ISLAMABAD, Sept 30: The talks between the government and the cement manufacturers on price reduction have ended in failure and the government is considering reviving the state-owned Mustehkum Cement for price stabilization through additional supplies.

The Economic Coordination Committee (ECC) of the cabinet had constituted a task force led by secretary industries early last month to immediately hold meetings with the cement industry for lowering prices in view of 25 per cent reduction in central excise duty. The ECC was informed by the Planning Commission that cement prices had gone up despite enhanced capacity utilization and 25 per cent reduction in duty.

The Ministry of Industries and Production has now informed the ECC that cement price could be reduced only in case of removal or reduction in Rs65 per bag tax burden on cement or recommissioning of Mustehkum Cement at a total cost of Rs100 million, which could produce 300,000 tons of cement per annum.

A senior official, however, told Dawn that the Ministry of Finance was dissatisfied with the talks between the task force and the cement manufacturers and had constituted a two-member ministerial committee to further deliberate upon the issue.

The new committee comprised Finance Minister Shaukat Aziz and Industries and Production Minister Liaquat Ali Jatoi.

The official said that Ministry of Industries was well aware of the fact that neither the tax on cement could be reduced nor could a unit be revived at a cost of Rs100 million that was closed four years ago because of continuous losses and was up for privatization.

It was ironic that instead of persuading the cement industry to reduce prices, the ministry had yielded to the arguments of the cement manufacturers, the official said.

The government had asked the industry to reduce cement prices for four reasons. First, the product was being sold at Rs185 to Rs205 per bag for the period from November 2002 to April 2003. Second, most of the cement units have been converted to coal-fired plants, which has resulted in significant reduction in their cost of production.

Third, due to export of cement and increase in domestic consumption the capacity utilization of cement industry has increased from 60 per cent to 67 per cent resulting in lower cost of production. Fourth, there was 25 per cent reduction in central excise duty on cement in the current budget.

The All Pakistan Cement Manufacturers Association (APCMA), however, said the prices from November 2002 to April 2003 were extraordinarily low because of cut-throat competition among the cement manufacturers, otherwise price during July-October 2002 ranged between Rs210 and Rs240 per bag.

The APCMA claimed that benefit of conversion to coal was neutralized due to increase in imported coal price from $30 to $40 per ton. Also, the Rs300-400 million capital expenditure on conversion resulted in huge financial charges and thus increased the cost of production, besides increase in the rates of power, gas and furnace oil.

The APCMA also contended that benefit of reduction in central excise duty amounted to Rs15 per gas had been passed on to the consumers.

Sources said the prices of imported cement worked out to be Rs183 per bag. With the addition of commission of importers, distributors and retailers, the imported cement price worked out at Rs198 per bag in the south and about Rs223 per bag in the north, against the prevailing local cement price of Rs202 to Rs220 per bag in the south and Rs212 to Rs225 per bag in the north.

The Ministry of Industries opposed allowing the import of cement saying that international prices were very low (around $25 per ton).