Energy tariff increases spark discord in Pakistan’s cement industry

It has recently been reported that Lucky Cement Limited as left the All Pakistan Cement Manufacturer’s Association (APCMA) over a dispute on prices.

It seems that energy prices are at the heart of the problem, with recent increases in electricity tariffs (a steep 55% rise) affecting those using electricity from the grid, while natural gas price hikes affecting captive power plants were much lower at just 17.5%. Those cement plants with the capacity to produce their own power are therefore better off than those without, according to complainants. The difference has been put at around Rs.8 per unit.

Problems could leak from cement industry to textiles

According to an analysis on Dawn.com, the problem could extend to other industries. If the government attempted to appease smaller cement producers by increasing the gas tariff, it would likely create problems for the textile industry, which is the largest export industry for the country and responsible for the highest foreign exchange in Pakistan.

Increase in cement prices the answer?

Those cement producers without captive power plants have asked for an increase in cement prices to cover their higher energy costs. Lucky Cement has therefore distanced itself from the APCMA, while other large cement manufacturers have reportedly voted against the price hike. This could impact the cement price arrangement, according to the report on Dawn.com, which quotes an analyst at Global Securities as saying: “If Lucky Cement and D.G.Khan Cement seek exit from APCMA, then the quota arrangement would likely dismantle in the North zone, making it difficult for the pricing arrangement to hold.” This quota helps to stabilise cement prices. A price war would reportedly be ‘catastrophic’ for small and medium-sized cement producers, and would allow the larger producers to monopolise the industry.

Abridged from Dawn.com report by Katherine Guenioui