Cement manufacturers will find it difficult to meet the Government’s demand to provide low-cost cement for road building with the Budget levying a Rs100 per tonne excise duty hike on top of an increase in rail freight. The twin measures will make the retail prices of cement bags dearer by Rs14-18. So far, four cement companies — Saurashtra Cement, Andhra Cement limited, Jaypee Cement and Jaiprakash Associates — had agreed to supply the raw material for building concrete roads to the Government at about 40 per cent less than the current market prices for a year.
The Government has been pressing them to agree for a three-year term, but the Budget announcements may just make the going tough for the manufactures. “The excise duty increase of Rs100 per tonne will add to our manufacturing costs by at least Rs5 per bag. The freight rate hike in the Railway Budget will add another Rs6-10 rise in manufacturing costs,” said a senior official from a prominent cement manufacturer.
“While the Government expects us to provide discounts, but it is not giving us any breather. The last two years have been bad for the cement industry and we were hoping to be in the green after a series of infrastructure related announcements, but the excise duty and freight rate hike will not help our cause,” said the official.
The average wholesale cement prices in Delhi hovered between Rs250-290 a bag last year. Minister of Road, Transport and Highways Nitin Gadkari who had announced the building of all new highways using concrete for durability and cost effectiveness last year, has been pressing the cement manufacturers to supply cement at 40-50 per cent discounts.
The Government had invited bids for rates of cement from manufacturers in August 2014. In response, 37 companies had submitted their bids quoting their rates for different grades of cement. Of these 36 were accepted, of which only four cement manufactures offered their cement at the rates agreeable to the Government.
“The Government has now asked these manufacturers to extend their validity period of their rates from one year to three years to ensure uninterrupted cement supplies,” said the official. “In a meeting held in February, Gadkari also asked other suppliers barring these four companies to re-submit their bids at revised rates for a three-year period,” said the official.
“We would want to be a part of the India’s growth story, but such a huge impact because of excise and freight hikes are beyond capacity of the cement firms to absorb. They will reflect on cement prices and Government will have to accommodate,” said another cement manufacturer. “There is no dearth of cement in the country. Approximately 100 million tonnes of excess cement capacity is available, which is enough to construct even more than 90,000-kms of seven-metre-wide two-lane roads, but the Government cannot have its way with the rates,” he said.
As per the Report of the Working Group for Cement Industry for 12th Plan, cement capacity of the Industry will be doubled to 700 million tonnes by 2022 from its present level of 350 million tonnes. The demand for cement, according to the Government’s proposed plan for the construction of 30-kms per day, which is 11,000 kms per year, would be 11-12 million tonnes annually.