INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN

(Constituted under the Cost & Management Accountant Act, 1966)

RESEARCH PUBLICATION ON

INPUT COSTS & CORPORATE TAX STRUCTURE

AN ANALYSIS OF TRENDS IN SAARC REGION

A JOINT STUDY

OF

INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS

OF PAKISTAN

AND

THE FEDERATION OF PAKISTAN CHAMBERS OF

COMMERCE & INDUSTRY

ICMAP MISSION STATEMENT

“To promote efficiency and effectiveness by
providing competent and high calibre professionals
in the area of Management Accountancy.”
 Printed and Published by ICMAP
ST-18/C, Block 6, Gulshan-e Iqbal, Karachi – 75300
Phone 9243900, 1, 2 & 4. FAX (92-21) 9243342
E-Mail: ed@icmap.com.pk
Web Site: www.icmap.com.pk

Dated: June 11, 2001

 FOREWORD

It gives me immense pleasure to present the Research Study on Input Cost and Corporate Tax structure
– An analysis of trends in the SAARC Region which has been prepared jointly by the Federation of
Pakistan Chambers of Commerce and Industry (FPCCI) and the Institute of Cost and Management
Accountants of Pakistan (ICMAP).
The Federation which is the apex organisation of trade and industry of the country, attaches highest
priority to research and development activities. It has published in the past a number of useful
publications and research reports on trade and other issues. FPCCI in collaboration with the ICMAP
conducted this research study with a view to ascertain the regional trends of input costs of industrial
production and tax structure of selected industries in Pakistan and other countries in SAARC region.
FPCCI has been demanding since long to bring down the input costs of industrial sector, which are
comparatively higher than other countries in the region. The high cost of domestic production has
rendered our exports incompetitive in the international markets. The Study concludes that effective cost
control measures should be adopted by all industries in Pakistan in order to focus on the economic
competitiveness and to balance the factors of production in manufacturing sector and to safeguard
against economic exploitation with the global economic policies pursued under WTO.
The Study further concludes that in the last five years, cost of industrial production has increased due to
major factors such as increase in input costs such as fuel and energy, under-utilization of capacity,
increase in taxes, inconsistent government policies and high interest rates. The Research shows that
Pakistan is a relatively high tax country with poor tax administration. The taxation laws therefore
requires suitable revision and structural changes.
I congratulate the entire team of the FPCCI and the ICMAP for undertaking this research study which
will provide a useful input to the Government to formulate economic policies. I want to particularly pay
tributes to Syed Jamil Ahmed Rizvi, Director Research ICMAP and his team and Mr. Anwarul Haque,
Secretary General FPCCI and his team for bringing out such a useful document.

(IFTIKHAR ALI MALIK)

 (i)

EXECUTIVE SUMMARY

World Trade Organization: WTO’s objective to liberalize the tariff on foreign goods is a serious
threat to the Islamic countries and as such they ought to prepare a joint strategy to face this challenge.
WTO regime will cripple the local industries of Islamic countries on the free arrival of products from
the developed countries, after the liberalization of trade.

The developed countries have been putting various restrictions in the shape of levying higher duties on
the import of agricultural products from the Islamic countries. The mutual trade volume between
Islamic countries stands at only US$ 40 billion per year out of the total US$ 400 billion.

South Asian Association for Regional Cooperation (SAARC): SAARC countries are facing barriers
in marketing access to the developed countries. It is a matter of concern for the developing countries as
to whether the course of globalization is affecting their economies. Even in the developed countries it
is being regarded in some quarters as highly exploitative.

Pakistan, a nation, equipped with abundant, efficient, skilled and hard working labour force, vast
natural resources and having strong agricultural base can not go begging, if it manages its affairs in a
planned and systematic manner.

Equitable and balanced allocation of land for the production of various cash and minor crops keeping in
mind the local demand would yield long term economic benefits for the nation.

Exploitation and development of natural resources such as coal, oil and gas particularly in Sindh and
Baluchistan would turnaround the entire economy of the country.
COMPARATIVE INPUT COST AND SELLING PRICE OF INDUSTRIAL PRODUCTS

COMPARATIVE INPUT COST: PAKISTAN BANGLADESH INDIA

PAK RS PER PAK RS PER TONNE PAK RS PER TONNE
TONNE
Cement 3696 3521 3228
Sugar 17170 37794 22140
Vegetable Ghee/ Cooking Oil 59660 48826 -
Chemical Fertilizer 5695 - 5576
COMPARATIVE SELLING PRICE
Cement 3703 5542 3070
Sugar 17180 26195 17228
Vegetable Ghee/ Cooking Oil 56685 46263 -
Chemical Fertilizer 8448 - 5631

DISTRIBUTION OF WEALTH – CEMENT SECTOR

COMPONENTS PAKISTAN BANGLADESH INDIA
Government Taxes 41.1% 10.3% 15.2%
Factory Cost before depreciation 44.3% 45.0% 46.4%
Other Costs 14.4% 8.2% 43.6%
Profit (Loss) 0.2% 36.5% (5.2)%
TOTAL 100.0% 100.0% 100.0%

(ii)
CEMENT: Taxation is the major limiting factor in economic revival of cement industry in Pakistan.
Estimated demand is 9.9 million tonnes against the installed capacity of 19.50 million tonnes. If
Pakistan achieves internationally competitive price of about US$ 45 to US$ 50 per tonne, it can easily
capture at least 20% (about 4 million tonnes) of regional export market, which will give the country
much needed foreign exchange of about US$ 180 million to US$ 200 million.

SUGAR: Balanced policy for cultivation of four major cash crops should be chalked out and incentive
be provided to the growers for cultivation of sugarcane on 1.50 million hectares to become self-
sufficient.

VEGETABLE GHEE/COOKING OIL: Raw and Packing materials constitute the bulk (above
95%) of the production cost per tonne in Pakistan and Bangladesh. It is much cheaper in Bangladesh
mainly due to freight, for Chittagong is nearer than Karachi from the Indonesian and Malaysian Ports
from where these countries import RBD Palm Oil.

CHEMICAL FERTILIZER: Production costs of fertilizer in Pakistan is more or less the same as in
India. However, selling price of Urea in Pakistan is 50% higher than in India. This indicates that
Pakistani fertilizer Companies are not giving adequate advantage of cost benefits to the farmers (users),
consequently making the agriculture input costs and agricultural products more expensive than in India.

PAKISTAN WITHHOLDING TAX REGIME: This indicates that majority of income taxes are
collected through this regime, which should be further strengthened for improvement of tax collection.

Simplification of procedure can only produce fruitful results if traditional contact between the taxpayers
and the taxation officers is eliminated.

Distribution of 40% profit under Section 12(9A) is an obstruction in capital formation.

Corporate Tariff Rates

COUNTRY PUBLIC CO. PRIVATE CO.
India 35% 48%
Pakistan Ass Yr. 99-00 33% 43%
Nepal 35% 35%
Bangladesh 35% 40%
Sri Lanka 40% 50%

CUSTOMS TARIFF
SECTOR PAKISTAN SRI LANKA INDIA
Cement 35% ad. val. 25% per 50 Kg bag 25%
10% for bulk
Sugar - Rs. 350/Tonne Rs. 850/Tonne
Vegetable Ghee/ Cooking Rs. 10800/Tonne 25% on CIF 100% + 4%
Oil For RBD Palm Oil for Palm Oil
Fertilizer – Ammonia 5%
Urea 10% ad. val. 5% on CIF 35% basic duty
Regulatory duty 16% countervailing
duty
4% Surcharge
APPEAL MECHANISM in Pakistan is too lengthy and complicated as compared to India and Nepal.
It is felt that suggested measures if given due consideration for implementation will not only help the
ailing sectors, but will also help in achieving a turnaround of the economy.
(iii)

PART I

INPUT COSTS OF INDUSTRIAL PRODUCTS

AN ANALYSIS OF TRENDS IN SAARC REGION
 CONTENTS PAGE

Foreword i

Executive Summary ii

PART I – INPUT COSTS

A Cement Industry of Pakistan, Bangladesh and India

B Sugar Industry of Pakistan, Bangladesh and India

C Vegetable Ghee/Cooking Oil Industry of Pakistan and Bangladesh

D Chemical Fertilizer Industry of Pakistan and India

PART II – CORPORATE TAX STRUCTURE

A Pakistan Withholding Tax Regime

B Comparative Table of Withholding Tax Regime Bangladesh, India,

Pakistan, Sri Lanka, Nepal

C Comparative View of Corporate Tax Structure in SAARC Region

Table 1 : Legal Status of the Assessee
Table 2 : Minimum Income Limit liable to tax
Table 3 : Registered Firms (RF)
Table 4 : Local Authority
Table 5 : Companies
Table 6 : Surcharge
Table 7 : Cash Dividend Income Tax on bonus shares
Distribution of 40% Profit an obstruction in capital
Formatical Section 12 (9A)
Table 8 : Comparative of Capital Gain Tax Rates

D Self-Assessment Scheme in Pakistan and Bangladesh

E Universal Self-Assessment Scheme – Pakistan

F Tax Holidays & Investment Incentive - Bangladesh, Nepal & Pakistan

G Penalties : Pakistan, Sri-Lanka, Bangladesh & India

H Appeals and Revision Procedure – Chart form

I Appeal Mechanism in India

J Appeal Mechanism in Nepal

K Wealth Tax : Pakistan, Bangladesh & Nepal

L Pakistan Customs Tariff and Trade Control Cement, Sugar,

Vegetable Ghee / Cooking Oil & Fertilizers

M Exemption from Custom Duty on Imports from SAARC Countries

N Customs Tariff – Other SAARC Countries

O Comparative Research Case Study of SAARC and South Asian

Countries on General Sales Tax or Value Added Tax

P Acknowledgement
 INPUT COST
CEMENT INDUSTRY OF PAKISTAN, BANGLADESH AND INDIA
 INPUT COST
CEMENT INDUSTRY

There are 21 cement factories in operation in Pakistan with total installed capacity of 16.10 million
tonnes of clinker/cement production per year. Projects on three more factories are in advance stages of
commissioning with 3.40 million tonnes installed capacity. With the completion of three more factories
the total installed capacity would soon increase to 19.50 million tonnes. The demand for cement was
estimated to be 9.90 million tonnes at the end of year 2000. This means that 9.60 million tonnes or
approximately 50% of capacity would remain unutilized or idle.

According to a recent report the annual demand for cement may increase @7%. This indicates that the
cement industry would have enough installed capacity to cope up with the assumed increase in demand
up to the year 2010.

COST OF SALES:
Main reasons for the underutilization of capacity has been the gross decline in the demand of cement
due to high prices as a result of high Government taxes & increased input cost particularly during the
second half (1996-2000) of the last decade. Economic recession of the last decade in Pakistan coupled
with uncertain economic & political climate and stability had compounded effect on the depressed
demand for cement.

Following are the highlights of major contributing factors:

GOVERNMENT TAXES:

Government taxes (mainly excise duty) constitute 41% of selling price of cement.

DEPRECIATION OF RUPEE:

Over the last decade Pakistani Rupee has depreciated 140% against US dollars (from Rs. 22.0 to a US$
in 1990 to Rs. 35 in 1995 to Rs. 52 to a US$ in 2000) resulting in high cost of imported packing
material, refractory material and spare parts of machinery & equipment.

60

50

40

30
Rs/US$
20

10

0
1990 1995 2000
FURNACE OIL PRICES:

Furnace oil prices increased by 583 %(about 6 times) during the last decade, most of
which has been in the previous 5 years. (from Rs.2043/tonne in 1990 to Rs. 2965/tonne
in 1995 to Rs.13948/tonne in 2000).

14000
12000
10000
8000
6000 Rs/Tonne
4000
2000
0
1990 1995 2000

ELECTRICITY CHARGES:

211% increase in electricity charges (from Rs.1.38/kwh in 1990 Rs. 2.65/kwh in 1995 to
Rs.4.29/kwh in 2000).

It should be noted that fuel and power (energy) constitute over 54% of the factory cost
of elements of cement production in Pakistan as compared to 6.6% in Bangladesh and
46.5% in India.

4.5
4
3.5
3
2.5
2 Rs/kwh
1.5
1
0.5
0
1990 1995 2000
 COMPARISON WITH OTHER ECONOMIES OF THE SAARC REGION

A comparative analysis of the components of average industry selling prices of cement

in Pakistan, Bangladesh and India is tabulated below.

RATIO OF THE COMPONENTS IN AVERAGE CEMENT INDUSTRY

SELLING PRICES OF SAMPLE COMPANIES

(ALL VALUES ARE IN EQVT. PAK RUPEES)

PAKISTAN BANGLADESH INDIA

PRICE/ % PRICE/ % PRICE/ %
TONNE TONNE TONNE
Rs Rs. Rs.
Sales Revenue 3703 100.0 5542 100.0 3070 100.0

Government Taxes (mainly Excise Duty) 1521 41.1 570 10.3 465 15.2

Factory (Mfg) Cost Before Depreciation 1641 44.3 2497 45.0 1426 46.4

Other (Selling, Administrative, Finance & 534 14.4 454 8.2 1337 43.6
Depreciation)

Operating Profit (Loss) 7 0.2 2021 36.5 (158) (5.2)

Total 3703 100.0 5542 100.0 3070 100.0

COMPARATIVE SALES AND COST OF SALES PER TONNE (RUPEES)

6000

5000

4000

3000 Sales
Cost of Sales
2000

1000

0
Pakistan Bangladesh India

Pakistan Bangladesh India

Sales 3703 5542 3070
Cost of Sales 3696 3521 3228
 COUNTRYWISE COMPARISON OF CEMENT PRICES

Pakistan Bangladesh India

Rs/Ton Rs/Ton Rs/Ton
Sales Price Before Govt. Taxes 2182 4972 2605
Govt. Taxes 1521 570 465
Sales Price after Taxes 3703 5542 3070

Comparative Sales price Before Govt. Taxes per Ton of Cement

6000

5000
4972
4000

3000

2605
2000
2182

1000

0
Pakistan Bangladesh India

Comaparative Govt. Taxes per Ton of Cement

1600
1400 1521
1200
1000
800
600
400 570
465
200
0
Pakistan Bangladesh India
 Distribution of Wealth
Pakistan

14.4% 0.2%

41.1%

44.3%

Govt taxes Factory Cost before depreciation Other Costs Profit/(Loss)

Bangladesh

10.3%

36.5%

45%
8.2%

Govt taxes Factory Cost before depreciation Other Costs Profit/(Loss)

India

43.6%
5.2%

15.2%

46.4%

Govt taxes Factory Cost before depreciation Other Costs Profit/(Loss)

It can be seen that in Pakistan taxation is the major limiting factor in economic revival of cement
industry. Excise duty in Pakistan is Rs. 1000/tonne of cement as against 350/tonne in India. If the
government of Pakistan reduces tax by 50% & if the said tax relief (benefit) is passed on to the
producers and the consumers in an equitable manner, the wealth distribution scenario will change as
follows

REVISED DISTRIBUTION OF WEALTH REFLECTING SUGGESTED

TAX CONCESSION IN PAKISTAN

PAKISTAN BANGLADESH INDIA

PRICE/ % PRICE/ % PRICE/ %
TONNE TONNE TONNE
Rs Rs Rs
Sales Revenue 3085 100.0 5542 100.0 3070 100.0

Government Taxes (mainly Excise Duty) 632 20.5 570 10.3 465 15.2

Factory (Mfg) Cost Before Depreciation 1641 53.2 2497 45.0 1426 46.4

Other (Selling, Administrative, Finance & 534 17.3 454 8.2 1337 43.6
Depreciation)

Operating Profit (Loss) 278 9.0 2021 36.5 (158) (5.2)

Total 3085 100.0 5542 100.0 3070 100.0

The revised distribution of wealth for cement industry in Pakistan is based on the following
additional assumptions.
CURRENT REVISED

Operating profit 0.20% 9.0%

Return on average equity. 0.27% 11.54%
Return on capital (assets) employed. 0.20% 8.55%

The above scenario could be achieved in the short term, provided the Govt. changes it’s current
applicable tax rate on cement.
 See table for computations

PRODUCTION (FACTORY) COST OF CEMENT BY ELEMENT

Following table shows the make up of the elements of production cost of cement before depreciation in
Pakistan as compared to Bangladesh and India.

Elements of Cost Pakistan Bangladesh India

Rs/Tonne % Rs/Tonne % Rs/Tonne %

Raw & Packing material 385 23 2196 88* 478 33.5

Stores & spares 95 6 49 2.0 88 6.2
Energy (fuel & power) 889 54 166 6.6 663 46.5
Labour 123 8 76 3.0 115 8.0
Factory overheads before depreciation 149 9 10 0.4 82 5.8
Total factory cost before Depreciation 1641 100 2497 100 1426 100

* Bangladesh imports clinker hence higher raw material and lower energy cost

(See detailed financial data on schedules)

Schedule I – Cement
Schedule II- Cement
Schedule III- Cement
Schedule IV- Cement
Schedule V- Cement
 ELEMENTS OF PRODUCTION COST

Pakistan

9% 23%
8%

6%

54%

Raw & Packing Material Stores & Spares

Fuel & Power ( energy) Labour
Factory Overhead before Derepreciation

Bangladesh

88.0% 2.0%

6.6%
3.0%
0.4%

Raw & Packing Material Stores & Spares

Fuel & Power ( energy) Labour
Factory Overhead before Derepreciation

India

8% 6%
34%

46% 6%

Raw & Packing Material Stores & Spares

Fuel & Power ( energy) Labour
Factory Overhead before Derepreciation
It can be seen that cement production cost in Pakistan is reasonably competitive as compared to
Bangladesh & India. However, India is better in energy cost apparently due to lesser energy cost &
efficient operations.

FURNACE OIL:

It is quite obvious from the previous tabulation that energy constitutes more than 50% cost of cement
production. Up until late fifties cement industry has been using coal as fuel for clinkering of raw
material. After discovery of natural gas all cement plants were converted into gas. In the early eighties,
the then Government decided to preserve gas for fertilizer & domestic consumption. All the cement
plants were advised to switch over to furnace oil. As highlighted earlier on, the price of furnace oil has
witnessed unprecedented rise in the last few years resulting into almost 210% increase in the cost of
cement production in the last five years. It is estimated that cement industry imports furnace oil of
about US$ 240 million per year.

COAL FIRING SYSTEM:

The increased level of furnace oil prices strongly suggests that Pakistan cement industry should switch
over to coal firing system. Almost 90% plants in the world use coal for clinkering. Pollution is no more
a problem due to advanced technologies arresting gas emissions. Cost of coal firing is estimated to be
2/3rd of the cost of furnace oil if imported coal & local coal is used in the ratio of 50%. However, if
huge coal deposits in Thar & Sondha which have lower sulphur content are developed, saving in fuel
cost will be more than 50%.

NEW WEALTH DISTRIBUTION SCENARIO:

Following Table shows the revised and adjusted wealth distribution ratio of cement industry in Pakistan
under above mentioned three situations, namely
Current short term effect: 50 % reduction in Government Taxes representing 22% reduction in selling
prices
Medium Term Effect: 50% reduction in Government Taxes and switch over to coal firing @ 50%
imported coal and 50% local coal.
Long Term Effect: 50% reduction in Government Taxes and switch over to 100% local coal.

Short Term Medium Term Long Term

Rs/Tonne % Rs/Tonne % Rs/Tonne %
Selling Price 3085 100.0 2665 100.0 2455 100.0
Government Taxes 632 20.5 546 20.5 503 20.5
Production (Factory) Cost before 1641 53.2 1345 50.5 1197 48.8
Depreciation
Others (Selling, Administrative, 534 17.3 534 20.0 534 21.7
Finance & Depreciation)
Operating Profit 278 9.0 240 9.0 221 9.0
Total 3085 100.0 2665 100.0 2455 100.0
Eqvt US$ at Rs 60 to 1 US$
(rounded to nearest US$) 52 - 45 - 41 -
NOTE: Reduction in Tax as a % of Selling Price 20.5% 20.5% 20.5%
Reduction in Energy Cost - 33% 50%
Although profit margin and tax collection per tonne shows a downward trend in the Medium and Long
terms the increase in capacity utilization due to increased demand for cement would generate higher
profit and tax revenue in value terms. In addition, the social and economic benefits that would accrue
will have long lasting effects on the economic development of the country.

In the larger national interest, immediate action on the part of the government would halt the declining
demand and increasing price of cement in Pakistan and set the condition for economic revival and
growth of cement and related industries. Increase in demand of cement would result in increased
production / capacity utilization which would facilitate further reduction in the prices due to
reduced unit cost of fixed charges and overheads.

USES OF CEMENT:

According to a report the consumption of cement in Pakistan is estimated at 72 Kg/head per annum,
which is one of the lowest in the world. India and Sri lanka have 89 Kg and 105 Kg per capita
consumption of cement respectively. Thailand, Malaysia and Taiwan on the other hand have 600 Kg,
870 Kg and 1004 Kg per capita cement consumption respectively. Per capita consumption is
considered to be one of the major indicators of a country’s size and pace of development.

It is quite obvious from the above figures that Pakistan will have to create conditions for investment in
housing and industrial projects. It will also have to reallocate resources for infrastructure development
in a planned manner if it has to catch up with the required regional pace of development. Cement
consumption can also be enhanced by switching over to concrete roads which have much longer
life than bitumen roads. Studies carried out in India have proved that vehicles plying on concrete
roads save 14 % on fuel consumption.

Canal lining and maintenance thereof is another area which can consume huge amount of cement on
a continuous basis. This will also save wastage of about 40 % water besides easing out the problems of
water logging.

If the above suggested fiscal measures and development plans are given serious consideration it is
envisaged that the consumption of cement in the country will increase at much faster rate than 7 % per
annum, most probably by 15 % to 45 % in the short and medium terms and thereafter at the annual rate
of 7 %. With the increase in local demand by 15 % to 45 %, Pakistan’s local consumption would
increase to between 11.4 million tonnes and 14.4 million tonnes in the short and medium terms
representing approximately 105 kg/capita consumption which is an increase of 45% over current rate
excluding the factor of population growth.

Forecast of Local Consumption of Cement in the Short and Medium Terms

20

15

10
m illion tonnes
5

0
2000 2001 2002 2003 2004 2005 2006 2007
EXPORT POTENTIAL

Pakistan is surrounded by a number of countries which have to import cement, either because they do
not have limestone reserves or short in limestone deposits.

Annual Demand Million Tonnes

Bangladesh 5.0
Singapore 5.0
Sri Lanka 3.0
Malaysia 2.0
Afghanistan 1.0
Myanmar 1.0
Vietnam 1.0
Nepal 0.5
Total 18.5

Export potential in Central Asian countries namely Uzbekistan, Azerbaijan and Tajikistan etc is yet to
be explored and quantified.

If Pakistan achieves internationally competitive price of cement of about US$ 45 to US$ 50 per
tonne, it can easily capture at least 20% (about 4 million tonnes) of regional export market, which
will give Pakistan the much needed foreign exchange of about US$ 180 million to US$ 200
million.

It can be seen that local demand and export put together, Pakistan, within the course of next three to
five years may very well reach a point where it can maximise its capacity utilization, and may have to
consider increasing its installed capacity beyond 2004.

Trend of Anticipated total future market (local and export)

Million tonnes
2000 2001 2002 2003 2004 2005 2006 2007
Local 9.9 11.4 12.9 14.4 15.4 16.4 17.6 18.8
Exports 0.0 2.0 3.0 4.0 4.0 4.0 4.0 4.0
Total 9.9 13.4 15.9 18.4 19.4 20.4 21.6 22.8

25

20

15 Exports
10 Local

0
2000 2001 2002 2003 2004 2005 2006 2007
 SOCIO-ECONOMIC BENEFITS OF SUGGESTED MEASURES

Reduced prices of cement due to suggested short, medium and long term measures would trigger off
various economic activities, which will have multiple long term far reaching socio economic
advantages. Some of the major benefits are as follows:

CONSTRUCTION INDUSTRY

Enhanced Private, commercial and industrial construction including infrastructural and related activities
will increase employment opportunities for construction and related workforce.

CAPACITY UTILIZATION

Further reduction in unit cost due to reduced overheads per unit of production, added employment
opportunities in cement industry Increased profitability Higher contribution to Govt. exchequer.

CANAL LINING & MAINTENANCE

Employment of canal lining workforce

Better Agricultural water management and 40% savings in already deteriorating water resources.
Increased water supply and efficient water management will have positive effect on agricultural
production. Additional employment opportunities for agricultural labour.

CONCRETE ROAD CONSTRUCTION

Creation of jobs in road planning & construction sector. 4% savings in fuel consumption of vehicles
plying on concrete roads. Foreign exchange savings on fuel in respect of (2) above.

COAL FIRING

50% savings on current cement industry imports of furnace oil bill of US$ 240.0 million in the short
and medium term and 100% savings in the long term. 33% reduction in production cost. Improved
turnover due to reduced prices.

COAL MINING, EXPLORATION AND DEVELOPMENT

Coal, mining, exploration and development would give rise to use of coal as alternative source of
energy generation.
Creation of employment opportunities in the mining sector.
Infrastructural development in the mining area would add to employment opportunities.
Improved quality of life in respective mining and adjoining areas.
Foreign exchange savings of import of fuel and furnace oil in the medium and long term
EXPORT POTENTIAL

As discussed in the body of the report there is a great potential for export provided we offer competitive
prices.

GOVERNMENT EXCHEQUER

A. TAXATION REVENUE

Loss of revenue due to reduction in tax would be offset by additional tax on increased production.
Additional tax generation through improved employment opportunities.
Additional generation of indirect taxes on increased consumption of various production materials.

B. FOREIGN EXCHANGE

Foreign exchange savings as a result of aforesaid measures can be estimated as follows:

US$ million
Estimated savings due to 50% conversion to local coal (Short Term) 120.0
Estimated export earnings (Medium Term) 180.0
Additional savings in the long term due to 100% switch over to local coal firing is 120.0
Total 420.0

Savings due to 14% fuel consumption for vehicle plying on concrete road although cannot be
quantified but could be substantial.

OTHER BENEFITS

Savings on road maintenance cost due to longer life of concrete roads.

Increased agricultural production due to better water management.
Minimisation of expenditure on disaster relief due to infrastructural improvements.
 Schedule I - Cement
COUNTRYWISE INPUT COST AND PROFITABILITY OF CEMENT SECTOR
FOR THE YEAR 1998-99

PAKISTAN BANGLADESH INDIA

CONSOLIDAT CONSOLID CONSOLIDAT
PARTICULARS ED PER % TO ATED PER % TO ED PER % TO
OPERATIO
OPERATIONS TONNE GROSS NS TONNE GROSS OPERATIONS TONNE GROSS
RS. (000) SALES RS. (000) SALES RS. (000) SALES
TONNES 1231771 368418 1889553
LOCAL SALES 4555690 3698 99.9 1609345 4368 78.8 5800803 3070 100.0
EXPORT 5162 4 0.1 432551 1174 21.2 0 0 0.0
GROSS SALES 4560852 3703 100.0 2041896 5542 100.0 5800803 3070 100.0
Less:EXCISE DUTY 1870457 1519 41.0 0 0 0.0 879309 465 15.2
SALES TAX / VAT 2270 2 0.0 209938 570 10.3 0 0 0.0

SUBSID,INCENT,REBATES,ETC 114330 93 2.5 14404 39 0.7 0 0 0.0

1987057 1613 43.6 224342 609 11.0 879309 465 15.2
NET SALES 2573795 2090 56.4 1817555 4933 89.0 4921494 2605 84.8
Less:INPUT COSTS
RAW &PACKING MATERIAL 474779 385 10.4 809183 2196 39.6 902353 478 15.6
STORES & SPARES 116847 95 2.6 17934 49 0.9 165369 88 2.9
FUEL & POWER 1094470 889 24.0 61223 166 3.0 1253615 663 21.6
LABOR 151664 123 3.3 28054 76 1.4 217251 115 3.7
OTHER OVERHEAD 132897 108 2.9 10246 28 0.5 67862 36 1.2
WIP ADJ.(DEC./-INC.) 50606 41 1.1 -6784 -18 -0.3 87753 46 1.5
COST BEFORE DEPR.(MFG. COST) 2021263 1641 44.3 919856 2497 45.0 2694203 1426 46.4
DEPRECIATION 204426 166 4.5 17253 47 0.8 285219 151 4.9
COST AFTER DEPR.(COGM) 2225689 1807 48.8 937109 2544 45.9 2979422 1577 51.4
FG ADJ. (DEC./-INC.) 6798 6 0.1 7051 19 0.3 5740 3 0.1
COGS 2232487 1812 48.9 944160 2563 46.2 2985162 1580 51.5
ADMN. EXPENSES 118260 96 2.6 35422 96 1.7 299098 158 5.2
SELL. & DIST. EXPENES 47048 38 1.0 41525 113 2.0 1423691 753 24.5
FINANCIAL CHARGES 158819 129 3.5 27350 74 1.3 484732 257 8.4
OTHER EXP. 9036 7 0.2 24472 66 1.2 26970 14 0.5
2565650 2083 56.3 1072929 2912 52.5 5219653 2762 90.0
OPERATING PROFIT
(LOSS) 8145 7 0.2 744626 2021 36.5 -298159 -158 -5.1

COMPONENT PERCENTAGES
MFG COST) RS. (000) RS. (000) RS. (000)
RAW &PACKING MATERIAL 474779 385 23.5 809183 2196 88.0 902353 478 33.5
STORES & SPARES 116847 95 5.8 17934 49 1.9 165369 88 6.1
FUEL & POWER 1094470 889 54.1 61223 166 6.7 1253615 663 46.5
LABOR 151664 123 7.5 28054 76 3.0 217251 115 8.1
OTHER OVERHEAD 132897 108 6.6 10246 28 1.1 67862 36 2.5
WIP ADJ.(DEC./-INC.) 50606 41 2.5 -6784 -18 -0.7 87753 46 3.3
TOTAL 2021263 1641 100.0 919856 2497 100.0 2694203 1426 100.0

Schedule II - Cement
CONSOLIDATED INPUT COST AND PROFITABILITY OF THREE
 PAKISTANI SAMPLE COMPANIES
FOR THE YEAR 1998-99

PARTICULARS CONSOLIDATED PER % TO GROSS

OPERATIONS TONNE SALES
RS. (000)
TONNES 1231771
LOCAL SALES 4555690 3698 99.9
EXPORT 5162 4 0.1
GROSS SALES 4560852 3703 100.0
Less:EXCISE DUTY 1870457 1519 41.0
SALES TAX / VAT 2270 2 0.0
SUBSID,INCENT,REBATES,ETC 114330 93 2.5
1987057 1613 43.6
NET SALES 2573795 2090 56.4
Less:INPUT COSTS
RAW &PACKING MATERIAL 474779 385 10.4
STORES & SPARES 116847 95 2.6
FUEL & POWER 1094470 889 24.0
LABOR 151664 123 3.3
OTHER OVERHEAD 132897 108 2.9
WIP ADJ.(DEC./-INC.) 50606 41 1.1
COST BEFORE DEPR.(MFG. COST) 2021263 1641 44.3
DEPRECIATION 204426 166 4.5
COST AFTER DEPR.(COGM) 2225689 1807 48.8
FG ADJ. (DEC./-INC.) 6798 6 0.1
COGS 2232487 1812 48.9
ADMN. EXPENSES 118260 96 2.6
SELL. & DIST. EXPENES 47048 38 1.0
FINANCIAL CHARGES 158819 129 3.5
OTHER EXP. 9036 7 0.2
2565650 2083 56.3
OPERATING PROFIT/(LOSS) 8145 7 0.2

COMPONENT PERCENTAGES(MFG % TO TOT

COST) RS. (000) PER TONNE COST
RAW &PACKING MATERIAL 474779 385 23.5
STORES & SPARES 116847 95 5.8
FUEL & POWER 1094470 889 54.1
LABOR 151664 123 7.5
OTHER OVERHEAD 132897 108 6.6
WIP ADJ.(DEC./-INC.) 50606 41 2.5
TOTAL 2021263 1641 100.0

Schedule III - Cement

CONSOLIDATED INPUT COST AND PROFITABILITY
OF THREE BANGLADESH CEMENT COMPANIES
FOR THE YEAR 1998-99
 CONSOLIDATED CONVERTED PER % TO
PARTICULARS OPERATIONS INTO EQVT. TONNE GROSS
PAK RS EQVT SALES
TK. (000) PAK RS
TONNES 368418
LOCAL SALES 1546142 1609345 4368 78.8
EXPORT 415563 432551 1174 21.2
GROSS SALES 1961705 2041896 5542 100.0
Less:EXCISE DUTY 0 0 0 0.0
SALES TAX / VAT 201693 209938 570 10.3
SUBSID,INCENT,REBATES,ETC 13838 14404 39 0.7
215531 224342 609 11.0
NET SALES 1746174 1817555 4933 89.0
Less:INPUT COSTS
RAW &PACKING MATERIAL 777404 809183 2196 39.6
STORES & SPARES 17230 17934 49 0.9
FUEL & POWER 58819 61223 166 3.0
LABOR 26952 28054 76 1.4
OTHER OVERHEAD 9844 10246 28 0.5
WIP ADJ.(DEC./-INC.) -6518 -6784 -18 -0.3
COST BEFORE DEPR.(MFG. COST) 883731 919856 2497 45.0
DEPRECIATION 16575 17253 47 0.8
COST AFTER DEPR.(COGM) 900306 937109 2544 45.9
FG ADJ. (DEC./-INC.) 6774 7051 19 0.3
COGS 907080 944160 2563 46.2
ADMN. EXPENSES 34031 35422 96 1.7
& SELL. & DIST. EXPENES 39894 41525 113 2.0
FINANCIAL CHARGES 26276 27350 74 1.3
OTHER EXP. 23511 24472 66 1.2
1030792 1072929 2912 52.5
OPERATING PROFIT/(LOSS) 715382 744626 2021 36.5

COMPONENT PERCENTAGES(MFG
COST)
RAW &PACKING MATERIAL 777404 809183 2196 88.0
STORES & SPARES 17230 17934 49 1.9
FUEL & POWER 58819 61223 166 6.7
LABOR 26952 28054 76 3.0
OTHER OVERHEAD 9844 10246 28 1.1
WIP ADJ.(DEC./-INC.) -6518 -6784 -18 -0.7
TOTAL 883731 919856 2497 100.0
Exchange Rates applied 23-10-2000
Bangladesh Takka 52.84 = US$ 1 Pakistan Rs. 55.00 = US$ 1

Schedule IV - Cement
CONSOLIDATED INPUT COST AND PROFITABILITY
OF TWO INDIAN CEMENT COMPANIES
FOR THE YEAR ENDED 1998-99
 PARTICULARS CONSOLIDATED CONVERTED EQVT PAK % TO
OPERATIONS INTO EQVT RS PER GROSS
INDIAN RS PAK RS TONNE SALES
TONNES 1889553
LOCAL SALES 4398063 5800803 3070 100.0
EXPORT 0 0 0 0.0
GROSS SALES 4398063 5800803 3070 100.0
Less:EXCISE DUTY 666676 879309 465 15.2
SALES TAX / VAT 0 0 0 0.0
SUBSID,INCENT,REBATES,ETC 0 0 0 0.0
666676 879309 465 15.2
NET SALES 3731387 4921494 2605 84.8
Less:INPUT COSTS
RAW &PACKING MATERIAL 684148 902353 478 15.6
STORES & SPARES 125380 165369 88 2.9
FUEL & POWER 950468 1253615 663 21.6
LABOR 164716 217251 115 3.7
OTHER OVERHEAD 51452 67862 36 1.2
WIP ADJ.(DEC./-INC.) 66533 87753 46 1.5
COST BEFORE DEPR.(MFG. COST) 2042697 2694203 1426 46.4
DEPRECIATION 216248 285219 151 4.9
COST AFTER DEPR.(COGM) 2258945 2979422 1577 51.4
FG ADJ. (DEC./-INC.) 4352 5740 3 0.1
COGS 2263297 2985162 1580 51.5
ADMN. EXPENSES 226771 299098 158 5.2
& SELL. & DIST. EXPENES 1079417 1423691 753 24.5
FINANCIAL CHARGES 367515 484732 257 8.4
OTHER EXP. 20448 26970 14 0.5
3957448 5219653 2762 90.0
OPERATING PROFIT/(LOSS) -226061 -298159 -158 -5.1

COMPONENT PERCENTAGES(MFG % TO
COST) TOT COST
RAW &PACKING MATERIAL 684148 902353 478 33.5
STORES & SPARES 125380 165369 88 6.1
FUEL & POWER 950468 1253615 663 46.5
LABOR 164716 217251 115 8.1
OTHER OVERHEAD 51452 67862 36 2.5
WIP ADJ.(DEC./-INC.) 66533 87753 46 3.3
TOTAL COST 2042697 2694203 1426 100.0

Conversion Rates to a US$ are effective 23-10-2000

Indian RS. 41.70 = US$1 Pak Rs. 55.00 = US$1

Schedule V - Cement

PAKISTAN CEMENT INDUSTRY

CONDENSED BALANCE SHEET OF SAMPLE COMPANIES
 AS ON JUNE 30, 1999

PARTICULARS CONSOLIDATED POSITION RS.(000)

CAPITAL EMPLOYED:
FIXED ASSETS 6714422
INVESTMENT 1019388
CURRENT ASSETS 1712522
TOTAL ASSETS 9446332
Less:CURRENT LIABILITIES -1893072
CAPITAL EMPLOTED 7553260
REPRESENTED BY:
EQUITY 2967164
LONG-TERM LIABILITIES 4586096
CAPITAL EMPLOYED 7553260

COMPUTATION OF RATIOS

PARTICULARS CURRENT REVISED

(Short Term
Strategy)
RS.(000) RS.(000)
OPERATING PROFIT(LOSS) 8145 342432

RATIOS:

RATE OF RETURN ON EQUITY 0.27 11.54

RATE OF RETURN ON CAPITAL EMPLOYED(%) 0.20 8.55

Note:
* The CAPITAL WORK IN PROCESS has been excluded from the total
assets for the computation of the rate of return on capital employed.