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The history of cement industry in Pakistan dates back to 1921 when the first plant was

established at Wah. At the time of independence in 1947 there were four cement factories with an
installed capacity of 470,000 tons per annum. These units were located at Karachi, Rohri, Dandot
and Wah. In 1956 Pakistan Industrial Development Corporation (PIDC) established two plants at
Daudkel and Hyderabad and subsequently more plants were established in the private sector.
The industry was nationalized in 1972 and the State Cement Corporation of Pakistan (SCCP)
was established following the Economic Reforms Order, 1972. As a result of nationalization, a
total of 10 cement units with an installed capacity of 2.8 million tons per annum were transferred
to the SCCP. Effective price control was also vested with the SCCP and for a long time the
industry operated under a regime of strict regulation and price control. While the cement industry
was working under state control, the SCCP established five new units with an installed capacity
of 1.8 million tons per annum.
In 1985-86 the cement industry was deregulated and private sector was allowed to establish
cement plants. But bulk of the capacity was controlled by the SCCP which had effective control
in the fixation of prices. Severe shortage of cement and price deregulation prompted the private
sector to establish more plants. Seven units were established in the private sector before
commencement of the process of privatisation in 1991.
During the regime of Nawaz Sharif the industry went through major transformation. The
government embarked upon an ambitious privatisation programme and eight units have been
privatised so far. The SCCP at present controls less than 25% of the total installed capacity in the
country which is shrinking with the establishment of more plants in the private sector and
expansion in the privatised units. The units working under the SCCP control are old and
inefficient using 'wet process' whereas the units established in the private sector are new, efficient
and use 'dry process'.
Cement manufacturing is a high capital- and energy-intensive industry. The capital cost of a 2000
tonnes per day (TPD) plant ranges between Rs. 3.5 billion to Rs. 4 billion whereas the capital
cost of a 3000 TPD plant is estimated at more than Rs. 5.5 billion. Energy consumption by
cement manufacturing units based on 'wet process' is higher than 'dry process'. The 'dry process'
is estimated to be economical by 40% to 50% compared to 'wet process'.
By now it has exceeded 10 million tonnes per annum as a result of establishment of new
manufacturing facilities and expansion by the existing units. Privatization and effective price
decontrol in 1991-92 heralded a new era in which the industry has reached a level where surplus
production after meeting local demand is expected in 1997.

The cement industry crossed the heavily burdened debt mark of Rs 120 billion from financial
institutions.
The debt, which was Rs 34 billion in 2003-04, has crossed Rs 120 billion this year. Cement
demand in the country is directly proportionate to the growth in GDP. Over the last 3-5 years, the
security situation in the country has resulted in low GDP growth. Despite this, the cement
industry contributed revenue amounting to approximately Rs15 billion in 2004, Rs17.5 billion in
2005, Rs 22b in 2006, Rs 26.3 billion in 2007 and Rs30 billion in 2008 to the national exchequer.
There are 23 cement companies in the country out of which 4 are foreign companies and 3 are
controlled by the armed forces under the aegis of Fauji Foundation and Army Welfare Trust. 19
of these companies are listed on the stock exchanges of the country and their working is
regulated by strong professional and statutory bodies such as Securities and Exchange
Commission of Pakistan, Stock Exchanges of Pakistan, Institute of Chartered Accountants of
Pakistan and Institute of Cost and Management Accountants of Pakistan.
Industry circle further added the companies file monthly, as well as, annual returns of income
tax, sales tax and federal excise. Cement industry is also following the rules and regulation
implemented by FBR. Federal Board of Revenue has the power to check the books of accounts
of any company and the cement sector remains under close scrutiny of the Federal Board of
Revenue.
The cement industry in Pakistan faces two serious threats: closure of units based on wet process,
and poor cash flow rendering the units incapable of debt servicing due to increasing cost of
electricity, furnace oil and imported craft paper used for cement packing. The cost of furnace oil
alone has increased by nearly 100% in the last 15 months alone. With the increase in furnace oil
the increase in electricity tariff has also become inevitable.
Pakistan has remained a net importer of cement but due to the privatization of units operating
under state control and subsequent expansion programmes by the new owners supported by
financial has pushed the industry to a point where the country is bound to reach an oversupply
situation. However, the recent increase in energy cost provides opportunity for the efficient units
based on dry process to sustain the situation for a relatively longer period. It would also be
possible because the expansion by the existing units and establishment of new units are being
delayed.
Pakistan's cement market is divided into two distinct regions, North and South. The northern
region comprises the Punjab, NWFP, Azad Kashmir and upper parts of Balochistan, whereas the
southern region comprises the entire province of Sindh and lower parts of Balochistan.

Traditionally, the southern region has always been surplus in cement production but with the
establishment of more plants in the northern parts of the country the region has become almost
self-sufficient in supply of cement.
some cement sector analysts are not quite impressed by the companys reported earnings for
financial year 2002. They argue that almost Rs270 million in the current net earnings of Rs280
million are a result of change in depreciation policy. During the year, the company changed its
depreciation policy on plant 2, cutting down the rate from 10 to 5 per cent. The change of
depreciation policy would not however, have affected the companys cash flow position.
D.G.Khan Cement Company has the largest cement manufacturing capacity in the country.
Listed in 1992, the company had distributed the last cash dividend to the shareholders in 1994 at
15 per cent; while a 10 per cent bonus along with a right at 33 per cent did materialize in 1995.
Paid-up capital of the company is Rs1,524 million, which had stood raised from Rs1,324 million
by the issue of 20 million new shares to the shareholders in D.G.Khan Electric Company Limited
in 2000. The shares were issued after the merger of the two companies effective July 1, 1999, in
the ratio of one-for-one. D.G.Khan cement has also announced its plan to float a Rs396 million
cumulative preference issue with a tenor of 4 years.
For financial year 2002, the company posted topline growth at 6.54 per cent with sales at
Rs2,718.7 million, from the earlier years sales amounting to Rs2,551.8 million. The
improvement attributable to some 5-10 per cent increase in cement prices during the year. Gross
profit jumped up to Rs770.9 million for the year under review, from only Rs24.9 million in 2001.
The company emerged into an operating profit of Rs707.7 million in the latest year, from
operating loss of Rs33.7 million the previous year. Financial charges decreased 14.2 per cent to
Rs515.1 million for the year under review, from Rs600.4 million the earlier year, clearly on the
back of lower interest rates. Gross margin grew from 1 per cent in 2001 to 28 per cent in the year
under review. Analysts at brokerage, First Capital attributed it to reduction in rate of
depreciation; lower average furnace oil prices during the year and partial conversion to coal
firing system.
D.G.Khan, Pioneer, Lucky, Maple Leaf, Cherat and Bestways, were believed to be leading the
pack of most of the 21 cement producers in the country that were racing to convert all of the
production to coal by the end of the current calendar year. Already Pioneer and Lucky have
announced full conversion. By the end of April this year, D.G.Khan was said to have converted
about 60 per cent of its current manufacturing process to coal.

D.G.Khan Cement was established by the State Cement Corporation of Pakistan (SSCP) at Dera
Ghazi Khan in 1986. It was privatized to the Nishat group in 1994-95 at Rs35.90 per share.
In 1995, D.G Khan Cement (DGK) was at the top of the 19 listed cement units in terms of profits
earned and total assets and ranked second in respect of sales. The company then enjoyed
excellent liquidity with no short term borrowings; minimal long term liabilities and a mountain
of cash as high as Rs2.1 billion at end-December, 1995.
By the middle of last decade, the days of sunshine and glory were all but over for the cement
sector. Excess capacity; the teething competition; economic recession and the spiralling cost of
production all pushed cement producing units in the quagmire of losses.
D.G.Khan still carries Rs1 billion accumulated deficit on its balance sheet. In the run up to the
bull market of 1994, the 10-rupee share in the company had touched its record high price of
Rs125 at the market; the stock is now trading at a tenth of that price.