The cement industry is indeed a highly important segment of the industrial sector that plays a pivotal role in the socio- economic development. Though the industry has witnessed its lows for last many years, it is heartening to note its recent recovery and that too, seemingly, on sound foundations.

During the fiscal year ending June 30, 2003 the industry had suffered a loss of Rs88 million and it operated only at 66 per cent of the installed capacity. In comparison, it earned a net profit of Rs2,000 million during six months of the current fiscal year i.e. July-December 2003.

Similarly, cement sales during the period July 2003-March 2004 were to the tune of 9.790 million tons (as compared to 8.674 million tons for the same period of the year 2002-03), whereas the industry operated at 78 per cent of the installed capacity.

It is expected that during the fiscal year 2003-04 the cement industry would achieve about 82 per cent capacity utilization, resulting in a growth rate of 15 per cent compared to last year.

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 tons but that accounts for only eight percent of the total production by the industry.

In fact, high rise in demand for cement has been due to improved economic scenario, massive undertaking of various development and infrastructure projects at national level, and the growth of housing activities and civic facilities in public as well as private sector.

It is understood that the government would announce, through measures in federal budget for the year 2004-2005, an incentive package for construction industry that would, inter alia, include providing tax rebates and reduction in central excise, whereas bank loans for construction were already available at lower rates.

As a result of market demands growth and improved investment climate the industry has embarked upon an ambitious plan to expand its present production capacity. 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 tons of cement per annum, mainly Portland cement. It is envisaged to increase installed capacity to 28.21 million tons per annum, by the year 2008. Orders for procurement of machinery have been placed in some cases whereas in others, the contracts are in the offing.

It is reported that so far not a single cement company planning expansion has placed order for the required machinery and equipment on the local engineering industry, primarily Heavy Mechanical Complex (HMC), and instead they are considering to place orders on foreign suppliers.

One of the major companies, Lucky Cement Ltd has already awarded contract to a Chinese trading company for installation of an additional line of 3,800 tons per day capacity that is scheduled to go into production by the year 2005.

The Bestway Cement Ltd is currently negotiating with a European manufacturer to set up a new unit of 3,300 tons per day at the same location. Similarly, the D G Khan Cement Co Ltd plans to enhance its present capacity by putting up another line of 3,800 tons per day capacity, in the first phase.

The Dadabhoy Cement Industries Ltd, which in fact created the confidence in local industry by placing order on HMC for the first ever locally- manufactured cement plant, are now negotiating with the Western suppliers for increasing their installed capacity from 1,800 tons per day to 2,800 tons per day.

Also, the Pioneer Cement Ltd, for which the HMC was the prime contractor for setting up its plant in 1980s, has plans to go shortly for capacity expansion, most likely through a foreign supplier. Other cement companies also have expansion plan on cards.

Capacities and capabilities exist at Heavy Mechanical Complex (HMC), Taxila, for undertaking design, engineering, manufacturing and installation of complete cement plants up to a capacity of 5,500 ton per day.

It has impressive references of setting up 11 complete cement plants that has purchased and installed in the past plant machinery indigenously, HMC being either a prime contractor or a consortium partner. In addition, it has supplied partial machinery, during various times, to all the 22 operating units of the industry.

It is a matter of pride that all these cement companies are operating the respective plants satisfactorily, earning huge profits. It is also on record that the cement industry has been served most efficiently during its hours of crisis.

Many a units faced emergency situations where the HMC has come to their rescue and saved them from major production losses through immediate repair of critical equipment.

Though HMC has made techno-commercial proposals for the above expansion schemes and remain in contact with these companies for a possible order, it appears, no preference is being accorded by these companies rather a level playing field is denied to the domestic industry.

The competitiveness and capability of the HMC to undertake implementation of these schemes is beyond any doubt, and is re-affirmed from the fact that the Galadary Group of the UAE is buying machinery and equipment from the HMC for its 2,000 tons per day cement plant, currently under installation.

Also, the existing Pak-China cement plant is being converted by the HMC to a white cement plant of 500 ton per day capacity. When the plant goes into production, under the name Maple Leaf White Cement, it would be the largest plant for producing white cement in the country.

In recent past a number of cement plants have converted to coal-firing system, but only a few have availed the local engineering and manufacturing facilities. Also, various cement plants are establishing their own power plants (based on coal) for the reasons of achieving increased productivity and lower cost of production.

Though the HMC has the requisite technology and capability to manufacture such power units, the industry is depriving the local engineering industry and orders are being placed on sources abroad.

The present move to import machinery and equipment for cement expansion projects is against the larger national interest, and in conflict of government's policies of self-reliance and indigenization.

From time to time, the government has taken various important measures to promote indigenization, mainly for sugar mills and cement plants, for which it had made huge investments in the HMC. In 1978, the ECC of the Cabinet had decided not to provide foreign exchange financing for purchase of such plant and machinery that was manufactured within the country.

Again, in 1984, the government directed, vide SRO no. 286(I)/84, that the import of cement plant machinery, which otherwise was produced locally, would not be allowed. These directives were effectively implemented, thus establishing the base for progressive manufacturing of cement plant machinery in Pakistan.

As a few entrepreneurs planned to set up cement plants based on imported machinery, the ECC of the Cabinet reiterated, in May 1989, its earlier decision, directing that cement and sugar plants that were locally manufactured should not be imported.

The Central Board of Revenue (CBR), in consultation with the Ministry of Industries and Production, has notified already that the cement plants up to the capacity of 4,000 tons per day are produced locally, and as such their import would not entitle the entrepreneurs to exemption of custom duty etc.

The relevant Customs General Order No. 9/92 dated 6.8.92, which is still valid, gives details of the technology, list of equipment and services and other information pertaining to various capacities of the cement plants offered by the local industry.

Rationale dictates that cement industry should favourably consider placing orders on the HMC for its various expansion schemes, since national engineering industry can only prosper with effective commercial support. It shall be detrimental not only to the growth but to the basic survival of the engineering industry in general, and HMC in particular.

If the present trend of importing machinery and equipment, which otherwise is produced locally, is not properly checked, other industries are likely to follow suit. For instance, a large number of power plants are proposed to be established in response to the Power Policy 2002, which discourages import of machinery that can be produced in Pakistan.

Obviously, the government should not allow development of an industry at the cost of the other. Granted, we are following a free market economy and realization that WTO regulation would soon be implemented in Pakistan too.

But if the cars, whether reconditioned or new, are not allowed to be imported or attract exorbitant duties simply to protect local automobile industry in private sector why the same principle is not made applicable in case of heavy engineering industry in the public sector.

Another aspect of the situation is the negative impact it would have on the HMC's credibility in potential export market, which is currently negotiating orders for a couple of cement plants.

In case the local investors themselves would not have confidence in their own engineering industry, how can we expect a client abroad to purchase machinery manufactured in Pakistan.

This may also adversely affect our Prime Minister's recent offer to the government of Lao PDR of a credit facility of $10 million for purchase of cement plant machinery from Pakistan.

It will therefore be most appropriate for the government to take necessary measures on priority to place restriction on import of cement plant machinery and direct the industry to place order on HMC.

The government may ensure that the indigenous plant is of latest technology and cost effective, to be supplied at competitive price and in accordance with their specifications and requirements. The proposed measure shall also result in promoting local auxiliary industry and creating additional job opportunities in the country.