SL’s largest cement producer renews calls for level playing field

The country’s largest cement manufacturer Tokyo Cement Company (Lanka) PLC (TKYO) renewed its calls for the government to create a level playing field for the cement industry, which is being taken advantage of by importers due to unbalanced policies. ‘‘An unequal playing field has been created through the current national policy that imposes price controls on cement, while allowing unlimited, duty-free entry for imported varieties,” TKYO Managing Director S.R. Gnanam said. A maximum retail price of Rs.870 per bag of cement was set by Finance Minister Ravi Karunanayake as a populist policy in the 2015 interim budget when the prevailing prices were around Rs.930-940. He also instructed the state-owned cement factories to sell a bag at Rs.760-770.

Gnanam noted that with the depreciation of the rupee over the past financial year, the cost of importing clinker and other raw material required to manufacture cement has gone up. “Domestic cement manufacturers could not adjust the retail prices to reflect the cost increase. Imported cements on the other hand, did not face such a contingency as these cements are not manufactured in Sri Lanka and do not face domestic conditions,” he said.

Gnanam noted that the importers do not have any capital investment costs or manufacturing, environmental and labour standards imposed on domestic manufacturers, which further worsen the problem. However, the cement price control may have contributed to a sharp increase in household construction.

“The demand for cement maintained an upward trajectory on the back of private sector demand for concrete in the Western Province and the cement demand by households in the regions, contributed directly towards our top line growth,” Gnanam said. He noted that there was a 7-10 percent increase in demand for the household sector, even from the North and East. He added that the demand for cement reached six million tonnes in 2015/16 compared to 5.4 million tonnes in 2014/15. However, Gnanam reiterated the need to reintroduce market forces. “Given the large inflows of imports, supply shortages are unlikely in the future.

Therefore, the market forces should be allowed to set cement prices and not be artificially propped up to benefit foreign manufacturers that are not accountable under national regulations,” he said. The current government has been highlighting the need to empower local industries. Further, while most other industries benefit from protectionism, a policy which the current regime had promised to remove but had failed to do, the cement industry seems to be a victim of the other extreme of the trading spectrum.