Expanding cement firms seek incentives

14 April 2013

Cement manufacturers are seeking tax incentives with the Board of Investments for their planned new and expansion projects, including the $500 million new integrated cement plant of Holcim Philippines Inc., as existing plants are nearing full capacity given the prevailing strong domestic demand and to prepare for stronger growth once the huge infrastructure projects under the government's Public-Private Partnership (PPP) program are fully implemented.

Eduardo Sahagun, CEO of Holcim Philippines Inc., said they are expecting an approval from their Switzerland headquarters for its planned $460 million to $500 million new integrated cement project in Bulacan that is expected to be operational by 2017. This new plant is designed to provide Holcim additional capacity of between 2 million to 2.5 million metric tons of cement.

Two other cement firms Lafarge and Cemex have also announced last year of plans to increase their respective capacity in the country. Cemex is to raise capacity at its plant in APO by 1.5MT through an investment of $65 million. The project is expected to be operational by 2014. Lafarge Republic has been planning of raising capacity by 1 MT through a revamp of its Danao grinding plant in Cebu and debottlenecking its plant in Norzagaray, Bulacan.

By the first quarter of 2013, Lafarge hopes to supply an additional 0.2 MT of cement to Luzon, 0.65MT to Visayas and another 0.1MT to Mindanao.

Already, the Cement Manufacturers Association of the Philippines (CeMAP) has petitioned the BOI for the inclusion of the industry in the 2013 Investment Priorities Plan (IPP) to be eligible for government perks, particularly the income tax holiday which could exempt them from paying income tax for a maximum of eight years.

''The reason the industry is seeking incentives is because we are reaching capacity and we are planning to invest in new plant because cement is critical to infrastructure projects. We are hoping that government when they look at industry they should not look at the near term but look at it long-term or 15 to 20 years because we need additional capacity to help the country in keeping with the demand of cement,'' Sahagun said.

According to Sahagun, the industry has total capacity of 21 million tons and last year they sold a total of 18.5 million metric tons or more than 85 percent capacity utilization rate. This means the industry has only 2 million tons in excess capacity.

''The cement industry, which had been growing at a normal rate of between 5 to 8 percent annually, grew an extraordinary 18 percent last year,'' Sahagun pointed out. Such growth, he noted, was largely fueled by private and public construction projects only.

''There was no single PPP project yet, what if these huge infrastructure projects come on stream, then there would be high growth in demand,'' he said.

Sahagun, however, said that the 18 percent growth rate incurred last year may not be sustainable at that level, but the industry is still projecting a high single-digit to low double-digit growth in the next couple of years.

The second point why the industry is seeking for government incentives, Sahagun said, is that the Philippines has a high cost of power compared to its neighboring countries which power cost are subsidized by the government.

''We are just after what the BOI can provide us,'' Sahagun said. While he admitted that they are enjoying good business this time, he also asked the government to look at the industry long term stressing it takes time to build a cement plant and recovery of this capital-intensive manufacturing project could take 20 long years.

Aside from income tax holiday, a BOI-registered firm is also entitled to a mere one percent duty on imported capital equipment.

Sahagun said the industry has been experiencing tightness in supply.

In fact, he said Holcim is bringing back its one million ton Mabini plant in Batangas by June or July. Late last year, he said, Holcim also imported 700,000 tons clinker last year to ensure enough supply for the market.

''Without it,'' Sahagun said, ''we would have experienced shortage in supply.''
''That is contributing to the movement in prices especially now that it is summer time and the peak of construction,'' he said.

The Department of Trade and Industry said it has already asked cement manufacturers to explain the price increase to P220 per 40 kilogram bag from P210 per bag late last year.