CHAPTER-3

CONTRIBUTION OF CEMENT

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INDUSTRIES IN NEPAL
 Strengthening the Economy
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 Contribution to GDP Growth

 Contribution of Cement Industry in the National Economy

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 Employment
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 Market for Nepali Cement

 Future Prospective of Cement Industries in Nepal

 Cement Supply Situation

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110
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 CHAPTER-3

CONTRIBUTION OF CEMENT INDUSTRIES IN

NEPAL

3.1 Strengthening the Economy

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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for the construction industry, especially in the government’s infrastructure

development plans in the context of the nation’s socioeconomic
development.

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.

(d) Creating employment opportunities in rural areas.

(e) Setting up a cement industry in locations where movement of heavy

machinery is difficult.
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(f) Exploitation of small deposits of limestone as well as limited quantities of
calcareous industrial wastes.

(g) Reducing the average unit cost of transporting cement through the
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dispersal of cement-production facilities.
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3.2 Contribution to GDP Growth

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

112
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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Similarly, Nepalese commercial banks are benefited by those cement

industries as they have provided investment opportunities in the form of loan.
According to Nepal Rastra Bank (central bank of Nepal) about 45billion rupees
of Nepalese commercial banks have been invested in the cement, lime and
plaster industry in the form of long and short-term loan.

Cement Industry in Nepal pays a large amount of taxes, besides statutory

duties and contributions under various statutory provisions and labour or/and
industrial laws. According to census of manufacturing establishments Nepal
2006-07 there are 25 Cement, lime and plaster industries in Nepal and their
annual contribution in national income and their principal economic indicators
are as under.

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 Table No. 3.1

Principal Economic Indicators of the Cement Industries (2006-07)

Heading Amount (Rs. in ‘000’)

1 Vat 905119

2 Excise duty 84346

3 Import duty 226413

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4 Value of output 6962462

5 Value of input 5353414

6 Fixed assets at the end of year 5808201

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7 Total value added 1609048

Source: Census of manufacturing establishment Nepal 006-07.

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Cement industry is indeed a highly important segment of industrial sector that
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remains the highest taxed essential infrastructure input in Nepal. It plays a

pivotal role in the socio-economic development, though the cement industry
in Nepal has witnessed its low performances during the last couple of years
and is buoyant once again. In the fiscal year 2009-10, seven PEs in the industry
sector made production and sales transactions worth Rs. 4,980 million which
is 3.34 percent more than that of preceding fiscal year.

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

Import Duty Structure for Cement Industry in Nepal

Cement Clinker Gypsum

Customs duty Rs. 2000/MT Rs. 1,200 MT 5%

Special duty 1.5% 1.5% 1.5%

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Local Development Fee 1.5% 1.5% 1.5%

VAT 13% 13% 13%

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Excise duty in India on clinker is Indian Rs. 350/MT and on cement Indian Rs.
400/MT which are adjustable in Nepal’s customs duty. Therefore, the actual
customs duty paid for cement is Rs. 1360 and for clinker Rs. 640.
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3.3 Contribution of Cement Industry in the National Economy
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In the fiscal year 2009-10 the manufacturing Industries of Nepal have

contributed 16% of total GDP. The manufacturing industries of Nepal include--
carpets, Pashmina, garments, cement, cigarettes, bricks, sugar, soap, matches,
jute, manufactured goods, and hydroelectric power. Until the 1960s, modern
industry was almost nonexistent, only 0.66% of Nepal's GDP was derived from
industry in 1964-65. Since then, industrial development has been given
emphasis in economic planning. Manufacturing as a percent of total GDP at
current factor cost rose from the year 1980 to 2009. The contribution of
manufacturing sectors at current factor cost in total GDP during the period of
1980-2010 is presented in the following table.

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 Table No. 3.3

Contribution of Manufacturing Sectors in Total GDP of Nepal

Year 1980 1990 1995 2000 2010

Percentage 4.2 6.1 9.2 10.5 12(Estimated)

Source : http:/www.cimnat.com 1b/History/History

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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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industry sub-sector to GDP growth. Despite the sub-sector's annual average

contribution of 7.1 percent to GDP for last five years, its average annual
growth rate has been the lowest with 1.1 percent only.5 The cement industry
is contributed about Rs. 94 millions to the national exchequer in the form of
tax in the fiscal year 2009-10 and this sector has invested about Rs. 5800
million in fixed assets for the development of their infrastructure over the last
three decades.6 The year-wise contribution of cement industries in the
national exchequer is as under.

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 Table No. 3.4

Contribution of Cement Industries in the National Exchequer

Year Amount (Rs. ‘000’)

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 terms of employment, the cement industry in Nepal has absorbed a minor

section of the available labor force however; available statistics indicate that
employment opportunities in this particular sector have increased over years.
In 2009-10, employments in Nepalese cement industry increased at a rate of
10% in comparison to early 2000s.7

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.

117
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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Table No. 3.5

Direct Employment in the Cement Industries of Nepal (2006-07)

Type of industry Persons engaged Employees

Private 2278 2225

Public Udayapur Cement Industry 607

Hetauda Cement Industry 603

The number of employees in government owned cement industries are

relatively more in comparison of private industries. It means public industries
have a common pressure of over-staffing, but the production and delivery of
goods and services of these industries have not improved in comparison to

118
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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are available in the rural areas too.

There are numbers of high level technical employment opportunities in the

cement plant; like site engineer, packaging engineer, sift in charge, surveyor,
geologist, contractor, supervisor and other posts. At the same time more and
more unskilled labour manpower are also required in the production of
cement. In fact, working in the cement industry is also considered as a
lucrative career option for the freshers and the youngsters.

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

119
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

Table No. 3.6

Number of Persons Working in the Private Cement Industries

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and their Annual Wages and Salary (2009-10)

S. N. Position Number Wages and Salary

of persons paid (Rs. in ‘000’)
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1 Unpaid family workers 53 -

2 Managerial personnel 38 4212

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3 Administrative Staff 740 124682
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4 Technical worker 565 115314

5 Operative Worker 882 113807

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.

 The cement industry offers a wide range of challenges and

opportunities in local and regional centers throughout the country.

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Table No. 3.7

Expected New Capacity Addition in Nepal (FY 2009-10)

S.N. Name and Location of Plant Capacity Commissioning Remark

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MT/Y year

1 Shivam Cement, Makwanpur 0.29 FY-2010 Mine Based

2 United Cement, Dhankuta 0.13 FY-2011 Mine Based

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3 K.P. Cement, Dhading 0.06 FY-2010 Mine Based
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4 Suvashri Jagdamba Cement¸Parsa 0.09 FY-2010 Clinker based

5 Butwal Cement, Butawal 0.06 FY-2011 Mine Based

6 Ghorahi Cement, Dang 0.30 FY-2010 Mine Based

7 Dang Cement, Tulsipur 0.33 FY-2011 Mine Based

8 Sonapur Cement, Dang 0.13 FY-2011 Mine Based

9 Dynasty Cement, Kapilbastu 0.11 FY-2010 Mine Based

10 Agni Cement, Kapilbastu 0.09 FY-2010 Clinker based

11 Goenka Cement, Rupandehi 0.09 FY-2011 Clinker based

12 Sunval Cement, Sunval 0.30 FY-2012 Clinker based

Source : Ministry of Industry and Commerce, Department of Industry.

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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.

3.5 Market for Nepali Cement

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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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In 2009-10, about 3% of the total production of Nepali cement was exported

outside the country i.e. in India.

Table No. 3.8

Sales of Nepali Cement for the Year 2009-10

Market Quantity Value Percent

(in sacks) (Rs. in ‘000’)
Nepal 20637110 7214094 97.3

India 572657 180387 2.7

Total 21209767 7394481 100

Source: Ministry of Industry, Department of Industries

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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.

3.6 Future Prospective of Cement Industries in Nepal

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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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particularly in energy conservation.

The rural infrastructure development is the primary objective of the

government of Nepal. The rural infrastructure includes irrigation facilities,
storage, market yards, telecommunications and rural electrification would
also demand substantial quantity of cement. Nepal is not self-sufficient in
cement therefore, as compared to many other sectors of the national
economy; the cement industry in Nepal is thus favourably placed for a bright
future.

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

Demand and Supply Projection of Cement (2005-6 to 2014-15) in

‘000’MT

Year Annual Total Production Deficit (%)

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Consumption
2005-06 1395 543 38.9

2006-07 1675 718 42.8

2007-08 2056 934 45.4

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2008-09 2248 1145 50.7

2009-10 2502 1435 57.2

2011-12 2775 1707 61.5

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2012-13 3122 2343 75
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2013-14 3378 2687 79.5

2014-15 3689 3012 81.6

Source: Department of Mine and Geology GON

The projected figures of cement consumption and production in the country

during the ten year period shows good condition of cement market in Nepal,
however in reality with the poor performance in the capacity utilization of the
public sector industries the gap of demand and supplies widens much more
than projected in the table.

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.

Table No. 3.10

Estimation of Cement Import in Nepal (2008-09 to 2019-20)

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Year Percentage of import

2008-09 50

2011-12 40
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2014-15 20

2019-20 15

Source: Department of Industry GON

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To meet these targets the cement industry needs to improve its efficiency by
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dealing first with the shortcoming of its present manufacturing facilities and
then increase the current capacity to the higher level.

3.7 Cement Supply Situation in Nepal

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 total production capacity of the new companies would be approximately

3,850 TPD, which is about 1,155,000 tonne annually. If these companies
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operate to their full capacity, they would meet 46.2 percent of the annual
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cement demand in the country according to department of mine and geology.

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.

The Central Bureau of Statistics has predicted an increase of the contribution

of construction sector to 6.62 per cent to the gross domestic product in the

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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

Capacity Utilization of Cement Industry

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Year Approved Capacity Production Capacity
(Units in MT) (Units in MT) Utilization (in %)
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2001-02 446350 172,895 39

2002-03 536,487 225327 42

2003-04 728,440 296,543 41

2004-05 667,000 286,020 43

2005-06 690,600 280,057 41

2006-07 690,600 310,561 45

2007-08 918,600 360,065 39

2008-09 845321 371940 44

2009-10 1034576 392563 38

Source: Department of Industry

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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.

If number of mined based cement industries increase in the country the

contribution of mines to the GDP is also predicted to be 4.23 percent for the

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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

1. CR – Global Cement Report, 8th Edition.

2. Issues in Cement Industry under GST Regime : Sanjiv Agarwal.
3. Annual Report of Udayapur and Hetauda Cement Industry, F. Y. 2065-66.
4. Financial Survey- Fiscal Year 2009-10, Vol. 1, Government of Nepal, Ministry
of Finance, P. 136,
5. http://mof.gov.np/publication/budget/2010/survey.php,
6. Census of Manufacturing Establishments-Nepal 2006-07, Government of

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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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