players compete with each other on marginal product differentiation. Buyers power The cement industry has very low bargaining power of buyers as it is a government regulated industry. The switching cost of buyer in cement industry is also low because cement prices offered are almost same. Prices of cement vary due to geographical location however it effects very little price changes due to 20% freight cost in the total cost of cement manufacturing. Suppliers power The cement industry has high bargaining power of suppliers. We import coal and petcoke from foreign countries. New Entrants Entry barriers are not too high in the cement industry. The technology is also available but the major constraint is capital requirement. Cement plant is a highly capital intensive business which requires a lot of investment. Government intervention The government is considering allowing further concessions and additional incentives for cement export, with a view to increase overall export volume. 90
COMPETITOR STRATEGIES
Competitor strategy refers to how firms in an industry compete with each other. The two main competitor strategies are: Cost cutting strategy Differentiation strategy
Cost cutting strategy

Cost-cutting strategy is followed by almost all cement manufacturers. To decrease the high costs of power the cement players have set up captive power plants.
Differentiation strategy
The firm uses differentiation strategy to be unique in the industry. The difference in cement manufacturing firms is on the bases of price, quality and product usage.
INDUSTRIAL ANALYSIS
The industry analysis is based on the organizations within the industry. The internal and external analysis is as follows:
Opportunities and Threats

Opportunities Construction of large dams Construction of four large dams will generate demand of 3.7mn tons as construction activities start. Extent of demand generation will depend on size of dam. Improved access to regional market Afghanistan is Pakistans largest cement export market. The prospects for cement exports seem bright in the medium term due to rising domestic cement demand. Pakistan also achieved improved access to India after the complete removal of the 12.5 percent custom duty on Portland cement imports from January 2007, showing improved export opportunities for Pakistan. Demand of Pakistani cement by Russia Fresh enquiries have been received from Russia and buyers are quoting very attractive prices as Pakistani cement quality is of very high standard and holds good strength.
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Earthquake in China In the month of May china is hit by severe earthquake having the magnitude of 7.8 rector scale. This earthquake has caused the serious destruction in china. This disaster is also an opportunity for Pakistan cement industry to export cement to china. High prices of cement in the international market Cement exports are expected to rise by a massive 107 per cent due to the primary source of overall cement growth in FY08, the high exports outstanding to the cement supply shortage in India and Middle East which lead to rocketing cement prices in the region. Increase in demand of cement due to the up coming sports event South Africa is schedule to host the football world cup of 2010 due to which they need to make the football stadiums for the World Cup and Sri Lanka are also expected to approach Pakistani companies for cement imports because Sri Lanka to co-host the cricket world cup of 2011.
Threats Indian industry is also expanding its cement capacity Presently, India faces an acute cement shortage in its Southern states of Tamil ado and Madras and in north Punjab. However, reports indicated that the Indian industry is also working on a fast track to expand their capacity in these regions to off-set the shortfall and this can convert India from dependent importers to potential exporters. High energy prices Recently cement industry of Pakistan is facing high energy prices due to increase in the international prices of coal and oil. As our coal contain high percentage of sulphur. Due to which Pakistan cement industry is not able to use local coal as a source of energy and import coal from different countries at high prices. High finance and depreciation cost As Pakistan cement industry is expanding its capacity to get the proper advantage of strong demand of cement in different countries. The total industry installed capacity is expected to reach 49.1 million tons per annum by FY10 and because of higher expansion, finance and depreciation cost is also going to rise by the FY10.
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Decrease profitability due to competition in cement industry The increase in competition among the players has decreased the prices of cement in the local market. The cement manufacturers decrease the prices of there products in order to get high market as compared to its competitor. High level of taxation Presently, the cement industry of Pakistan is heavily burdened due to levy of Federal Excise Duty @ Rs. 700 per ton and General Sales Tax @ 16% on duty paid value. In addition to Federal Excise Duty and General Sales Tax, cement industry is also paying the provincial taxes (Excise Duty) on acquiring of raw material for production of cement i.e. limestone and clay. A comparison of taxation and retail prices with other regional countries revealed that taxation in Pakistan is highest while cement retail prices are lowest.
INTERNAL ANALYSIS
Strengths
Cement export to India through railway Most of the cement export to India is through railway. In order to facilitate cement export to India, the railways has increase its frequency of trains to India from Pakistan. This step has been taken by Pakistan Railways in order to increase cement export to India, which is regarded as a highly profitable market. Use of Coal At present most of the cement companies have switch to coal or gas as their basic fuel. The cost of cement production per ton by furnace oil was around Rs2, 083 whereas the cost of production per ton by coal was Rs8, 68, saving Rs1, 215 per ton. Cheaper labor The labor of Pakistan is very cheap. This is the important strength of the cement industry as the cement companies of Pakistan has to pay less to there labor which result in saving of there income which later on can be utilized in the expansion of cement plant. Good Government Policies Government policies are in the favor of cement sector. Due to the government favorable policies the cement sector gets the highest growth rate of 21.11% among all the industries of Pakistan in year 93
2006-07. The total industry installed capacity is expected to reach 49.1 million tons per annum by FY10 High Quality of Cement Pakistan produces good quality of cement. This is the main reason due to which recently Russia is offering high price for Pakistani cement. Globally Pakistan is recognized for producing good quality of cement due to which countries like Afghanistan, India, Middle East and some African countries prefer to import cement from Pakistan.
Weaknesses
Increase freight charges Exporters of the cement often complain that railways freight charges for carrying cement from Lahore city to the border of India are Rs500 per ton ($8 per ton) while it covers only 35 km. Against this, they say on the Indian side, the freight is only $3 per ton for bringing goods from Chandigarh to the border area. Cement exports have been badly hit by high fee that is being charged by trucks and also by foreign shipping companies for the transport of cement from Pakistan to India. This increase in freight charges effect our exports. Logistic Problem Some of the cement companies of Pakistan have received orders from Russia with a price tag of Rs 860 per bag. But our service is the biggest hurdle in the way as our transportation system is not good enough to transport cement to Russia due to which our cement companies might lose the chance to capture the Russian market which is a highly profitable market. Usage of Paper bag Pakistani cement companies export their cement in paper bags because paper bags are cheap as compared to plastic bags. But the Cement exported in paper bags is against the International standards and companies have to pack the cement in plastic bag. Idle capacity of various players The biggest problem of cement industry is the idle capacity of various players. As many cement players are not operating at there full capacity.
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SWOT-I MATRIX OPPORTUNITIES STRENGTH

o Most of the cement companies have switch to coal as their basic fuel to reduce the cost of production per ton of cement. Cement export to India has increased as Indian market is highly profitable. Government policies are in little favour of cement sector as it has reduced the excise duty over cement.
THREATS
o Even though coal is readily available in Pakistan but we import coal because local coal available contain high percentage of sulphur. We shouldnt completely focus over Indian market because little political differences can terminate the contract. Due to political instability there are chances that new Government takeover and impose new rules and regulations.
o o
WEAKNESSES
There is an opportunity for us to focus over other markets rather than only focusing the Indian market. Pakistani cement companies export their cement in paper bags because paper bags are cheap as compared to plastic bags.
o o
Freight charges for carrying cement from Lahore city to the border of India are high. The Cement exported in paper bags is against the International standards and it should be packed in plastic bags. Fluctuating fuel prices can have a negative impact on the revenues which can discourage foreign investors.
Table 36: SWOT i Matrix
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STRATEGIC PLAN
A strategic plan is proposed for the cement industry of Pakistan which needs to be followed by the Government, APCMA and individual firms equally.
Revising APCMA Policy

The government needs to set up a professional committee comprising of representatives from largest cement manufacturing firms. This committee should analyze the current scenario of the country, issues of the industry and must formulate a more constructive Policy accordingly.
Encouraging Foreign Investment

Foreign investments in terms of private firms should be encouraged. This would increase the competition and would improve the level of services.
Efficient use of technology

The cement firms in Pakistan have been able to improve themselves in terms of technological advancements. Better machinery and management should be used to become cost efficient and become competitive.
Merit based hiring

Hiring on merit basis should be promoted in all the cement manufacturing firms in order to minimize the impact of political parties in these organizations.
Increased Marketing Efforts

The marketing for cement must be increased. Television and radio advertisement should also be considered apart from the billboards and hoardings.
OTHER STRATEGIES
Proper workshops should be arranged under the supervision of experts so that the practical knowledge is properly imparted to the labor. The cement industry can use reward and bonuses to increase the motivational and performance level of the labor force. Foreign and local experts should be hired to do the research and development. Plants that have completed their working life should be phased out and new plants should be imported or setup up locally. Measures should be taken to provide proper gas supply to the cement industry. 96
Government of Pakistan should provide infrastructure to the cement industry to setup new factories The construction programs undertaken by the previous government should not be abandoned. Government of Pakistan should do its upmost to control the instability in the country. Cement industry can enter in to contracts with international logistics transportation companies such as Mersk to export cement to USA in huge volumes at low cost. Better cement storage facilities should be made i.e. air and moisture proof bag should be made to increase the shelf life of cement. Cement industry should enter into long term contracts with cement transporters to gain discounts and seek reduced transport prices. When the big companies are forming quantity based cartels, small manufactures should be also considered as otherwise they would go out of business.
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CONCLUSION
The industry should review its price structure and not lose sight of fact that its survival and sustainability lies in consolidating its domestic market as the construction boom in neighboring markets may not last long. The industry needs to have a long-term vision. It is essentially important for it also to adopt measures to reduce its present production cost further by improving production efficiency, conserving energy and employing advanced techniques, such as installation of advanced process controls and developing bulk handling system.
Material sciences are developing rapidly the world over, and advanced construction materials are being produced, in particular, for enhancing quality, strength and efficiency in the concrete construction. The industry should, therefore, make investment in advanced cement technologies, over short and long term horizons, in the wake of recent destruction due to earthquake.
Consolidation is needed for industry stability because of following reasons: Cartels are unstable by their nature. Industry needs one or two dominant players for long-term sustainability in prices and profits Top four players command 35% of market share in the industry that will be increased to 46% in FY08. World norm is that top four players have more than 60% market share Consolidation process will be needed to increase market share of larger players rather than going for capacity expansions We may see acquisitions in the industry as the industry goes through overcapacity cycle
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ANNEXURE 1
Cement exports rise to $750 million
Tuesday, June 23, 2009 By By Khalid Mustafa ISLAMABAD: The cement industry, despite being affected by the global economic crisis, has managed to boost exports to $750 million in fiscal year 2008-09. Being an irregular sector if compared with textile, the cement industry increased exports to $750 million, a senior official at the Ministry of Industries told The News. Though the industry has been given relief of Rs200 per ton in central excise duty, it is to be fully passed on to endconsumers. This means the price of a cement bag will fall by Rs10 from July 1. Before the budget relief, the cement industry was paying Rs900 as central excise duty which has been reduced to Rs700 per ton. Despite a cut in the Public Sector Development Programme to just Rs219 billion owing to which domestic cement consumption has dropped sharply, the industry has performed well in foreign markets in these times of worldwide recession. The official said the government has extended Rs40 billion to the textile industry as research and development support, but other sectors like cement, which has fared well, were given no further relief in duty drawback for exports. The official said that in 1997, the Nawaz government had provided duty drawback of Rs24 per ton on exports but its impact has now become negligible keeping in view general sales tax on limestone, 30 per cent depreciation in currency and transportation charges to the port city of Karachi. Eighty-five per cent cement production is being done in northern parts of the country. When contacted, All Pakistan Cement Manufacturers Association General Chairman (Retd) Rehmat said that land transportation cost and port handling charges stand at $25 per ton and if the duty drawback facility is enhanced to Rs120 per ton ($1.5), exports will easily increase to $1.5 billion. Rehmat said that the government collects Rs30 billion as revenue from the cement industry, but if the duty drawback of Rs24 per ton is not increased then the cement industry may lose its foreign market. To a question, he said that if the government edges up the duty drawback facility, the government will absorb a hit of Rs1.2 billion per annum through guaranteed Rs29 billion revenues in return. Now the ball is in governments court. To a question, he said that Pakistan has explored the markets of Afghanistan, Iraq, Sri Lanka, India and Sudan. He said more orders from Sri Lanka are on the cards in the next financial year 99
as the Lankan government wants to build infrastructure which was destroyed in the civil war with Tamil Tigers. Since the war is over, Pakistans cement industry will have more orders from Sri Lanka. He said that if the government remains stuck to next years PSDP, then the cement consumption would also enhance manifold if kept in view the construction of Diamer Bhasha dam, Neelum-Jhelum hydropower project and many other national highways. To a question he said that cement production capacity has increased to 43 million tons from 10 million tons in 2003-04 with huge investment of Rs200 billion.
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ANNEXURE 2
Taxable ceiling of salaried class increased; NTN made compulsory
Sunday, June 14, 2009 ISLAMABAD: The government on Saturday took various taxation measures to fetch Rs69.1 billion in four major taxes in order to achieve FBRs revenue collection target of Rs1.374 trillion while at the same time announced a number of relief measures in the Budget 2009-10. The government proposed imposition of carbon surcharge on POL products and CNG with varied rates to generate Rs134 billion in fiscal 2009-10 as non-tax revenue, putting burden on the consumers but helping the government to bridge its yawning deficit gap of 4.9 per cent of the GDP. The PPP-led regime said goodbye to the slogan of facilitation pursued by the Musharraf regime and took certain measures by reviving powers of income tax, sales tax and customs high-ups to detect tax dodgers through improved enforcements. The carbon surcharge is aimed at bringing transparency in fixing prices of POL products. It will be fixed tax, which will be charged at different rates for different POL products, Adviser to PM on Finance Shaukat Tarin explained while talking to The News on Saturday night. He said the FBR target of Rs1.374 billion did not include the carbon surcharge. It will help in collecting Rs134 billion. According to Finance Bill 2009-10, the government imposed Rs8 per litre carbon surcharge on high101
speed diesel, Rs10 per litre on motor spirit, Rs6 per litre on kerosene oil, Rs3 per litre on light diesel oil, Rs14 per litre on HOBC and Rs6 per kg on compressed natural gas (CNG). However, according to technical briefing given by the members of four respective taxes of the FBR on Saturday after the announcement of budget, the government imposed federal excise duty on documented services including advertisements on print media, increased tax rates on all kinds of cigarettes, levied 20 paisas per short messaging service (SMS) on mobiles as well as doubled the CVT rates on transaction of immovable property from 2 per cent to 4 per cent. Withholding tax on imports was doubled in the Finance Bill 2009-10 which was increased from 2% to 4%. The government also imposed income tax at the rate of 5 per cent on taxpayers who will declare income of Rs one million in returns in order to provide help to the Internally Displaced Peoples (IDPs) disturbed by the ongoing military operation in Malakand Division. In order to support the IDPs in their rehabilitation a new tax is being proposed to be charged on bonus income of corporate executives @ 30% of the bonus. This is a one time levy and payable for tax year 2009 only. The government also slapped 16 per cent federal excise duty on advertisements in newspapers, periodicals, hoarding boards, pole signs, signboards and shop boards. The FED at the rate of 16% in VAT mode (value added tax) has been levied on fund/non-fund services provided by banking companies and non-banking financial companies, services provided by the port and terminal operators at import stage and services provided by stock brokers. On three different brackets for imposing tax on cigarettes, the FBR has proposed Rs4.75 per ten cigarettes as FED on retail price of packet up to Rs10. On retail price from Rs10 to 19, the FED at the rate of Rs4.75 per ten cigarettes will be charged plus 70% over every incremental rupee. On retail price of over Rs19 per packet, 64% FED will be levied. The indenting commission is proposed to be taxed at the rate of 5% from earlier rate of 1 per cent. The scope of advance tax collection on purchase of new locally manufactured motorcar/jeep is proposed to be extended to all types of motor vehicles in the Finance Bill 2009-10. Additional tax has enhanced from 12 percent to 15 percent on late payments.
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At present, depreciation on passenger transport vehicles is allowed on total cost which has encouraged the purchase of luxury vehicles mainly used for personal purposes at the cost of revenue. It is, therefore, proposed to restrict the value of such vehicle to Rs.1.5 million for the purpose of depreciation. Presently large trading houses are exempted from payment of withholding tax on imports as well as sales of goods. The facility of exemption of tax at import stage is being withdrawn. However, the tax so collected will be adjustable against final tax liability. Tax exemption available to educational institution is being grossly misused by private universities and medical colleges etc. It is therefore proposed that such facility would only be available to those institutions which have been approved by the concerned Director General of LTU/RTO for this purpose. For achieving Rs1.374 trillion target, the FBR has envisaged to collect Rs565 billion in shape of direct taxes, Rs492 billion as sales tax, Rs165 billion as FED and Rs160 billion as customs in 200910. Member Direct Taxes Irfan Nadeem told reporters that the government was taking taxation measures to the tune of Rs53.4 billion while extending relief of Rs10 billion so the net addition in direct taxes would fetch Rs43.4 billion in 2009-10. Member Sales Tax Zafarul Majeed said the Finance Bill 2009-10 proposes Rs25 billion tax measures in sales tax/FED while relief measures would cost Rs5 billion, estimating the net addition to the tune of Rs20 billion. Member customs said that the tax measures would fetch Rs100 million only while improvements on administration side would increase customs collection by over Rs7 to 8 billion in 2009-10. Relief measures in budget The FBR has taken various relief measures in the budget 2009-10 but also moved towards effective enforcement by granting powers to tax officers for apprehending tax evaders.
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On relief measures side, the FBR has proposed to enhance taxable ceiling of salaried class from Rs180,000 to Rs200,000 per annum. In case of women salaried taxpayers, this limit is proposed to be increased from Rs240,000 to Rs260,000. The sales tax/federal excise duty rate on mobile companies was reduced from 21 per cent to 19 per cent. Reduction of activation charges of cellular phones from Rs500 to Rs250 is aimed at reducing the cost of new connections of mobile phones. The government also reduced FED on cement from Rs900 per metric ton to Rs700 per metric ton. In the relief measures of taxations, the FBR also proposed to abolish of 5 per cent federal excise duty on cars which is being charged at the stage of registration. Presently senior citizens are allowed 50% relief in tax liability provided the taxable income, in a tax year, does not exceed Rs500,000. In view of inflationary trend, it is proposed to enhance the limit of taxable income to Rs750,000. In view of the less margin of profit available to cigarettes and pharmaceutical product distributors, withholding tax rate in respect of such taxpayer is being reduced from 3.5% to 1%. In order to promote the voluntary pension schemes and allow relief to pensioner class the said limit is proposed to be enhanced to 50% from 25%.
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ANNEXURE 3
Cement Industry By Ismat Sabir In the Budget 2004-05, the government did not reduce the expected Rs 250 per metric tonne (MT) in central excise duty (CED) (12.5 per bag). This may have an impact on the cement sector in two ways: it is expected that cement demand will grow in future but the rate is likely to taper off from 13 percent to single digit, or the manufacturers may raise cement prices, which may negatively affect the prospects of cement demand in future. Domestic manufactures were hoping to retain a portion of the incentives justifying the high cost of coal for next year (up 100 percent YoY, US$70 per tonne from US$35 per tonne). But, with higher coal prices, now either manufacturers absorb the hit; negative for YoY bottom line growth, or they will face reduction in demand. With the resurgence in demand, improvement at the retention level, coal conversion and debt restructuring, cement industry has entered the era of improving profitability. With growth of the economy being linked to infrastructure development, special emphasis was being paid to the construction sector. The prospects of economic growth and construction sector are being linked to each other. During the fiscal year ending June 30, 2003 the industry had suffered a loss of Rs88 million and it operated only at 66 percent of the installed capacity. In comparison, it earned a net profit of Rs 2,000 million during six months of the current fiscal year i.e. July-December2003. For a Third World country like Pakistan in the process of development, cement is a very important commodity. The number of cement plants and their production volume gives an indication of the stage of the development in a country. The cement industry in Pakistan, with a fixed investment of over 60 billion rupees has started recovering at an increased pace after waging a long struggle to survive. Domestic demand for cement, which was 66 percent of capacity last year, was expected to reach to over 92-95 percent by 105
the end of current financial year. But it surpassed the expectations and is already utilising above 92 percent capacity due to unprecedented increase in demand for cement. These phenomena generated optimism about the future prospects of cement industry in the country. Cement sales during the period July 2003-March 2004 were to the tune of 9.790 million tonnes (as compared to 8.674 million tonnes for the same period of 2002-03), when the industry operated at 78 percent of the installed capacity. The government is now quite comfortable in revenue collection; therefore, allocations for development projects have increased. The Budget for Annual Development Plan (2004-05) has been enhanced by about 20 percent-from Rs160 billion to Rs202 billion. The government plays a pivotal role in the development of infrastructure; it is important for steering the economy towards accelerated growth. The economy is now poised to take off, in the backdrop of all positive indicators. The government is also trying its utmost to bring local and foreign investments in different sectors of the economy. In order to attract new investment for industrialisation, substantial fiscal incentives have been offered by the government to improve infrastructure, which would need huge quantities of cement.
Present scenario Out of a total of 24 cement plants, currently 22 units are operative, 17 companies being listed on the Karachi Stock Exchange. The country, at present, has an installed capacity of producing 17.55 million tonnes of cement per annum, mainly Portland cement. It is envisaged to increase installed capacity (also by expansion) to 28.21 million tonnes per annum by 2008. In two to three years six new projects with a 7.3 million tonne capacity, which are at different stages of completion, will come up in 2007. The demand in 2004, expected to be at 13.5 to 14 million tonnes from 11.4 million tonnes in 2002, shows an increase of 18 percent. However, if we assume that in the future demand will grow at the rate of 14 percent per annum, it would reach 22 million tonnes in 2008, leaving a gap of 6 million tonnes (as compared to projected targets) with utilisation capacity of 92 percent. This surplus supply is expected to be exported to Afghanistan or elsewhere. The changing situation is encouraging to the cement manufacturers to expand their existing production capacities. The sector has the potential to export cement worth $1 billion per year to Saudi Arabia, Central Asian States and other Middle Eastern countries. 106
Pakistan is fortunately rich in the deposits of limestone, clay and gypsum, which constitute basic raw materials for manufacturing of cement. In spite of having abundant raw materials and rising growth in demand of cement, only five cement factories were established during the initial thirty years of independence, with aggregate capacity of 3.2 million tonnes. Consequently, Pakistan had to import cement for a long period, which reached to a level of 1.3 million tonnes in the year 1981-82. Import of cement continued from 1971 to 1985. Its scarcity also hampered the development process in the country. One of the major constraints was lack of local engineering capabilities, which is the prerequisite for the establishment of cement projects. As a result, the entrepreneurs had to rely on imported machinery. This also required huge investment of over Rs 500 million in foreign exchange besides long project establishment duration of about four to five years.
Table-1: Number of units & Production Year 1999-00 2000-01 2001-02 2002-03 2003-04 Source: SP, FBS At the time of independence in 1947, only one or two units were producing grey cement in the country. During the decade of 1948-58, the number of cement units increased to six. During the Ayub era the economy started to grow and the construction activities underwent a boom. To meet the growing demand of cement new units were set up. During the decade of 1958-68, the number of cement units increased from 6 to 9. During the following period of Zulfiqar Ali Bhutto all the industrial units, including cement industry, were nationalised, therefore, no new unit was set up during 1971-77. During the period of General Zia-ul-Haq, 1977-88, denationalisation of industrial units boosted the investments. Housing and construction industries picked up and the demand for cement increased. Thus, the number of cement units increased from 9 to 23 and finally 24. 107 23 22 22 22 22 No. (000 MT) 9,314 9,674 9,935 11,020 13,500
Table - 2: Percentage growth of Cement Industry Year 1990-91 1999-00 2000-01 2001-02 2002-03 2003-04 Source: Economic Survey, SBP Percentage 3.66 - 3.33 1.40 1.61 12.11 15.00
Presently, a number of factors are attributed to this tremendous growth represented by various indicators. Cement exports, mainly to Afghanistan doubled during the three-quarter period of the current year, attaining a level of 0.78 million tonnes, but that accounts for only 8 percent of the total production. Cement is one of the basic ingredients for development of a country. Its per capita consumption is an indicator of economic activity in the country. Unfortunately, Pakistan is trailing behind all other developing countries in the region with lowest per capita consumption of cement as shown in table3. The per capita consumption of cement in Pakistan was as low as 43 kg per head per annum in year 1977-78, as compared to world average of 245 kg.
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Table-3: Per Capita Consumption of Cement (Kgs) Japan Thailand China Egypt USA Philippine Indonesia India Pakistan (200) (2003) 603 600 450 334 261 202 140 99 76 120
The reason of this low per capita consumption is that construction sector has remained neglected. Therefore, consumption of cement in Pakistan has naturally been one of the lowest. However, it rose to 120 kg per annum in 2003, which is still low. Realising the importance of construction and housing sector, the government has announced a Construction/Housing Policy, 2001. This sector holds tremendous potential to reinvigorate sick industries of Pakistan and can kick start the economy by reviving forty allied industries engaged in the production of construction materials and other manufactured goods used in the construction of building and housing. Besides, it was providing jobs to about 7 percent of the total employed labour force (2.5 million persons), during 1999-2000. Housing sector: The main consumer of cement industry is the housing sector, consuming about sixty percent of the total cement production. The housing sector is now booming as a part of the remittances are being used for construction of houses, which has helped in increasing cement demand in the country. Commercial banks, which are currently loaded with liquidity, are finding housing sector to be a potential area for lending, after successful experiment in their Car Financing Schemes. 109
Types of Cement: The industry is producing ordinary Portland cement, Slag Cement, Super Sulphate Resisting Cement, Sulphate Resistant Cement and White Cement. Manufacturing process: There are three conventional processes used in Pakistan to manufacture cement: (1) Wet process: In view of the constraints of kiln dimension and large water requirements and extremely poor heat efficiency, wet process has become obsolete. (2) Semi-wet process: The process is suited for materials with sufficiently high plasticity. This process has also become outdated due to high fuel/energy consumption. (3) Dry process: The dry process was formerly used where water and the raw materials were scarce. But now it is the most popular process in the cement industry. The advantages are: (1) the fuel requirement is about 800 Kcal per kg of clinker (which is about 40 percent less as compared to the wet process). This process enables the processing of a water range of raw and the maintenance is easier. The raw material is preheated and partially calcined resulting in higher kiln efficiency. The kiln being shorter in length requires less space in erection and easier to maintain.
Raw material The raw materials used for the manufacturing of Portland cement are mainly limestone (calcareous material) and clay/ shale (argillaceous material). The most common variety Portland cement is a mixture of calcimined calcareous and argillaceous materials, forming a complex composition consisting of tri-calcium illuminate, tetra-calcium alumna ferrite, decaliun sillicate and tetra calcium ortho-silicate. The proportion of the last two constituents in the Portland cement varies from 70-78 percent. While the proportion of first constituent, tri-calcium aluminates is about 10 percent, the balance being the second constituent.
Prospect of cement export to Afghanistan Export of cement to Afghanistan is another reason for the overall increase in exports. Due to this the proportion of exports in cement sales has now increased to 8 percent from the previous 4 percent. This proportion is expected to improve further up to 17.5 percent by FY08. It is believed that cement exports will touch to 3 million tonnes per annum. The reasons for this estimation are increasing construction activity in Afghanistan and lower competition from Iran 110
Table-4: Cement Exports (Value in 000 US$) 2000-01 Cement White Cement Clinkers Cement Portland Others TOTAL 0 0 777 2 779 2001-02 14 0 3180 0 3194 2002-03 0 0 10737 0 10737
Donors had pledged grants to Afghanistan in excess of US$ 3 billion. Early estimates had put the figure of annual investment in Afghanistan at US$1 billion with 15 percent (US$ 15 million) share committed for cement consumption. This represents very bright prospects for construction activity in Afghanistan and the results are evident from the demand for exports materialising from Afghanistan. Iran is the major competitor of Pakistani cement in Afghanistan. Due to the cheaper cement, the market share of Iranian cement was much higher than Pakistani cement. Previously, Iraniani cement prices were much lower, i.e., US $32 per tonne as compared to Pakistani price of US $70 per tonne. However, Pakistani exporters have now become more competitive and are exporting better quality cement at US $30 per tonne. Moreover, Iran was initially exporting 10 percent of its production to Afghanistan, but with an increase in its domestic demand, Iran is now concentrating on its domestic market. This is likely to improve the market share of the Pakistani cement. In addition to Afghanistan, Sri Lanka, Bangladesh and Vietnam are being explored as new destinations for cement exports. Industry sources indicate that there is a potential to export 2 to 3 million tonnes per annum of cement to these countries.
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ANNEXURE 4
Pakistan ranked 5th cement exporter in World
Tuesday, 18 August 2009 01:39
Pakistan cement factories continue to make significant progress in cement exports. Now Pakistan is ranked 5th in the worlds cement exports after a huge increase of 47 percent in exports during last fiscal year. According to the Global cement report, China maintained first position with 26 million tonnes in exports, while Japan got second position by exporting 12.6 million tonnes of cement. Third largest cement exporter in world is Thailand with around 12 million tonnes, followed by Turkey which exported 11.6 million tonnes of cement. Pakistan now at 5th position has left Germany behind by exporting 11 million tonnes of cement during last fiscal year. Germany now stands at 6th position with 9 million tonnes exports. Cement market experts told that Pakistan secured 5th position because of high demand of cement in nearby countries and by capturing new markets such as African countries, Qatar & Iraq. Pakistan could achieve the mark of 13 to 14 million tonnes exports by the end of the fiscal year keeping in view Indian market which has once again started importing cement from Pakistan. The export of cement from Pakistan to india showed a sharp decline after Mumbai attacks. 112
Cement Pakistan Company is actively contributing towards export of cement from Pakistan. For all cement export requirement from Pakistan please email on:
sales@cement.com.pk
According to the All Pakistan Cement Manufacturers Association (APCMA), local dispatches were 19.3 million tonnes (down 14 percent YoY) however exports showed an encouraging increase of 47 percent (YoY to 11.3 million tonnes) during the last fiscal year. According to experts, important factors contributing towards growth of cement sector are Record Public Sector Development Programme allocation (Rs 621 billion) in the budget FY10, reduction in excise duty by Rs 10 per bag and declining interest rate scenario. Local demand of cement in Pakistan will remain on high side due to the reconstruction activities of devastated homes, shops and schools in Swat and Malakand after Military operation. Overall Pakistan cement industry dispatches are likely to grow 7 percent in July 2009. The growth in cement dispatches is solely attributable to rising export volumes as domestic demand remained depressed on every comparable time period. Overall cement plants of Pakistan operated at 80 percent capacity utilisation as compared with 81 percent utilisation in the same month of last year. Although Fauji Cement has claimed 100% utilization during last year. Cement exports of Pakistan continue to show healthy and positive growth trend and recorded 45 percent growth on Y-o-Y basis. However, on M-o-M basis, cement exports represented a decline of 3 percent.
Weight of sea based cement exports during the month was recorded at 68 percent in overall cement exports as compared to 63 percent in July 2008. It is important to note that cement exports to India during the month were recorded at 63,000 tonnes, which is lower when compared with the initial monthly average of 100,000 tonnes.
113
ANNEXURE 5
A year of incentives for industry?
By Sabihuddin Ghausi
INDUSTRY leaders expect government to come out in next few weeks with a salvage package to stop industry from a collapse. ``It is imminent, the President of Karachi Chamber of Commerce and Industry, Majyd Aziz said as according to him,, the government will take some relief measures before announcing the next elections and putting in place a caretaker set-up. Amin Bandukda, the Chairman of SITE Association of Industry too shares this perception and expects a quick initiative from the government. Except for automobile, cement and construction all other segments of industry are begging for relief. The automobile that depends on 35 to 45 per cent imported kit of equipment and parts in semi knock down condition and cement and construction industry are somewhat flourishing because of government policy to give them liberal bank loans. The conventional manufacturing industry is in distress a senior businessman in Lahore who heads one of the top business houses of Pakistan with stakes in cement, textiles, banking, insurance and tractors said. He said the services industry is thriving and mentioned telecom, banking, insurance, leasing, retail and wholesale trade, transport and construction as examples. These industries are booming because of the government measures. Cement, he said is one conventional industry that is under distress because the government has levied Rs 750 excise duty on a ton plus 15 per cent sales tax. Excise, he said is normally levied when government wants to discourage consumption and tobacco and alcohol are such items. ``But there is no sense in levying excise on cement he argued in the light of the governments policy to 114
encourage construction. He said that cement demand has increased somewhat but it does not match the capacity expansion and heavy investment involved in the projects. The financial burden is killing cement industry and it needs some immediate relief. Fawad Ejaz from the leather industry also eagerly awaits promulgation of a promised relief package for his industry. ``We had several meetings with the commerce minister and chairman Export Promotion Bureau (or Trade Development Authority?) in last few months Fawad said, disclosing that relief packages for long and short- term measures have been agreed upon between the leather industry and the government. After observing a persisting decline in exports, virtually across the board, since July this year, the prime minister, the commerce minister and senior government functionaries held several meetings in October, November and December with business leaders in which strategies were discussed to check this fall. ``Obviously, the production cost of industry was the central theme, said a local business leader. In this context, the focus was on utility tariff, financial cost, labour charges and other levies. There is now almost an all-round consensus that the industry is in a distress as it has suffered a lot and the 2007 outlook is bleak and the government should do something to give relief by way of bringing down production cost. ``The government cannot afford to have closed industries and army of unemployed in the cities at the time of elections Majyd Aziz argued .He is convinced that stage is set for putting in place a salvage package. This cannot be done by any caretaker government. The growth in large-scale manufacturing remained below the annual target during FY 06, for the first time during last four years, reported the State Bank of Pakistans annual report for the year 05-06 released on December 2, 2006. In fact, the government projected only 13 per cent growth target for LSM in 05-06 as against 15.6 per cent a year earlier in recognition of (i) capacity constraints faced by some industries (ii) impact of rise in oil prices and (iii) continued monetary tightening. No wonder than the LSM showed only 10.7 per cent growth in the year 05-06. 115
What is the magnitude of stress under which the industry is operating is best illustrated by virtually having a look across the board decline in the industrial exports. Not only this, the national industry is now losing ground to foreign goods in the domestic market. The situation has reached a stage where at least two top shoe-making companies are said to be getting their products from China for sale through their domestic outlets network to local consumers. Reason: cost of production is high as compared to China. ``Reputed Indian companies too have their manufacturing facilities in China for sale of their products in India is the only argument that is offered by one of the leaders of leather industry who attribute this phenomenon to business globalisation from which Pakistan or India cannot remain insulated. But this arrangement of keeping the business afloat by importing products from China for sale in Pakistan has rendered a big number of employees jobless. The number goes into thousands as a big part of leather goods and leather garment industry is in informal sector where employed labour is not registered and the growing unemployment remains unreported. So is the case with garment and knitwear units which are largely in informal sectors. Owners have managed to recover some of their investment by disposing off their machines, buildings and land but the labour is not finding any alternate employment. Industry sources say there are reports that about 400 knitwear and readymade garment units, leather garment factories, small manufacturing facilities of sport goods, surgical instruments and a host of other factories that have pulled down shutters. A casual glance over July to November 06 figures reveal declining export trend in textiles, carpets, sport goods, tanned leather, leather garments, footwear, surgical goods, cutlery, onyx, chemicals and pharmaceuticals, engineering goods, gems, jewellery, furniture and handicrafts. Along with this export decline has come the flood of imported goods in domestic market which has literally given a crippling blow to the industry that now puts at stake the investment in billions of rupees and hefty bank loans and also an army of unemployed in Karachi, Lahore, Faisalabad, Multan and other big cities of Pakistan.
116
ANNEXURE 6
Table 1 Cement: Cost Components
Source: All Pakistan Cement Manufacturers Association
http://www.mca.gov.pk/Downloads/Cement_Report-new.pdf
Cement: Cost Components Market price of cement

Total variable and fixed cost/ton Central excise duty fixed General Sales Tax @ 15 per cent (duty paid value) Freight and unloading Wholesaler/dealers commission Manufacturers profit @ 15 per cent on equity Market price per ton Market price per bag
2006
2005
2004
2003
2,849 750 540
2,398 750 472
2,295 750 457
2,313 1000 497
600 200 725
550 180 475
500 160 410
500 140 377
5663 283
4825 241
4572 229
4827 241
117
ANNEXURE 7
Portland cement early in the 19th century by burning powdered limestone and clay in his kitchen stove. By this crude method he laid the foundation for an industry which annually processes literally mountains of limestone, clay, cement rock, and other materials into a powder so fine it will pass through a sieve capable of holding water. Cement is so fine that one pound of cement contains 150 billion grains. Portland cement, the basic ingredient of concrete, is a closely controlled chemical combination of calcium, silicon, aluminum, iron and small amounts of other ingredients to which gypsum is added in the final grinding process to regulate the setting time of the concrete. Lime and 118
silica make up about 85% of the mass. Common among the materials used in its manufacture are limestone, shells, and chalk or marl combined with shale, clay, slate or blast furnace slag, silica sand, and iron ore. Each step in manufacture of Portland cement is checked by frequent chemical and physical tests in plant laboratories. The finished product is also analyzed and tested to ensure that it complies with all specifications. Two Manufacturing Processes
Two different processes, "dry" and "wet," are used in the manufacture of portland cement. When rock is the principal raw material, the first step after quarrying in both processes is the primary crushing. Mountains of rock are fed through crushers capable of handling pieces as large as an oil drum. The first crushing reduces the rock to a maximum size of about 6 inches. The rock then goes to secondary crushers or hammer mills for reduction to about 3 inches or smaller. In the wet process, the raw materials, properly proportioned, are then ground with water, thoroughly mixed and fed into the kiln in the form of a "slurry" (containing enough water to make it fluid). In the dry process, raw materials are ground, mixed, and fed to the kiln in a dry state. In other respects, the two processes are essentially alike. The raw material is heated to about 2,700 degrees F in huge cylindrical steel rotary kilns lined with special firebrick. Kilns are frequently as much as 12 feet in diameter large enough to accommodate an automobile and longer in many instances than the height of a 40-story building. Kilns are mounted with the axis inclined slightly from the horizontal. The finely ground raw material or the slurry is fed into the higher end. At the lower end is a roaring blast of flame, produced by precisely controlled burning of powdered coal, oil or gas under forced draft. As the material moves through the kiln, certain elements are driven off in the form of gases. The remaining elements unite to form a new substance with new physical and chemical characteristics. The new substance, called clinker, is formed in pieces about the size of marbles.
119
Clinker is discharged red-hot from the lower end of the kiln and generally is brought down to handling temperature in various types of coolers. The heated air from the coolers is returned to the kilns, a process that saves fuel and increases burning efficiency
120
121
122
ANNEXURE 8
Pricing Another problem faced earlier by the Industry was the high taxation. The general sales tax (GST) was 186% higher than India. The impact of this tax and duty structure resulted in almost 40% increase in the cost of a cement bag (50 Kg). A bag in India earlier cost Rs. 160 as compared to Rs. 220 in Pakistan. In the budget of 2003-04, a duty cut of 25% was permitted to the cement sector with assurance from the cartel to pass on this benefit to the consumers. In 2006, the price of a bag went up to Rs. 430 however in 2007 it has stabilized at Rs. 315 per bag. In mid 2008, cement prices stabilized further at Rs. 220 per bag. The Government has reduced central excise duty (CED) on cement in the budget for 2007-08 in order to boost construction activity. Average industry cost of cement bag/50Kg = Rs.193 Average industry price of cement bag/50Kg = Rs.235
Domestic Demand Local demand in the country for the year 2008-09 is expected to be around 20 million tons. Domestic demand is expected to grow at 13% Capacity growth rate (CAGR) during next five years. Certain factors will also affect the growth of cement industry as well. These are as follows:
Strong GDP growth Higher GDP growth has positive impact on cement demand. Cement demand growth rate was double the GDP growth rate in last three years.
Housing sector growth
Housing projects consume roughly 40% of cement demand. 123
Low interest rates, post 9/11 remittances inflow, and real estate boom have helped housing sector growth.
Government Development Expenditures Government development expenditures count for one third of total cement consumption. Increase in PSDP from Rs.80 bn in 1999 to Rs.520 bn in 2007. Infrastructure development in a region triggers private development projects having even positive impact on cement demand.
Earthquake Rehabilitation
Earthquake losses of October 8th are estimated at $ 5.2bn Reconstruction work will boost construction material demand Reconstruction work is expected to generate cement demand of 4mn tons over next 3-4 years
Announcement of large Dams Construction of four large dams will generate demand of 3.7mn tons. Bhasha Daimer Dam, Munda Dam, Akhori Dam and Neelum Jhelum.
Per Capita Cement Consumption Pakistan currently has a per capita consumption of 131kg of cement, which is comparable to that for India at 135kg per capita but substantially below the World Average 270kg and the regional average of over 400kg for peers in Asia and over 600kg in the Middle East. Cement demand remained stagnated during 90s owing to lack of development activities. In 1997, per capita consumption was 73 kg in both Pakistan and India. By 2005-06, consumption in India rose to become 115 kg/capita whereas ours rose to 117 kg/capita. A comparison of few countries in 2005:
124
Bangladesh Pakistan India USA Iran Malaysia EU China UAE
50 kg/capita 117 kg/capita 115 kg/capita 375 kg/capita 470 kg/capita 530 kg/capita 560 kg/capita 625 kg/capita 1095 kg/capita
Challenges to Cement Industry The cost and exports may be affected due to weakness of the US dollar causing coal, electricity charges and freight prices, comprising 65 to 70 percent of the cost. The PSDP allocation for 2009 has been cut by Rs 75 billion and feared further cuts would curtail cement demand. Major capacities of countries like India and Iran are expected to come online by FY10 and onwards which are likely to convert these countries from dependent importers to potential exporters. Moreover, this current rising trend is expected to be short-lived due to higher interest rates and inflationary concerns are likely to make it disadvantageous for investors to enter the construction industry. In addition to this, to control real estate prices the government is considering imposing a tax on it. Major General Rehmat Khan, Chairman of All Pakistan Cement Manufacturers Association (APCMA), told Business Recorder, cement industry is getting Rs 24 per ton as day duty drawback for export of cement which needs to be revised. In view of todays calculation for duty drawback, which works out to Rs 130 per ton, he proposed that duty drawback be increased to Rs 130 per ton, instead of Rs 24 per ton. Referring to taxation on cement, he said that cement dispatches are subject to payment of federal excise duty @ Rs 900 per ton, general sales tax @ 16 percent, special excise duty @ 1 percent, marking fee @ 0.1 percent of ex-factory price, besides provincial duties and taxes. These taxes come to around Rs 96 per bag which is the highest in the world. Cement, it appears, is being treated as a luxury item for the purpose of taxes and duties. 125
He proposed that the government should reduce excise duty by Rs 450 per ton in the forthcoming budget while the remaining half should be eliminated altogether along with the special excise duty. Besides this, sales tax should not be charged on excise duty paid value. He also proposed withdrawal of customs duty on Pet Coke and remove it from negative list for import from India because cement industry imports Coal and Pet Coke as fuel for production and customs duty on imported coal is zero while on Pet Coke it is charged @ 5 percent.
126
BIBLIOGRAPHY
(Cement Pakistan Company - Pakistan Cement Industry 2009) http://www.cement.com.pk/cement/pakistan-cement-industry.html (Attock Cement Pakistan Ltd 2004 - 2005) http://www.attockcement.com/ (Lucky Cement n.d.) www.lucky-cement.com (China Cement net - Cement network 1999-2009) http://www.cementchina.net/ (Economy of Pakistan 2009) http://en.wikipedia.org/wiki/Economy_of_pakistan (DG. Khan Cement Company Limited 2005) http://www.dgcement.com/ (World Trade Organization n.d.) http://en.wikipedia.org/wiki/WTO (Sector Overview - Cement n.d.) http://www.pakboi.gov.pk/word/Cement.doc (Cement Report 2007) http://www.mca.gov.pk/Downloads/Cement_Report-new.pdf (Cement Industry - Economic Pakistan 2009) http://economicpakistan.wordpress.com/2009/02/01/cement-industry/ (Average Retail Prices n.d.) 127
http://nwfp.gov.pk/nwfpgov/Departments/BOS/nwfpdev-statis-prices-tab-173.php (PR urged to rationalise Lahore-Attari freight rates: Cement export 2009) http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/thenewspaper/business/pr-urged-to-rationalise-lahoreattari-freight-rates-cementexport (Why Trade And Industry In Pakistan Not Flourishing n.d.) http://www.trcb.com/business/business/why-trade-and-industry-in-pakistan-notflourishing-4136.htm (Crisis in the cement industry 2000) http://www.pakistaneconomist.com/issue2000/issue52/i&e1.htm (Cement industry of Pakistan - Potentials and Problems n.d.) http://www.pakboi.gov.pk/ABM_Slides/Construction/Pvt/Attock%20Cement.pdf (Cement-for the growth of economy 2001) http://www.pakistaneconomist.com/issue2001/issue46/i&e1.htm (High growth rate real threat to Pakistan 2008) www.thenews.com.pk/daily_detail.asp?id=123450 (Government of Pakistan n.d.) www.pakistan.gov.pk (Industry in focus n.d.) http://www.jang.com.pk/thenews/investors/aug2004/if.htm (bestway cement 2009) http://www.bestway.com.pk/ (pakistan cement sector review 2007) http://www.igisecurities.com.pk/pdf/Pakistan-Cement-Sector-Review-May-2007.pdf
128
(CORPORATE LAW AUTORITY 1994) http://www.secp.gov.pk/corporatelaws/pdf/may_14_94.pdf (World Trade Organiztion n.d.) http://www.wto.org/ (WTOCELL Government of the Punjab 2003-2008 ) http://www.wtopunjab.gov.pk/# (More incentives likely for cement exporters-DAWN 2007) www.dawn.com/2007/01/11/ebr3.htm (Cement- for the growth of economy 2001) http://www.pakistaneconomist.com/issue2001/issue46/i&e1.htm (Country report on Pakistan n.d.) http://www.brecorder.com/index.php?id=1439&currPageNo=1&query=&search=&term=&supDat e= (Cement industry of Pakistan 2009) http://whizzmag.blogspot.com/2009/05/cement-industry-of-pakistan.html (Economic Survey Of Pakistan 2005-06) www.statpak.gov.pk/depts/index.html (Annual Report Of Lucky Cement 2007-08) www.scribd.com/doc/4780452/Lucky-Cement-Annual-Report-2007 (D.G Khan Cement comapny limited 2007-08) www.dgcement.com/financials (China Cement Net-Cement network 1999) http://www.cementchina.net/ (Government of Pkistan finance 2008) http://www.finance.gov.pk/ 129

Final Report Cement Industry Pakistan

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Final Report Cement Industry Pakistan

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TABLE OF CONTENT CHAPTER 1 INTRODUCTION TO THE INDUSTRY

CHAPTER 2 INDUSTRY DIMENSION AND STATISTICS

CHAPTER 3 HISTORY OF THE CEMENT INDUSTRY

CHAPTER 4 PROFILES OF MAJOR PLAYERS

All PAKISTAN CEMENT MANUFACTURERS ASSOCIATION (APCMA)

CHAPTER 5 WTOS REGULATIONS AND ITS ECONOMIC IMPACT

CHAPTER 7 PRODUCTION PROCESS

CHAPTER 8 PRICING AND COSTING

CHAPTER 9 KEY ISSUES AND THEIR SOLUTIONS

CHAPTER 10 HUMAN RESOURCE REQUIREMENTS AND KEY ISSUES

CHAPTER 11 PORTERS SIX FORCES MODEL

CHAPTER 12 CONTEXT ANALYSIS

96 98 99 101 105 112 114 117 118 123 127

CHAPTER 1 INTRODUCTION TO THE INDUSTRY

TYPES OF CEMENT PRODUCED WORLDWIDE

TYPES OF CEMENT AVAILABLE IN INTERNATIONAL MARKET

TYPES OF CEMENT PRODUCED IN PAKISTAN

2. Portland blast furnace slag cement

Table 1: Cement produced in Pakistan and globally

LIST OF CEMENT COMPANIES SITUATED IN PAKISTAN

Table 2: Firms in cement industry in Pakistan * Companies listed with KSE

CEMENT FIRMS IN PAKISTAN

D.G. Khan Cement

Maple Leaf Cement

Figure 9: Maple Leaf Cement Plant

Ordinary Portland Cement Sulphate Resistant Cement

Figure 11: Attock Cement

Kohat Cement Company Limited

Figure 12: Kohat Cement Company

Fauji Cement Company

Figure 13: Fauji Cement Company

Dandot Cement Limited

CEMENT PRODUCTION IN INDUSTRY

Table 3: Different types of Cement produced by different firms in Pakistan

Year 2006 2007 2008 2009

Table 4: Production of cement in Pakistan in last 4 years

Chart 1: Production of cement in Pakistan in last 4 years

MARKET SHARE OF THE FIRMS IN CEMENT INDUSTRY

Figure 16: market share of cement in Pakistan

Market Share (%)

Chart 2: market shares of firms in cement industry

CHAPTER 2 INDUSTRY DIMENSION AND STATISTICS

GEOGRAPHICAL LOCATION OF CEMENT INDUSTRY

Table 5: Geographical location of cement industry

Below is the geographical location of firms present in Pakistan cement industry

Chart 3: Geographical locations of firms in cement industry

TOTAL PRODUCTION IN PAKISTAN CEMENT INDUSTRY

Table 6: total production in Pakistan Cement industry

Table 7: total employment in Pakistan Cement industry

TOTAL EXPORT BY PAKISTAN CEMENT INDUSTRY

Table 8: Export of cement by Pakistan

Table 9: Expected export cement demand

Popular destinations for export of cement from Pakistan

Chart 4: popular destinations for export in cement industry

Below is the chart of cement exports during HY08:

Table 10: cement exports

PERCENTAGE SHARE OF FIRMS IN EXPORT

Chart 5: percentage shares in exports market, 2008

Table 11: cement exports in 2007-08

PAKISTAN TRADE STATISTICS OF CEMENT INDUSTRY

Table 14: Pakistan Trade statistics of cement industry

NEW PLANTS OPENED IN CEMENT INDUSTRY PAKISTAN

Table 15: NEW PLANTS OPENED IN CEMENT INDUSTRY PAKISTAN