In a significant development, the royalty on cement in the Khyber Pakhtunkhwa (KPK) province of Pakistan is expected to shift from an ore-based to a bag-based calculation. This new structure proposes a minimum royalty of six per cent based on the ex-factory sale value, similar to the system already in place in the Punjab province. According to Topline Pakistan Research, the previous fixed royalty rate for limestone and argillaceous clay was PKR250/t (US$0.89/t).
This change could negatively impact the profitability of KPK-based manufacturers, as the royalty on raw materials will increase significantly, potentially rising by PKR1100-1200/t based on current ex-factory prices typical for Punjab-based plants. To address this issue, the KPK Mines & Minerals Department has scheduled a meeting with KPK-based cement manufacturers on 24 March 2025 to discuss the implementation of a royalty based on cement bags instead of raw materials.
Previously, the Punjab government had already raised royalty rates to six per cent of ex-factory prices, effective 1 July 2024. Following this decision, Punjab-based manufacturers secured a stay order from the court against the application of the six per cent royalty on the ex-factory price of cement and clinker, as well as the raw materials used. This stay remains in effect provided that the manufacturers furnish bank guarantees.
Like their counterparts in Punjab, KPK-based companies are likely to account for this increase in royalty costs in their financial statements, even with the stay order in place, in line with prudent accounting practices. Until the matter is resolved, this will constitute a non-cash expense.
If the bag-based royalty is implemented in KPK, companies such as Lucky Cement (North Plant), Kohat Cement, Bestway Cement, Cherat Cement, Fauji Cement, and Dewan Cement will be affected.
by Abdul Rab Siddiqi, Pakistan.
