KARACHI, June 2: Cement producers are demanding 50 per cent cut in Central Excise Duty (CED) on cement — from Rs50 to Rs25 per bag, which analysts say would be justifiable only if the companies agree to pass on the benefit to consumers.

The CED on cement is currently Rs1,000 per ton, which translates into Rs50 per bag (one ton required to fill 20 bags).

Badruddin Fakhri, director, finance and administration at Pioneer Cement Limited — the company that claimed to have lead to the pack in complete conversion of production from furnace oil to coal since January 1, last year — says that including the Rs30 per bag sales tax at an effective rate of 18 per cent, total tax on cement stands at a high Rs80 per bag. “Compared to that neighbouring India charges Rs17 per bag as CED and Rs13 per bag as sales tax, making a total of Rs30 per bag,” says Mr Fakhri, adding that Iran has kept the commodity tax free, which is why cement consumption in that country is one of the highest in the region at 322 kgs per head; in Philippines per capita cement consumption is 200 kgs and in India 97 kgs. “Pakistan shows one of the lowest per capita consumption at 70 per kgs,” the cement maker laments.

Cement producers reason that lower taxation would give boost to greater off-take of cement and a fillip to the construction industry. The cement sector is plagued by 40 per cent excess capacity with 8 million of the 18 million tons industry capacity remaining unutilized.

While no one argues with the cement manufacturers’ lament of high taxation, the industry has also come under biting criticism, mainly for operating under a ‘cartel’ arrangement. When the ‘cartel’ is in operation, the 23 cement producers in the country specify production quotas for each mill so as to keep firm control on supply and, therefore, the market prices. But the ‘cartel’ periodically breaks down as a result of disputes among producers; it fell apart in November last year and was revived only the previous month, after lengthy negotiations among the players.

The rebirth of the cartel has already sent cement prices up by around Rs40 per bag to Rs220-225 currently, from Rs180- 185 in April. “To the disappointment of all policy watchers, the government is unlikely to come up with any statement on the recent revival of the cement cartel,” says Sarwat Fatima, cement sector analyst at stock brokerage firm, KASB. She adds: “In our opinion, this is a bad signal and clearly shows that the government is accepting the pressure of stakeholders, otherwise recent surge in the price has very little logical sense after the coal conversion exercises by the cement companies and the low interest rates in the economy.”

But given the government’s commitment to breath life into the housing and construction sectors, most analysts are expecting incentives for the industry. Investors in cement stocks would be happy to see companies post improved profitability and distribute dividends. Fewer than nine companies announced payouts for shareholders during financial year 2002, and even in the currently raging bull market, only one-half of the 22 scrips listed on the cement sector, have managed to keep their heads above par values.