The proposed entry of foreign cement giants has set off an expansion drive among domestic factories worried that they will be swamped when these multi-million dollar projects begin production.

Dangote Cement of Nigeria, Hongshi and Huaxin of China and Reliance Cement of India have been okayed to start operations in Nepal. Their combined foreign direct investment (FDI) amounts to $1.45 billion and their proposed output stands at 22,000 tonnes daily.

The foreign companies have planned to jack up their capacity further which has led to unease among domestic cement manufacturers.

President of the Cement Manufacturers’ Association of Nepal (CMAN) Dhruba Thapa said that almost all the local factories were on an expansion drive currently, and that one of the reasons behind the move was to benefit from economies of scale and be competitive amid the massive foreign investment in the sector.

Thapa’s Cosmos Cement has two plants with a combined capacity of 800 tonnes daily, and it has initiated work to hike the output to 2,000 tonnes. “We will expand the production capacity within the next one year,” said Thapa.

Cosmos Cement, which presently, depends on imported clinker, has also set up a clinker plant which is expected to start production after July. “We have plans to expand clinker production,” said Thapa.

Likewise, Arghakhanchi Cement on Sunday announced that it would be almost tripling its capacity to 3,000 tonnes daily within the next one and a half years. The factory launched operations one and a half years ago and has a capacity of 1,200 tonnes daily.

Despite the expansion, Arghakhanchi Cement's capacity will still be half of the proposed capacity of Nigerian company Dangote Cement and Chinese company Hongshi Cement.

“Following the expansion, our production capacity will be one of the largest among domestic factories,” said Pashupati Murarka, director of Arghakhanchi Cement.

Murarka, who is also the president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), believes that the additional capacity will help the company to compete with the proposed foreign-funded plants. “The civil construction for the factory's expansion has already begun,” said Murarka.

Likewise, Agni Cement Industry has planned to set up a new plant with a daily capacity of 1200 tonnes. Currently, its capacity is 300 tonnes. “It will take five-six months for the capacity increment,” said Tara Prasad Pokharel, managing director of the company.

Domestic cement manufacturers claim that they have become able to fulfil 80 percent of the country's requirement with a capacity utilization of 50-60 percent.

“In fact, the existing capacity of domestic plants exceeds actual demand. We are still importing cement because the full capacity has not been utilized,” said Thapa.

However, foreign investors have said that there is unexplored potential demand for cement in Nepal as infrastructure development is yet to take off in the country on a massive scale.

According to CMAN, annual domestic demand currently amounts to 5.5 million tonnes and production amounts to 4.6 million tonnes. “We don’t see any space for foreign investors in the domestic market. They can survive here only if they displace domestic factories,” said Pokharel, who is also the general secretary of CMAN.

Local companies also claim that FDI has been promoted by offering foreign investors more tax incentives than what they get.

“It is good to promote FDI, but foreign companies should not be provided more facilities than what domestic companies get,” said Murarka. According to CMAN, investment in the domestic cement industry totals Rs80-90 billion. “Following the expansion scheme, it is expected to rise by 30-40 percent,” said Thapa.

source:the kathmandu post,21 june 2016