The state has allowed an outside player into the cement sector, ending the monopoly of local players. Trade leaders are annoyed at the opening of the only booming sector to outsiders. A Kashmir Life report.
J&K is one of the lowest cement consuming places in India. Against the national average of 190 kgs per head per year, trade leaders say the consumption here hovers around 80 kg per person per annum. That still comes to around 1.50 million tons a year, of which, trade leaders say, 700 thousand tons are manufactured locally.
With available raw materials and a good demand, local manufacturers work overtime to manage the supply. But the consumption is a bit higher and more than half the market is serviced by the manufacturers from outside.
Intense competition from private players is going to hit hard the state owned J&K Cements Ltd. Even though it has setup a new plant, its mismanagement within has impacted its volumes. As a result it is unlikely to record growth in profits during the current fiscal. It registered a profit of Rs 3.56 crore in 2008-09, which, insiders say, is a remote possibility given the fall in production and its market share.
But the larger story is the entry of Shree Cements with its 600-ton per day capacity plant at Kathua. A major player in the sector, Shree already has a sound market share in J&K. Informed sources told Kashmir Life that the Rs 164 crore project, was approved by the Apex Clearance Committee (ACC) of the state government on September 8, 2008. Interestingly, it will get gypsum from Basholi! Trade sources said that entry of Shree Cements will mark the end of local monopoly over the sector, which was gradually heading towards self-sufficiency.
Waseem A Trambu of the TCI Cements that is currently setting up a major manufacturing facility in Srinagar said Shree’s entry is going to create problems to the state government and the entrepreneurs in the sector. “I have the information that it (Shree’s) is a grinding unit that essentially means it will be ready to pack cement that will help promoters to save the entry tax which is not a small amount,” Trambu says. Calculations on basis of the existing tariff suggest that the company would save around Rs 12 lakh a day on entry tax of its material alone.
The larger issue, however, is that why did the state government permit the entry of outside player when it knew that cement was the only sector in which the state owned enterprises (read JK Cements Ltd) and the local entrepreneurs were doing well. A ‘veteran’ Congressman’s son, reportedly, is part of the project and the party was keen to see it through. As the earlier governments decided against opening the sector to non-local investment, the project was allowed in at the peak of Amarnath Land row crisis during governor’s rule in 2008.
It is more of a conspiracy than an investment, says Shakeel Kalander, the president of the Federation of Chamber of Industries Kashmir (FCIK). “They (outside investors) were eying it (cement sector) for a long time and they have finally succeeded in creating a hole. It is Shree today, it will be Ambuja tomorrow,” Kalander said. “It is high time the government intervenes and stops damage to the otherwise better performing sector.” He believes that if the policy makers in government felt the requirement of another unit, they always had two options – one to invest directly through JK Cements and another, to ask any other entrepreneur to expand. “Right now, there are four players who have more than 600 tpd facilities so the excuse of locals lacking expertise will not work in this case,” he said, “It is more than an investment.”
Investors from outside were always eyeing the state’s cement sector. Gujarat cement giant Ambuja lost a few crores trying to gain entry into state and they were almost allowed to set up a plant when the Mufti-led government turned down the project. National Conference (NC) government had inked a Memorandum of Understanding (MoU) with Ambujas’ in 1998 and subsequent discussion spanned over four years. They had submitted the proposal for setting up a million-ton a year project in May 1997. It would require an investment of Rs 140 crores, 10-MW energy and around 100 acres of land.
Since the intent of investment had come at a time when nobody was looking at J&K, the company came up with a set of preconditions. They wanted permission to import clinker, fly-ash, gypsum and almost everything from outside. Besides, they wanted power tariff freezer for five years at Rs. 1.65 per unit; exemption from toll tax, GST, CST for a decade and ban on registering any cement manufacturing unit in J&K for next 10 years. Most of the conditions were accepted and even land was identified and a letter of intent issued as well.
To the luck of the local entrepreneurs who were otherwise struggling to get the deal cancelled, the change of guard helped. The cancellation of the deal helped accrue a local investment of over Rs 400 crore in the sector leading to a situation where they were on the way to manage the local market on their own at competitive prices and without compromising the quality. “Ambujas’ were not alone. A few years later, Dalmia’s approached the then chief minister Mufti Sayeed and he asked me to listen to the big player,” says Kalander. “That company was keen to invest Rs 1000 crore in creating a huge plant and once I briefed Mufti he took no time in rejecting the offer.” But now, things seem to have changed totally. If Shree is permitted, Ambuja will follow despite the fact that it will strain the exploitable gypsum resources.