Punjab cement makers secure court stay on 6% royalty imposition

August 16, 2024 (MLN): In a major development today, Punjab-based manufacturers have obtained a stay order from the court against the imposition of 6% of ex-factory cement/clinker price as royalty on Limestone and argillaceous clay, according to a report by Topline Securities.

However, the brokerage house mentioned that this stay is subject to Bank Guarantees to be furnished by manufacturers.

To recall, earlier this month, the government imposed a royalty rate of 6% on the ex-factory sale price of cement or clinker for Punjab cement factories.

This applied specifically to mineral title holders with mining leases for limestone and argillaceous clay engaged in large-scale mining for cement manufacturing.

Based on Topline's channel checks, companies will expense out/provide for this increase in royalty cost despite the stay order, following prudent accounting treatments.

Moreover, this will be a non-cash expense till resolution of this matter.

In order to avoid any unfavorable decision going forward, the Punjab manufacturers are increasing cement prices by up to Rs75/bag, it added.

At the same time, it is important to highlight that, majority of the KPK based manufacturers sell a portion of their cement in Punjab also and this may provide them either an opportunity to sell higher volumes at lower price or they may also consider to increase their cement price (with no royalty increase).

"We believe, latter would be case as they will opt to increase the prices. We believe this will be positive for companies/plants situated near Punjab borders or in KPK, i.e. Bestway Cement, Lucky Cement, Kohat Cement, Fauji Cement, and Cherat Cement, in our view," the report further noted.

Furthermore, Topline Securities stated it is too early to say, how long this high royalty cost disparity will be sustained. Any move by other provincial bodies to bridge this gap (by increasing royalty) or reversal of the increase in royalty tax in Punjab may again bring some equilibrium in the costing structure of the manufacturers.

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