Pakistan FY14-15 Budget set to positively impact on the cement sector

Pakistan’s FY14-15 Budget, announced yesterday by Finance Minister Ishaq Dar, is being regarded as largely positive for the country’s cement industry as it includes a number of infrastructures and energy-related projects which look set to spur demand.

It is hoped that a 24 per cent increase in higher Public Sector Development Programme spending (PSDP), investments in irrigations, improving the road network and housing projects will accelerate cement demand from the current growth rate of three per cent per annum.

The government proposed an allocation of  PKR525bn in PSDP spending during the budget announcement. Key projects to be considered under the PSDP are set to include the following:
• Diamer-Bhasha Dam
• Neelum Jhelum Hydro power plant
• Keyal Khawar Hydro project
• Tarbela Fourth Extension Hydropower project
• Golan Gol hydro power plant
• Keyal Khawar hydro power project
• 425MW power project, Nandipur
• 525MW combined cycle thermal power plant at Chichoki Malian
• 747MW Guddu power project
• Chashma nuclear power complex C-3/C-4
• Karachi coastal power project
• Mangla Dam Raising
•  Kacchi Canal project
• Rainee Canal project
•  Nai Gaj Dam
• Kurram Tangi Dam
• Naulong Dam
• Darwat Dam
• Gomal Zam Dam.

Among other measures that are set to support the industry, the government has proposed a reduction in Export Refinance (ERF) from 9.7 to 7.5 per cent, a step that will help cement exporters.

The rate on long term finance is to be reduced from 11.45 per cent to nine per cent for loans of 3-10 year, thereby helping to reduce finance costs.

The government has also  proposed a reduction in corporate tax rate from 34 to 33 per cent which is expected to improve companies’ bottom-line.

On a negative note, a five per cent hike in Federal Excise Duty (FED) and a rise in gas infrastructure development cess (GIDC) is expected to an increase in cement prices.