Against a backdrop of Nepal’s falling competitiveness in the manufacturing sector, the cement industry has been flourishing despite all sorts of problems. There has been a significant growth in the country’s cement sector in the last three years.

With a rise in domestic production, the country’s imports of cement and clinker, a raw material used in the manufacture of cement, have dropped markedly. According to the Trade and Export Promotion Centre (TEPC), the rate of growth in cement imports has declined in the last fiscal year. Nepal imported cement worth Rs 4.63 billion in fiscal 2010-11, representing an increment of 4.1 percent. In fiscal 2009-10, cement imports grew 6.9 percent. The decline in the rate of growth in the import of both cement and clinker reflects Nepal’s progress towards self-sufficiency in cement production.

According to the Cement Manufacturers Association of Nepal (CMAN), the domestic cement industry has an installed production capacity of 5.58 million tonnes annually which is slightly higher than the annual demand of 5.42 million tonnes. However, cement manufacturers say their plants could have utilized their full capacity except for supply side constraints and government apathy.

However, this hasn’t stopped the private sector from entering this sector in a big way. Currently, there are 42 factories in operation producing 3.90 million tonnes of cement annually. Local production fulfils about 72 percent of the requirement and the rest is met by imports from India. Nepal produces OPC, PPC and PSC cement, of which OPC is preferred these days.

Out of the 42 factories, only 10 also produce clinker, a major raw material used in cement production. Nepal used to depend on India for 90 percent of its clinker requirement. However, with more factories now setting up clinker production units after acquiring limestone quarries, imports from India will decline in the coming years.

With these upcoming projects and capacity enhancement at a number of existing cement factories; the country will be able to substitute around 80 percent of its cement imports from India within the next few years.

The major problem, according to Nepali manufacturers, is timely delivery of clinker from India. “Regular supplies of raw materials plays a very crucial role in smooth operation of this industry, but we are unable to import clinker from India as per our need,” said Ajay Jatia, executive director of Jagadamba Cement Industries. “Time and again, problems are created at the railways by locals and state governments of India which directly affect our imports.”

The high import duty levied by the government on clinker has weakened the competitiveness of Nepali cement in terms of price, said manufacturers. “The government has been continuously increasing the customs duty on clinker ignoring its effects on domestic cement manufacturers,” said Tara Pokhrel, managing director of Agni Cement Industries. “The government this year increased the customs duty on clinker to Rs 2,200 per tonne from last year’s Rs 1,500 per tonne.” Under such circumstances, Nepali cement producers are losing their competitiveness to Indian manufacturers, and they have asked the government to roll back the duty. Likewise, domestic industrialists have been complaining about the high duty levied on dry fly ash, another raw material required to produce cement.  

Along with the high customs duty and supply-side constraints, manufacturers are facing problems on this side of the border too. The major problem at this point of time is the power crisis due to load-shedding. Manufacturers say that the cost of production increases significantly when they switch to diesel power. “The operation cost increases more than two-fold when we use diesel power to run our plant,” said Niraj Singh, marketing manager of Brij Cement Industries. “Also, the plant and machinery used in cement production are heavy, and it is technically unviable to operate them with diesel power.” They also complained about unavailability of diesel in desired quantities.

The syndicate system in transportation is another big problem for the domestic cement industry. “We are not getting a sufficient number of trucks to supply our finished goods to the targeted location,” said Suresh Jaisawal, sales manager at Brij Cement Industries. “The cost associated with transportation is equally high.” Manufacturers complain that even with enough production and demand, they are unable to supply their products to the market due to unavailability of transportation.”

“Every commodity has a lifespan; and in the case of cement, it is 30 days,” said Jatia. “If the finished product is not used within 30 days, the desirable outcome is not achieved.” The need of the hour, according to him, is to effectively end the syndicate system so that Nepali products remain competitive with Indian brands.

source: The Kathmandu Post, 1 May 2012