Royalty issue on cement raw materials in Punjab landed in court

According to Topline Research, Punjab-based cement manufacturers have obtained a stay order from the court against the imposition of six per cent of ex-factory cement/clinker price as royalty on limestone and argillaceous clay in a major development.

However, the analyst remarked that this stay is subject to bank guarantees to be furnished by manufacturers. To avoid any unfavourable decision in the future, the Punjab manufacturers are increasing cement prices by up to INR75/bag (US$0.89/bag). At the same time, it is important to highlight that the majority of the Khyber Pakhtunkhwa-based manufacturers sell a portion of their cement in Punjab, and this may provide them either an opportunity to sell higher volumes at a lower price or they may consider increasing their cement price (with no royalty increase).

Furthermore, it is too early to say how long this high royalty cost disparity will be sustained. Any move by other provincial bodies to bridge this gap (by increasing royalty) or reversal of the increase in royalty tax in Punjab may again bring some equilibrium in the costing structure of the manufacturers. This uncertainty underscores the need for caution and ongoing monitoring of the situation.

Earlier, as per AKD Research, the Minerals and Mines Department of the Government of Punjab, the royalty on limestone has been revised to six per cent of the ex-factory sales price of cement or clinker, up from the previous rate of PKR250/t (for cement manufacturers).

Also, BMA Capital, referring to cement association data, said approximately 48 per cent of the installed capacity in the north is located in Punjab. This change is expected to negatively impact cement manufacturers in Punjab, including Bestway Cement, DG Khan Cement, Fauji Cement, Fecto Cement, Flying Cement, Gharibwal Cement, Pioneer Cement and Maple Leaf Cement.