The Pakistan cement industry has had a mixed impact due to the government's announcement of reduced electricity rates. To relieve domestic residential and industrial consumers, excluding lifeline consumers, the government has revealed a reduction of PKR7.40-7.59/kWh (US$0.02/kWh), equivalent to 15-18 per cent of the existing tariff. The Prime Minister indicated that the IMF supports this decision. 

High power rates have led to a significant decline in demand, with the power sector operating at only 60 per cent of its capacity. This relief package will likely boost demand by stimulating industrial activity, while potentially enhancing the recovery of electricity bills in a sector struggling with electricity theft. Moreover, as electricity constitutes 4-5 per cent of the CPI basket, today’s announcement should positively influence the inflation outlook. 

According to the IMS Research assessment report, the cement sector is expected to be affected by this package. The cement sector has made significant investments to lessen its dependency on the grid amid rising electricity prices. However, Fauji Cement Co Ltd and Kohat Cement Co Ltd (KOHC) still rely on the grid, with 52 per cent and 35 per cent dependence, respectively. KOHC uses furnace oil, priced at PKR36/kWh and accounting for 28 per cent of its power mix. As a result, the company will transition to the grid, resulting in approximately PKR32/kWh costs after the price cut. This relief is timely, as both companies may face higher raw material royalty rates in Khyber Pakhtunkhwa. 

Meanwhile, Pioneer Cement Ltd, Cherat Cement Co Ltd, Maple Leaf Cement Factory, and DG Khan Cement, which rely minimally on the grid, are expected to experience a limited financial impact.

Industry reactions
The leadership of the Businessmen Group (BMG) and the Karachi Chamber of Commerce and Industry (KCCI) expressed their deep appreciation for Prime Minister Shehbaz Sharif's prompt and effective announcement of a substantial reduction in electricity tariffs, by PKR7.59 per unit for industrial consumers and PKR7.41 per unit for domestic consumers. They stated that this was a critical move to alleviate the financial burden on citizens and businesses that have long struggled with exorbitant energy costs.

by Abdul Rab Siddiqi, Pakistan