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CONTRIBUTION OF CEMENT
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INDUSTRIES IN NEPAL
Strengthening the Economy
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Contribution to GDP Growth
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CHAPTER-3
Being one of the basic elements for setting up strong and healthy
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infrastructure, Cement plays a crucial role in economic development of any
country. Having more than a hundred and fifty years history, it has been used
extensively in construction of anything from a small building to a mammoth
multipurpose project.1
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The infrastructure development of the country in the recent years is the
demand driver for the cement industry. The cement industry is one of the
vital industries for economic development in a country. The total utilization of
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cement in a year is used as an indicator of economic growth. Cement is a
necessary constituent of infrastructure development and a key raw material
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The Cement industry being a core sector industry, producing the basic
construction material essential for any construction activity, be it
infrastructure, hospitals, housing, community development projects etc., plays
a lead role in country's economic development and hence deserves due
support to the Governments for its healthy growth.2
The cement industries are driven by the immense growth in the housing
sector, the infrastructure development and construction of transportation
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systems. In comparison of other manufacturing industries, cement industry
contributes more to the nation due to the following reasons.
(a) Lower capital investment per unit of production without sacrificing the
quality of the product.
(b) Lower gestation period which helps in realizing quicker returns on capital
invested.
(c) Bringing cement manufacture within the financial capacity of the smaller
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entrepreneur.
(g) Reducing the average unit cost of transporting cement through the
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dispersal of cement-production facilities.
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Nepal, which has hitter to been largely dependent upon imported cement
before a decade will now be 60% independent in the cement product. Now,
Nepal became able to save about 10 billion rupees a year by this import
substitution industry. Apart from helping to save the foreign exchange worth
about 10 billion rupees the industry is also contributing to the national
exchequer through sales tax and excise duty. The operation of cement
industries have resulted many other indirect benefits to the nation. Hetauda
cement industry and Udayapur cement industry have invested 15 and 33
million rupees respectively to set up their own electric power substation of
two transformers from high tension transmission lines and these public
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cement industries pay about 125 million rupees a year (Udayapur Rs. 110
million and Hetauda Rs. 15 million) to the Nepal Electricity Authority.3
Nepal's annual demand for cement is estimated at 2.5million tons and the
production capacity installed in the two state-owned and 17 privately owned
cement factories is above 3.3 million tonne Still, the domestic industry is
fulfilling only about 35 percent (clinker based excluded) of the demand. The
role of cement industry in Nepal’s GDP is significant and this industry is one of
the growing sectors of Nepalese economy.
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According to contractors and developers Cement covers around 29 percent of
the total construction cost in Nepal, means in the various constructions of
Nepal this industry has contributed about one third of the total costs. Cement
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industry has been playing significant role for the uplift of Nepal’s economy by
contributing millions of rupees into the national exchequer in the shape of
various taxes. The Company has been earning precious foreign exchange for
the country through export proceeds too. The industry also brought foreign
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investment of about 110 million rupees in the year 2009-10.
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Table No. 3.1
1 Vat 905119
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4 Value of output 6962462
Hetauda Cement Industry Ltd and Udayapur Cement Industry Ltd have made
sales transactions worth Rs. 77.070 millions and Rs. 55.280 millions
respectively providing major contribution to the sales in this sector. In
comparison to the previous fiscal year, total sales of Hetauda Cement Industry
Ltd. decreased by 22.13 percent while Udayapur Cement Industry Ltd
registered a moderate growth in their total sales during the same period.4
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Table No. 3.2
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Local Development Fee 1.5% 1.5% 1.5%
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Table No. 3.3
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The manufacturing is a sector however, that has been hit particularly hard by
the Maoist insurgency and the intensification of violence since 1996. Now the
situation has been changed into peaceful approach which is positive aspect for
the nation. Manufacturing industry, one of the sub-sectors of the non-
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agriculture sector is estimated to grow by 2.6 percent in the current fiscal year
(2008-09) as compared to negative growth of 1.09 percent in the previous
fiscal year.
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According to Industrial Production Index higher production of biscuits, iron
rod, beverages, and noodles are expected to raise the contribution of the
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Table No. 3.4
2001-02 1435
2002-03 17347
2003-04 28987
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2004-05 22786
2005-06 35897
2006-07 28535
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2007-08 47396
2008-09 86308
2009-10 93875
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Source: Ministry of Finance Government of Nepal.
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3.4 Employment
In the world scenario, the cement industry has been looking for efficiency
gains that can be made through automation and the closure of outdated
plants. As a result, over the past two decades, employment levels have
decreased dramatically all over the world but in Nepal it in increasing
trend.
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After the open market policies undertaken by the government from the
1990s, there was a significant increase in the infrastructure and housing
projects in the country to cater to the growing consumer market. As a result,
more and more cement companies started to set up bases in various parts of
the country. The government also put emphasis on the industrial
development. The cement industry provides direct employment in local areas
and through a wide network of indirect jobs and activities related to the main
manufacturing process and lime stone mine.
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Today, the cement industry is one of the increasing sectors in the country. The
cement industries of Nepal have helped in alleviating the unemployment
problems of the country to some extent by availing employment
opportunities. According to latest manufacturing establishments survey
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(2006-07), this industry has generated job opportunities for around 6000
persons directly and 30000 people indirectly.8 The number of persons
engaged in the cement industries of Nepal either in the form of employees or
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owner are as under.
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growth in the number of staff, workers, and productivity of their counterparts
with similar nature in the private sector.
The cement industry is capital intensive, with the cost of laying down a
cement production installation equivalent to around three years' turnover. It
is energy intensive, with energy costs accounting for over a third of total
production costs and entails very long-term investments. The industry has
reached a level of performance which in many cases can not be improved
upon with current technologies, so that further major improvements at the
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production stage are unlikely in the short term. Innovation in the cement
industry includes increasing the use of wastes as alternative raw materials and
fuels as well as the development of new products.
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Usually, the cement industry in Nepal consists of both the public sector and
the private sector. Public sector comprises the well known cement producing
industries while the main players of the private sector are the regional and
local cement producing units in various districts across the country. Most of
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the private cement industries in Nepal are operating in the rural area so Jobs
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Udayapur cement industry and Hetauda cement industry are two major public
cement industries of Nepal. In these two cement industries about 1200 people
have got direct employment and wages and salary paid to them by the
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industries appeared Rs.165 million (Udayapur Rs. 143 million and Hetauda Rs.
21.74 million) in the fiscal year 2009-10.9
In the same fiscal year the number of persons working in the cement
industries in the private sector of Nepal at different positions and wages and
salary paid to them is given as under.10
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and their Annual Wages and Salary (2009-10)
The cement industry is expected to grow at a rapid pace over the next few
years to cater to the growing infrastructure and real estate projects. One
metric ton of cement generates job opportunities for around 140 people. As a
result, there will be more employment in these sectors. Some trends of the
Nepalese cement industry which will add to the job prospect in this sector are:
It is expected that the cement industry will steadily grow and more than
3 million tonne will be produced annually to cater to the high demand in
the real estate sector.
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The annual exports will also significantly increase which will favorably
affect the overall Gross Domestic Product of the country and hence, per
capita income of the people will increase.
In the recent futures, some other cement plants are expected to add in
the cement line industries of Nepal.
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Table No. 3.7
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The total production capacity of the new companies will be approximately 2
million tons per year. If these companies would establish and operate to their
full capacity, they would meet 80% of the annual demand in Nepal. There is
tremendous potential, but lack of political stability and right sort of business
environment has been deterring investment in large-scale cement plants. If
the government can ensure a positive business atmosphere, then Nepal has
the potential to emerge as a major cement producer in South Asia.
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The market for Nepali cement is very good. All the cement stock sells easily for
they are good in quality and competitively priced as well. Cement is a high-
density product with a relatively low selling price so transport costs are
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determinant for trade. Therefore, the region in which an industry is
established sold most of its product in the same region or in local market to
take the advantage of transportation cost. Most of the private cement
industries in Nepal are operating in Tarai region near to the border of India
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therefore; certain quantity of cement product is sold to the Indian market too.
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The industry demand as measured by the total sales of the industry has been
growing over the years, the growth for the last year being 5% i.e. the sales
increased from .98 million tonne in FY 2007-08 to 1.06 million tonne during
F.Y. 2009-10. The recent slowdown experience by the urban real estate and
infrastructure has dented its demand in the urban area, however the demand
from the rural area for the cement products overall has remained healthy.
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The cement industry is vital for the development of infrastructure all over the
world as no other material is likely to be its substitute in the near future.
Infrastructure and industrial activity, real estate business and investment in
core sectors mainly drive the demand for cement. Some emerging markets for
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cement demand are concrete roads, concrete canal lining and rural
construction or housing. Over 65% demand for cement arises from
construction sector. The liberalization policies for cement industry have
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helped in achieving the strong growth of the cement sector in Nepal. Cement
industry is going ahead with a modification and up gradation of technology
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The department of mine and geology in 2006 conducted a study to find out
the demand and supply situation of cement in the nation Consumption
projections after 2003-04 are based 10% growth per annum and production
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figures up to 2003-04 are based on actual figures forwarded by the concern
industries. For the projection purposes it is assumed that all plants run at 60%
rated capacity in 2003-04 and 70% in subsequent years.
Table No.3.9
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Consumption
2005-06 1395 543 38.9
The future for Nepalese cement industry is reported to be very favorable. The
market is substantial relative to current production capability and installed
production capacity. Fourteen industries including two public sector industries
have access (as per registration in the department of industry) to limestone
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resources which are of cement quality and have sufficient reserves to meet
increased capacity and demand in the future. At present about 50% of the
demand of cement in Nepal is fulfilled by the foreign import and it will
gradually decline as per projection of the government. The following table
shows the projection of cement import by the department of industry for the
next 10 years.
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Year Percentage of import
2008-09 50
2011-12 40
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2014-15 20
2019-20 15
dealing first with the shortcoming of its present manufacturing facilities and
then increase the current capacity to the higher level.
The domestic production both from public and private sector, and import
from India and other East Asian countries are the sources of supply. The public
sector industries produce only 239,000 tonne which is 45% of total installed
capacity of 532,075 tonne. Himal Cement Company is excluded. It no longer
produces cement. At present public sector industries are operating below 50%
and they will utilize 50% of their capacity in 2009-10. They will maintain 55%
of their capacity during 2010-11 to 2014-15 and 60% during 2015-16 to 2019-
20. Similar is the case with other private sector integrated and clinker based
mini, medium and large scale industries.
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As per the capacity utilization of existing cement production industries
published in economic survey, 2006-07, the production capacity was utilized
62% maximum in 1994-95 and it was 40% in 2005-06. Therefore, examining
the complex problems of cement industries in the country, they will maintain
only 60% of the capacity in the coming decade. Besides inefficient
management and adequate and timely arrangement of technical
requirements for production, the power load shedding severely affected the
production.
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Department of Mine and Geology has permitted 26 mines companies to
operate across the country until 2009. Of them, four companies - Butwal
Cement, Sagarmatha Cement, Dang Cement and Bhardau Cement are busy in
constructing their own clinker manufacturing plants. Other companies like
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Ghorahi Cements are scheduled to start production by July, 2012.
The construction boom in the country has prompted the industrialists to open
new cement industries in the country. As around 20 cement industries cannot
fulfill the growing market demand and the country has to import around 50
per cent cement to meet the domestic demand. The existing cement
industries with installed capacity of around 12,700-tonne per day can supply
only around 50 percent of the demand. Since the last two years when the
country witnessed a construction boom, cement industry emerged as a new
investment avenue.
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last fiscal year (2009-10) due to increase in construction activities in the
government and private sector. If all the cement industries that are under
construction, come into operation the total production capacity of cement
industries in Nepal will reach above 16,000 tons per day and if these industries
can operate to their full capacity they would meet around 80% of the annual
demand in Nepal.
There is tremendous potential, but lack of political stability and right sort of
business environment has been deterring investment in large-scale cement
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plants. The Nepalese industrialist suggests that if the government can ensure
a positive business atmosphere, then Nepal has the potential to emerge as a
major cement producer in South Asia.11 The capacity utilization of Nepalese
cements industry since the last five year is as under.
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Table No. 3.11
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In Nepal of the 17, five are mine-based cement industries, including
government owned Hetauda Cement and Udayapur Cement and Maruti
Cement, Butwal Cement and Supreme Cement in the private sector. Some
new industries like Shivam Cement, Ghorahi Cement, Sonapur Cement and
Rolpa Cement that are under construction are also mine-based that use the
lime stone mines to produce clinker for the cement.
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coming fiscal year and it is expected to increase every year in the future.
The government in its budget for this fiscal year (2009-10) has announced to
give higher priority to the completion of road construction and electricity
transmission lines that indicates the favorable markets of the Nepalese
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cement industries in the future.
It is noted that the present integrated cement industries do not have their
own mines to supply limestone except Maruti, Triveni and Panch Ratna
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Cement Udhyog. These industries were given license to commence production
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of cement on the condition that they will arrange their own mines within five
years of operation. None of the industries were fulfilled the conditions.
Therefore, to increase the production of cement the government of Nepal
must extend five years condition and at the same time pay attention to revive
sick industries and give incentive to those industries which are still not under
operation. If the government of Nepal not became serious in talking the
problems faced by these industries, the cement supply situation is very bleak
and Nepal has to depend heavily on the import. This will create problem of
timely availability of cement, hampering construction activities and ultimately
adversely affect the development work of the country.
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Reference
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Nepal. National Planning Commission Secretariat, Central Bureau of Statistics
Ramshah Path Thapathali Kathmandu, Nepal, P. 2.
7. Financial Survey- Fiscal Year 2009-10, Vol. 1, Government of Nepal, Ministry
of Finance, P. 125.
8. Ibid, P. 3.
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9. Annual Report of Udayapur Cement Industry and Hetauda Cement Industry
for the year 2008-09.
10. Census of Manufacturing Establishments-Nepal 2006-2007, op. cit., P. 51.
11. JICA, 1978. Udayapur Cement Plant Establishment Project Feasibility Study
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Report, Unpublished report of Japan International Cooperation Agency, V. 1
(main part).
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