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CHAPTER-2

DEVELOPMENT OF CEMENT INDUSTRIES IN NEPAL

Historical Background of Cement Industries

Origin of Cement Industries

Cement Manufacturing Process

Types of Cement

Global Scenario of Cement Consumption

Cement Industries in Nepal

Growth of Industries in Nepal During Successive Plan Periods

Present Situation of Cement Industries in Nepal

Outlook of Nepalese Cement Market

Future Prospective Este

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CHAPTER-2

DEVELOPMENT OF CEMENT INDUSTRIES IN NEPAL

2.1 Historical Background of Cement Industries

Cement is, literally, the building block of the construction industry thus

cement industry has much strength to be considered. Almost every building,

bridge, road airport and irrigation cannel constructed relies on cement for its

foundation. There is also a strong reputation behind the cement industry.

Cement is a solid material and consumers rarely have complaints about the

product. The cement industries have opportunities as well. One such

opportunity is the cement industry's efficiency. The cement industry has

recently streamlined its production efforts by using dry manufacturing process

instead of wet. The cement industry depends on construction jobs to create a

profit and it heavily relies on weather. About two-thirds of cement production

takes place between May and October. Cement producers often use the

winter months to produce and stockpile cement, to meet demand, which is

considered as a weakness of the industry. The cement industry greatly relies

on constructions work. Due to financial crises, the current economy of the

world has lessened the number of construction jobs, which in turn hurts the

cement industry.

2.1.1 Origin of Cement Industries

Cement is an important raw material for any construction work. Cement and

concrete similar to the kind used today developed by the ancient roman by

mixing slaked lime with volcanic ash. James Frost, who was born in England,

set up a plant making Roman cement at Harwich in 1807. He began

experimenting with formulations for artificial cements that would provide a

cheaper alternative to Roman cement. He appears to have produced

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prototype cement at Harwich in 1810. In 1811 James Frost patented hydraulic

cement by the calcinations of the mixture of limestone and clay and Aspden

improved the process by raising the temperature. However, it was not until

1822 that he was granted a patent for what he called "British Cement.” In

October 1825, he leased land at Swanscombe, Kent, and set up a plant to

manufacture both Roman cement and the new product. In this way the

cement was introduced in 1825 i.e. 185 years ago. The new product was

named Portland because the material of that cement had born the color of

the natural stone quarried from the isle of Portland (a peninsula on the south

coast of Britain.)1

In 1838 a young chemical engineer, Isaac Johnson, burned the cement raw

material at high temperature until the mass was nearly vitrified producing the

modern Portland cement. In 1898 Atlas Portland Cement Company according

To Lewis improved the design by using what is called a rotary kiln, this

improvement was a big revolution in the cement industry. In 1899 Atlas

Cement Company improved the technology of the rotary kiln and fuel

economy by replacing fuel oil with powdered coal dust.

After 1900 there was rapid growth in both rotary kiln and auxiliary equipment

technology in the United States. Coal grinding mills were developed and coal

burning in cement kilns became the predominant combustion process in the

industry. All the equipments related to cement production crusher, raw mill,

belt conveyors, bucked elevators were improved. Improvement in the

following fields pertaining to cement manufacturing from material science

technology has been an ongoing process for 200 years.

2.1.2 Cement Manufacturing Process

The manufacturing process of cement consists of mixing, drying and grinding

of limestone, clay and silica into a composite mass. The mixture is then heated

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and burnt in a pre-heater and kiln to be cooled in an air-cooling system to

form clinker, which is the semi-finished form. This clinker is cooled by air and

subsequently ground with gypsum to form cement. Technically, cement is

made by heating calcium carbonate (limestone) with clay to 14500C in a

process whereby a molecule of carbon dioxide is liberated from calcium

carbonate to calcium oxide. The calcium oxide is then blended with some

other materials which results a hard substance, called ‘clinker.’ Then clinker is

mixed and blended with small amount of gypsum in a process which

ultimately generates a powder that commonly called ordinary Portland

cement.

Cement is the glue that holds the concrete together, and is therefore critical

for meeting society's needs of housing and basic infrastructure such as

bridges, roads, water treatment facilities, schools and hospitals. Concrete is

the second most consumed material after water, with nearly three tonne used

annually for each person on the planet.2 There are three types of processes to

form cement-the wet, semi-dry and dry processes.

In the wet/semi-dry process, raw material is produced by mixing limestone

and water (called slurry) and blending it with soft clay. In the dry process

technology, crushed limestone and raw materials are ground and mixed

together without the addition of water.

2.1.3 Types of Cement

There are different varieties of cement based on different compositions

according to specific end uses, namely, ordinary Portland cement, Portland

Pozzolana cement, white cement, Portland blast Furnace slag cement and

specialized cement. The basic difference lies in the percentage of clinker

used.

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(i) Ordinary Portland Cement (OPC)

OPC, popularly known as grey cement, has 95 per cent clinker and 5 per cent

gypsum and other materials. It accounts for 70 per cent of the total

consumption in the world.

(ii) Portland Pozzolana Cement (PPC)

PPC has 80 per cent clinker, 15 percent Pozzolona and 5% gypsum and

accounts for 18 per cent of the total cement consumption. It is manufactured

because it uses fly ash/burnt clay/coal waste as the main ingredient.

(iii) White Cement

White cement is basically OPC - clinker using fuel oil (instead of coal) with an

iron oxide content below 0.4 per cent to ensure whiteness. A special cooling

technique is used in its production. It is used to enhance aesthetic value in

tiles and flooring. White cement is more expensive than grey cement.

(iv) Portland Blast Furnace Slag Cement (PBFSC)

PBFSC consists of 45% clinker, 50% blast furnace slag and 5% gypsum and

accounts for 10% of the total cement consumed. It has a heat of hydration

even lower than PPC and is generally used in the construction of dams and

similar massive constructions.

(v) Specialized Cement

Oil Well Cement is made from clinker with special additives to prevent any

porosity.

(vi) Rapid Hardening Portland Cement

Rapid Hardening Portland Cement is similar to OPC, except that it is ground

much finer, so that on casting, the compressible strength increases rapidly.

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(vii) Water Proof Cement

Water Proof Cement is similar to OPC, with a small portion of calcium stearate

or non- saponifibale oil to impart water proofing properties.

The Portland cement contains 60% lime 25% silica and 5% alumina. Iron oxide

and gypsum make the rest of the material. The gypsum regulates setting of

the cement. The lime comes from material such as limestone, oyster cells,

chalk and a type of clay that is called Marl shale. Silica is provided by the sand

and blast furnace slag and alumina and iron oxide is supplied by iron ore,

pyrite and other materials.3 Most cement plants are located near the

limestone quarries, deposit of clay and other raw materials. Trucks and other

conveyer belts haul the limestone and other raw materials to the plants.

2.1.4 Global Scenario of Cement Consumption

The demand for cement is a derived demand, as it depends on real estate,

industrial and construction activities. Since growth is taking place all over the

world, in these sectors, the global consumption is also increasing. During the

period from 2006 to 2008, total cement consumption grew from 2,568 million

tonne to 2, 8572 million tonne, at a Compounded Annual Growth Rate of close

to 7%.

The rapid increase in global cement consumption is led by increasing demand

for infrastructure in emerging economies, with Asia accounting for 66% of the

global demand. China was the world’s largest consumer of cement in 2008

and accounted for 48.73% of total cement consumption. Studies4 have shown

that there is a direct linkage between cement consumption and global macro-

economic growth and contraction. This was also evident during the oil shock

of early 1970’s and 1979-80 and also during the East Asian crisis in late 1990s,

when the world cement consumption witnessed a sharp decline.

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Amongst all the economies under consideration, Nepal has the lowest level of

per capita cement consumption. Even though, the per capita cement

consumption in the country has increased from 28 kg in 1980-81 to around 80

kg in 2009-10, it is still relatively low compared to other major economies.

Average cement consumption in Saudi Arabia is at around 1,245 Kg, in Japan

at 491 Kg, and in United States at around 285 Kg. In comparison to BRIC

economies Nepal has the lowest level of per capita cement consumption with

China’s per capita consumption at around 1,040 Kg, 271 Kg in Brazil, 378 Kg in

Russia and 135 Kg in India. This low per capita cement consumption in Nepal

and the process of catching up with international averages along with rapid

economic growth and increased focus on infrastructure development is

expected to drive future growth in the industry, also making it an attractive

sector for international investment.5

2.2 Cement Industries in Nepal

The use of cement in Nepal as binding material came into effect from the

beginning of early 1950s. Early users of cement were dependent on imports

from India to meet their needs. The history of cement industry in Nepal dates

back to 1970 when Himal cement factory established. The cement was mostly

imported from India China, South Korea, North Korea, Burma, Indonesia,

Thailand, Japan, Hong Kong and many other countries before the

establishment of Himal cement factory in the Kathmandu valley in 1972. The

restoration democracy in 1990 gave the first initial thrust to the cement

industry in Nepal and the industry started growing at a fast rate in terms of

production, manufacturing units, and installed capacity.

Construction is an integral part of human civilization and it is an index of

nation’s progress. Cement, has a strategic position in the industrial

development. The cement industry occupies a position of predominant role as

one of the basic infrastructure industries essential for the development of the

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country. In fact cement production, consumption and its growth rate together

with the level of import and export can be taken as yard sticks among the

other parameters to assess the economic development of a country. The

progress of country is directly related to the extent of constructional activities,

which in turn means use of cement. Cement industry, therefore, is one of the

most important industries for the economic and social development of the

country.

Geographically and ecologically Nepal has great diversity, therefore balanced

development in all geographical areas is very difficult. In order to overcome

this problem investment has to be made in accordance with a plan prepared

by central planning body. If it is left to the private sectors, then profitable, low

investment, low risk and minimum gestation period industries will certainly be

developed, but it will be no in the interest of the country as a whole. So to

achieve regional economic balance, price stabilization, equitable distribution

of income, mobilization of resources, greater employment opportunities and

balance of payment government should intervene directly or indirectly in the

business.

Keyns in his epoch-making book emphasized the importance of public sector

as a major factor in national production and as a source of employment. He

also remarked that ‘I conclude that the duty of ordering the current volume of

investment cannot be safely left in private hands.’6 Planning in an

underdeveloped country can be effective when the economy is under the

control of the public sector.

In Prof. Dobb’s view an economy where initiative in investment and

development vest with private firms and individuals with their eyes upon

market and profit margin, the mere existence of a plan paper may mean

remarkably little. The state may able to influence the situation in various

ways, through monetary policy, fraction and few controls. But there are

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indirect instrument and in the circumstances of the under developed

countries weak and brittle instrument at that to provide lover and impetus to

development, a substantial volume of state investment is necessary and with

it a substantial public sector, nationalized industries and public services. The

profit of this public sector can provide financial means for the extended

investment such investment can be directed towards the key point in the

economy.7 In this regard Laxmi Narayan writes that in developing countries

public enterprises are largely a necessity not a matter of choice.8

Nepal began the process of economic and social development in spite of the

lack of modern institutions and infrastructures in early 1950s after the

attainment of democracy. The actual process of industrialization in Nepal had

started after six year of the attainment of democracy (1956 A.D.) from which

it started to lunch periodic plans.9 `In the fifty four years since the first five

year plan was executed, up to now ten successive plans have already been

implemented and eleventh plan is running. A cursory look at these plans

shows that the major focus has been laid on agro sector, industrial sector and

in the field of infrastructure development.

2.2.1 Growth of Industries in Nepal During Successive Plan Periods

Before the attainment of democracy (1951), there was Rana regime in Nepal.

Virtually, Ranas were not in favor of the socioeconomic development so they

did not taken any initiation for the industrial development in the country but

to create some belief in people they have established some industries during

late period of their regime. Therefore, Nepal began the process of economic

and social development in spite of the lack of modern institutions and

infrastructures in early 1950s after the attainment of democracy. The actual

process of industrialization in Nepal had started after six year of the

attainment of democracy from which periodic plans were started to launch.

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Five-year plans of Nepal generally strove to increase output and employment,

develop the infrastructure, attain economic stability, promote industry,

commerce, and international trade, establish administrative and public service

institutions to support economic development and introduce labor-intensive

production techniques to alleviate underemployment. The social goals of the

plans were improving health and education as well as encouraging equitable

income distribution. Although each plan had different development priorities

and the allocation of resources did not always reflect these priorities. The first

four plans concentrated on infrastructure--to make it possible to facilitate the

movement of goods and services--and to increase the size of the market. Each

of the five-year plans depended heavily on foreign assistance in the forms of

grants and loans.

First five year plan (1956-57 to 1960-61)

The First Five-Year Plan (1956-61) allocated about Rs. 576 million for

development expenditures. Transportation and communications received top

priority with over 36 percent of the budget allocations. Agriculture, including

village development and irrigation, took second priority with about 20 percent

of budget expenditures and manufacturing sector was on third priority. The

plan states that the government would monopolize those industries which

promised greater public welfare and investment on them were unattractive to

private sector provided the feasibility reports on them gave green signals.10

During this plan period seven public enterprises were established. For

establishment of cement industries no actions were taken during this plan

period.

Interim period (1961-62)

The Parliament of Nepal, which had been established under the 1959

constitution, was suspended in 1961 thus the Second Plan failed to materialize

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on schedule. Then Nepal adopted party less Panchayat system in Dec. 1961 by

banning all political parties and with the adoption of this system the whole

year was spent to achieve stability in political system. In this period only a

review of first plan was made and emphasis was given to complete those

industries which could not completed during the first plan. In this period

industrial enterprise act 1961 was adopted on the same line and basis as per

first plan.

The construction of east-west high way was started during this plan period

which has necessitated large volume of cement in the country therefore; His

majesty’s of government (now called government of Nepal) has taken

initiation for the establishment of cement industries in the country. For this

purpose government had initiated to the private sector for the establishment

of cement industries through different policies. During this period three public

enterprises were established but from the government side no cement

industries were established.

Second three-year plan (1962-63 to 1964-65)

Due to the political change of 1961 a new plan was not introduced until 1962.

Therefore, this plan covered only three year period starting from 1962 to

1965. The Second Plan had expenditures of almost Rs. 615 million.

Transportation and communication again received top priority with about 39

percent of budget expenditures. Industry, tourism, and social services were

the second priority. Although targets again were missed, there were

improvements in industrial production, road construction, telephone

installations, irrigation, and education. However, only the organizational

improvement area of the target was met. In the second plan the role public

enterprise is augmenting the internal resources needed for economic

development of the country was accepted for the first time.

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In this plan emphasis was given to the expansion of national production, the

maintenance of economic stability, the expansion of economic activities and

to attain the social justice.12 A feasibility study committee was formed to

study and recommend for establishment of Himal cement industry in the

Kathmandu valley in this plan period. Eleven public enterprises were

established among which three were manufacturing but no cement industries

were came into existence during this plan.

Third Five Year Plan (1965-66 to 1969-70)

The Third Five-Year Plan increased the involvement of local bodies in the

development of industries. It also focused on transport, communications, and

industrial and agricultural development. Total planned expenditures were

more than Rs. 1.6 billion. The third plan emphasized the need to involve both

private as well as public sectors in industrialization process of the country. The

private sector had given emphasis because they had taken interest during

second plan. The industrial objectives of the plan were: increasing industrial

production by proper utilization of available capacity, promoting industries of

daily necessities, promoting export oriented industries and emphasizing

industries using locally available materials and industries that produce basic

materials for development.13 During this plan twelve public enterprises were

established but no initiations were taken for the establishment of cement

industries.

Fourth Five Year Plan (1970-71 to 1974-75)

The Fourth Five-Year Plan increased proposed expenditures to more than Rs

3.3 billion. Transportation and communications again were the top priority,

receiving 41.2 percent of expenditures, followed by agriculture, which was

allocated 26 percent of the budget. In this plan, public sector was given a kind

of leadership in the development of industries in Nepal. It was felt the private

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sector could not set up all basic and feasible industries capable of making

special contribution to the industrial development of the country.14

The government itself thus attempted to establish paper, fertilizer and

cement industries with the aim of gradually selling them to the private sector

in future.15 It also attempted to establish other industries which could not

attract investment from the private sector despite several initiatives and

facilities provided to them. With these above proclaimed objectives, initiatives

were taken to establish twenty seven public enterprises during this plan

period. Himal cement industry Ltd. (the first cement industry of Nepal) with

capital worth of Rs. 20 million and annual production capacity of 120000

Metric tonne of Cement in collaboration with NIDC and West Germany

situated in Chobar of Kathmandu valley was established in 1972 during this

plan period.

Fifth Five Year Plan (1975-76 to 1979-80)

The new industrial policy formulated in 1974-75 by HMG has guided the

planning commission in planning fifth plan. According to the industrial policy

1974, the industry had been defined as an undertaking in the form of sole

proprietorship, partnership, cooperative, private and public limited company

of cooperation duly registered to carry one industry like manufacturing,

tourism, service assembling or transit and recreation.16 The industrial policy of

1974 aimed at achieving the following objectives.17

(i) To bring about both quantitative and qualitative improvement in

industrial production and productivity.

(ii) To create more industrial employment opportunities for absorbing the

excess labour force engaged in agriculture.

(iii) To mobilize local capital, skill and resources to the maximum.

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(iv) To be self-reliant in essential goods of daily consumption and

construction materials within the shortest possible time.

(v) To minimize regional economic imbalances.

(vi) To improve the balance of payments position by restoring the

increased export and import substitution.

Guided by above industrial policy 1974, the Fifth Five-Year Plan had set six

objectives which were exactly in consonance with the aim of the industrial

policy of the government and to achieve these objectives this plan proposed

expenditures of more than Rs 8.8 billion. For the first time, the problem of

poverty was addressed in a five-year plan, although no specific goals were

mentioned. Top priority was given to agricultural development and emphasis

was placed on increasing food production and cash crops such as sugar cane

and tobacco. Industries utilizing local resources and helping for the national

development were also given priority in this plan.

For the establishment of cement industry His majesty’s government

conducted a feasibility study by Japan international co-operation Agency

(JICA) in 1978 and the agency has recommended to establish a cement

industry at Jaljale, Sindali in the Udayapur district of Nepal based on adequate

limestone deposit in this region. Five public enterprises were established in

this plan period among them one was cement industry i.e. Hetauda Cement

Industry Ltd. established in 1976, one of the major public enterprise of Nepal.

Sixth Five Year Plan (1980-81 to 1984-85)

The Sixth Five-Year Plan also emphasized an industrial development as to

previous plan and proposed an outlay of more than Rs22 billion as a plan

expenditure. The objectives of industrial development of sixth plan were:18

to create favorable environment for the attraction of industrial

investment.

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enabling the transfer of unemployed agriculture workers to the industrial

sector.

to create an industrial base for utilizing local capital, labour, technology

and raw materials.

to develop the export promoting and import substituting industries

producing essential consumer and basic goods.

In order to achieve these objectives of industrial development the policy

framed include consolidation of similar public enterprises, liquidation, fixation

of minimum rate of return, allocation of financial subsidies by the government

decision on the basis of loss incurred and selling of shares for public

participation. This plan also aimed to review the performance of old

industries, improving the capacity utilization of the existing industries, selling

the financially distressed public enterprises to the private sector, making

inter-regional coordination more effective, developing quality management,

constancy service and preparing long term industrial plan.

This plan emphasized the establishment of industries by the government if

they require huge investment, complicated technology and of national

interest. Therefore the government has taken initiation to establish large scale

cement and limestone industries in the eastern and mid development regions

of the nation. For this purpose budget was also allocated to establish

limestone industry at Lamosanghu in Dolakha district of mid development

region and cement industries at Jaljale in Udayapur district and Parewadin in

Dhankuta district of the eastern development region.19

Except to the industries requiring huge investment and complicated

technology and fulfilling national interest all other were kept open to the

private sector in this plan. But before implementing the sixth plan the

industrial policy of 1974 was amended and new industrial policy 1981 was

enacted that has directly affected the objectives of the plan. The top priority

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of this plan was on agriculture and increasing social services were on second.

The budget share allocated to the development of industries was less than

that allocated in the previous plan. According to the guideline given by sixth

plan and industrial policy 1981 eleven public enterprises were established

during this plan period.

Seventh Five Year Plan (1985-86 to 1989-90)

The Seventh Five-Year Plan proposed expenditures of Rs. 29 billion. It

encouraged private sector participation in the economy and local government

participation. The plan targeted increasing productivity of all sectors,

expanding opportunity for productive employment and fulfilling the minimum

basic needs of the people. For the first time since the plans were devised,

specific goals were set for meeting basic needs. The availability of food,

clothing, fuel wood, drinking water, primary health care, sanitation, primary

and skill based education and minimum rural transport facilities was

emphasized.

The seventh plan recommended suitable reward and punishment on the basis

of performance evaluation of the public enterprises after giving proper

autonomy and also marked low rate of return on huge investment public

enterprises. The plan specified the following major objectives and policies.20

Objectives

So long as the private sector if not prepared to produce necessary import

substituting goods and under taken the expansion of the infrastructure,

government corporation will be developed as a major medium for producing

such goods and services.

The government corporation will supply the essential goods and basic services

to the people.

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Encouragement should be given to private sector participation in the

management and investment of Government Corporation and gradually

transfer of ownership to them will be affected.

Steps to mobilize resources from the private sector will be intensified and the

participation of the private sector in the government corporation, through

saving generation, will be encouraged.

Policies

Amalgamation of similar type of corporation.

Liquidation or privatization of sick corporations.

Clear cut responsibility and accountability of the chief executives.

Quality control of the products of monopoly type corporations.

Floatation of shares of corporation to mass.

Depending upon the nature of the public enterprise, especially on the basis of

whether it was established to earn profit or to run at break-even point or to

run purely or subsidy a set of functional objective will be developed and the

government enterprises would be classified accordingly.

Because of the political upheavals in mid-1990 to some extent, this plan was

affected and some of its programmed tasks were postponed to the next plan.

According to the guidance of the objectives and policies eleven public

enterprises were established in this plan. The Udayapur Cement Industry Ltd.

was established in 1987 during this plan period.

Eighth Five-year Plan (1992-93 to 1996-97)

People's democratic movement in 1990 established a parliamentary

democratic system in Nepal, and gave more priorities to the rural and regional

development through more decentralization and empowerment of local

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bodies. Policies, which aim to the empowerment of the local people and local

government in the development process, were formulated in order to balance

the regional development.

With the fall out of the party less Panchayat system and establishment of

multi-party government in 1991, a comprehensive set of reforms affecting all

sectors of the economy was initiated under the eighth five-year plan because

the new government wanted to reform in all aspects of socio-economic field.

Eighth Five Year Plan (1992-1997) was designed with emphasis on three-core

objectives:

(a) sustainable economic growth, (b) poverty alleviation, and (c) reduction of

regional imbalances.21 Reduction of the regional imbalances through creating

the physical infrastructures in the rural and backward regions had been

emphasized in the plan. Expansion of the road networks, rural electrification,

establishment of the health post and schools in rural village, extension of

infrastructure and service facilities in the rural areas, establishment of rural

development banks, and natural resources conservation through the

extensive community forestry were some important achievements during this

period.

`In this plan Nepal's public enterprises (PEs) were slated for privatization,

government monopolies in hydroelectric power, telecommunications, and

transportation were opened to private investment, customs were

streamlined, and the country declared open for foreign investment. So in

eighth plan more emphasis was given to the privatization of sick public

enterprises. The new government, highlighting the necessity of privatizing

mentioned that “although the establishment of public enterprises has greatly

assisted in the country’s industrial and professional development and help to

prepare the necessary institutional base, the enterprises themselves couldn’t

succeed. To accelerate the pace national development, it has became

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necessary to increase efficiency in all areas through proper and efficient

management. Together with this it has became necessary to bring about

change in the structural framework of the corporation in order to enhance the

standard of the service render by them.”22 Most of the public enterprises

were running in losses and they were suffering by overstaffing problem and

government intervention too, thus government has adopted the aim of

privatizing public enterprises. Therefore, during this plan period only one

public enterprise was established but in the private sector two cement

industries namely Butawal Cement Mills Pvt. Ltd. and National Cement Pvt.

Ltd were granted permission for the establishment.

Ninth Five-year Plan (1997-98 to 2001-2002)

The Ninth Five Year Plan (1997-2002) was designed with the aim to reduce the

level of poverty in order to empowered people economically and socially by

integrating the common people in the main stream of the development

process in the country.23 Balanced regional development was seen as an

important aspect of poverty alleviation in the country. This plan highlighted

four core objectives for regional development. Ninth Plan also focused on

regional development through the three tiered hierarchy of areas for

development i.e. Development Region, Sub-region and Districts and

formulated 13 different policies to fulfill these objectives. One of the

important aspects of this plan was to define and formulate different.

The objective of public enterprises and privatization policy of ninth plan would

be to increase people welfare by enhancing the competitiveness and

operational efficiency of the public enterprises and privatize those public

enterprises which are not necessary to be kept in the government sector.

From the early 1990s, there have been planned campaigns to reform and

privatize the PEs. By the beginning of the Ninth Five-Year Plan 16 PEs, over

half industrial PEs, had been handed over to private owners, and four have

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been shut down. A list of 30 PEs (13 in the industrial sector) was scheduled for

privatization during the Ninth Five Year Plan, but, in fact, only one i.e. Nepal

Tea Development Corporation has been privatized. The slowdown of the

reform is attributable to both the outbreak of the Maoist insurgency in 1996

and a growing resistance to the privatization program from many sides, but

particularly from workers' unions who perceive jobs as threatened.

The Ninth Five-year Plan had opened the way for the private sector to invest

in hydropower development and manufacturing industries considering that

the increasing demand for energy and products could not be fulfilled by the

government sector alone. For this purpose, the government had proposed

weaning itself away from the unnecessary administrative and other burdens.

Besides that, the Ninth Plan had also emphasized on attracting the private

sector in development activities. Because of these government policies

Butawal Cement Mills Pvt. Ltd. and National Cement Pvt. Ltd were established

and several private entrepreneurs have applied for the establishment of the

cement industries in the country in this plan period and they were granted

permission during the same plan period.

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Table No. 2.1

Permission Granted Cement Industries in the 9th Plan

(1997-98 to 2001-02)

S.N. Name of Industries Address

1 Surya Cement Pvt. Ltd. Duhabi, Sunsari

2 Balaji Cement Udhyog Naubise

3 Dyansty Industry Pvt. Ltd. Krishnanagar

4 Kanak Cement Pvt. Ltd. Makwanpur

5 Mittal Cement Industry Pvt. Ltd. Chandragadi

6 Kasmos Cement Industry Pvt. Ltd. Naktajhim

7 Buddha Cement Pvt. Ltd. Kapilbastu

8 Pashupati Cement Pvt. Ltd. Jayamari

9 Laxmi Cement Industry Pvt. Ltd. Udayapur

10 Vijaya Cement Pvt. Ltd. Bahadurgunj

11 Chitwan Cement Udhyog Pvt. Ltd. Nawalparasi

12 Jagadamba Cement Industry Pvt. Ltd. Gonaha

13 Narayani Cement Udhyog Pvt. Ltd. Lipanimal

14 Manakamana Cement Pvt. Ltd. Udayapur

15 Buddha Cement Industry Pvt. Ltd. Kamariya

16 Krishna Cement Co. Pvt. Ltd. Pasauni, Bara

17 Brija Cement Industry Pvt. Ltd. Gonaha

18 Bishwokarma Cement Pvt. Ltd. Birgunj

Source : Ministry of Industry and Commerce, Department of Industry

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Tenth Five-year plan (2002-2003 to 2007-2008)

The tenth Five Year Plan (2002-2007) has focused on the balanced regional

development through the utilization of potential resources in different

regions. It has also focused on poverty alleviation by providing financial and

employment opportunities to people. This plan concentrate on introduction of

a comprehensive agricultural development program after conducting a study

of the overall agricultural sector to raise agricultural productivity and support

small and cottage industries. Three core regional strategies have been

prepared in order to reduce regional imbalances. The core strategies are

concerned with:

People's participation in the social and political decision making processes.

Development of the inter-regional economic relations through the

infrastructure development.

Resource allocation in view of reducing regional imbalance.

This plan had also opened the way for the private sector to invest in the

manufacturing industries considering that the increasing demand of the

construction and consumable products. Due to opened economic policy of the

government the following cement industries were granted permission for

establishment during this plan period. Similarly, the following cement

industries which were granted permission in the ninth plan were came into

existence in this plan period. Este

lar

96

Table No. 2.2

Establishment of Cement Industries During 10th Plan (2002-03 to 2007-08)

S.N. Name of Industry Commissioning Year

1 Maruti Cement Industries 2004

2 Mittal Cement Industries 2007

3 Cosmos Cement Industries 2005

4 Jagadamba Cement 2005

5 Bishwakarma Cement 2004

6 Bijay Cement 2006

7 Brij Cement 2003

8 Supreme Cement 2005

9 Siddhartha Cement 2003

Source : Ministry of Industry and Commerce, Department of Industry

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Table No. 2.3

Permission Granted Cement Industries During 10th Plan (2002-03 to 2007-08)

S. N. Name of Industry Location

1 Jaya Bageshwori Cement Industry Banke

2 Jayakali Cement Udhyog Pvt. Ltd. Gonaha

3 Sagarmatha Cement Pvt. Ltd. Makwanpur

4 Shuva Shree Jagadamba Cement Pvt. Ltd. Parsa

5 United Cement Pvt. Ltd. Naubise

6 Nigale Cement Pvt. Ltd. Dhankuta

7 Sourya Cement Pvt. Ltd. Panchawati

8 Lotse Cement Pvt. Ltd. Udayapur

9 Sangrila Cement Pvt. Ltd. Geta, Dhangadi

10 Dynasty Industry Nepal Pvt. Ltd. Rupandehi

11 Sonapur Cement Pvt. Ltd. Bisouri, Dang

12 Maiher Cement Pvt. Ltd. Gonaha

13 Unitake Cement Pvt. Ltd. Simara

14 RMC Cement Pvt. Ltd. Simara

Source : Ministry of Industry and Commerce, Department of Industry

2.2.2 Present Situation of Cement Industries in Nepal

The cement was mostly imported from India China, South Korea, North Korea,

Burma, Indonesia, Thailand, Japan, Hong Kong and many other countries

before the establishment of Himal cement factory in the Kathmandu valley in

1972. After the establishment of this industry the import rate of cement in

Nepal decreased substantially because its production capacity initially was 160

tonne per day and subsequently a new Chinese plant with the production

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capacity of 200 tonne per day was added making total capacity of 360 tonne

per day. Then two additional plants, one at Makawanpur, Hetauda Cement

Industries Limited with the production capacity of 750 tonne per day and

other at Udayapur, Udayapur Cement Industries Limited, with the production

capacity of 800 tonne per day were added to the state cement manufacturing

capability. Himal Cement Company was dissolved in 2002 due to

environmental cause.

Any country’s economic development and prosperity is judged by how much

cement it consumes. Nepal’s per capita consumption of cement is amongst

the lowest in the world. The following table shows the per capita consumption

of cement of some countries as of may 2005.24

Table No. 2.4

Per Capita Consumption of Cement in Some Countries (F.Y. 2005)

S.N. Country Per capita consumption of cement

1 Nepal 80 kg

2 India 135 kg

5 Pakistan 131 kg

6 USA 385 kg

7 Korea 1271 kg

The per capita consumption of cement is the highest in Korea and in Nepal

the per capita consumption of cement is lowest which clearly indicates the

economic condition of the nation. Growth of the cement industry is one of the

important indications of country’s infrastructure and its economic

development on an extensive scale. In Nepal cement industry has recorded

continuous growth since beginning of 2000. The list of the existing and

expected cement industries in Nepal is given in the following chart.

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Table No. 2.5

Existing & New Plant Location and their Related Cement Capacities

(F.Y. 2009-10)

Source : Market Visit and Holtec database

At present most of the manufacturing industries are running in losses because

of the complicated bureaucratic structure, political interference, lack of

professionalism, experts and competence. The performance of public

enterprises weakened over the 2007-08 fiscal year, as 15 companies suffered

losses leading to a decline in the volume of combined profits. Only a very few

corporations are in a position to pay revenue to the government. Majority of

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them are hard pressed to sustain even everyday financial position and lack

professional competence.

The annual demand for cement in Nepal is about 2.5 million tonne but

domestic cement companies meet only about 20% of this demand. The

remaining 80% arrives as clinker and cement from India. Nepal has total

limestone reserves of 1 billion tonne with proven reserves of 210 million

tonne. The abundant reserves mean that the country could not only meet

domestic demand, it would be able to export cement.

According to the record of the department of industry the number of cement

industries which were granted permission to operate before 2009 was about

50 of which only 25 cement industries were came into existence for the

production of cement in various fiscal years. Among them 17 cement

industries are in operation. The name of cement industries which were came

into existence before 2009 are as under:25

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Table No. 2.6

Cement Plants in Nepal (F.Y. 2009-10)

S.N Plant Location Establish-ment

Capacity (TPD)

Type Remarks

1 Udayapur Cement Industries Gaighat 1987 800 M.B.

2 Maruti Cement Industries Phulbari 2003 600 C.B.

3 Mittal Cement Industries Chandra Nagar 2005 200 C.B.

4 National Cement Morang 2004 100 C.B.

5 Hetauda Cement Industries Hetauda 1976 750 M.B.

6 Cosmos Cement Industries Nakatajhij 2003 300 C.B. Closed

7 Narayani Cement Lipanimal 2006 600 C.B.

8 Krishna Cement Pasauli 2005 100 C.B. Closed

9 Bishwakarma Cement Birganj 2004 500 C.B. Closed

10 Ambe Cement Liwani Birta 2004 600 C.B.

11 Om Cement Tandi 2006 75 C.B. Closed

12 Shalimar Cement Birganj 2005 150 C.B.

13 Shree Cement Parsa 2002 200 C.B. Closed

14 Butwal Cement Parasi 2004 300 M.B.

15 Dynasty Cement Krishan Nagar 2004 200 M.B Closed

16 Buddha Cements Kapil Bastu 2005 50 C.B. Closed

17 Shree Pashupati Cement Jayamadhi 2004 300 C.B.

18 Bijay Cement Bahadur Ganj 2005 150 C.B.

19 Chitwan Cement Tilakpur 2007 100 C.B.

20 Jagadamba Cement Gonaha 2003 900 C.B.

21 Brij Cement Gonaha 2003 900 C.B.

22 Supreme Cement Kamariya 2003 200 M.B.

23 Siddhartha Cement Rupandehi 2004 350 C.B.

24 Reliance Cement Rupandehi 2005 200/500 C.B.

25 Nepal Ambuja Cement Rupandehi 2006 150 C.B. closed

Source: Cement manufacturers association.

C.B.: Clinker Based M.B.: Mine Based.

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Despite the fact that the number of domestic manufacturers has increased in

recent years and they are gradually substituting imports however; Indian

cement is still occupying a very important market share in Nepal - nearly 60

percent. The Indian brands of cement have good acceptance in the Nepali

market. This makes it difficult for the Nepali manufacturers to compete with

them. Moreover, Nepali cement units are dependent for the main raw

material - clinker and gypsum - on the same Indian companies that are selling

cement in Nepal.

The installed capacity of Nepalese cement industries is much higher than the

existing domestic demand, but the actual production is nearly 40% of their

installed capacity. Though there is competition in the market with the

imported Indian cement, the Nepal-made cement is still cheaper. Since the

Nepali government still has a policy to support the domestic industry through

various means therefore, there exist opportunities for the Nepali cement

manufacturers to substitute the Indian cement by their product provided they

are able to establish and maintain their quality image and price

competitiveness. Most importantly, the growth prospects for this industry are

satisfactory as the product is used primarily in development, constructions

and every government that comes to the power in the country has to focus on

development and construction.

Most of the private sector cement units in Nepal are dependent on clinker

supplied by the large cement manufacturers of India. In case the government

raises the import duty on clinker and gypsum and reduces it on cement, it will

be extremely difficult for the Nepali cement manufacturers. Another threat is

due to the overdependence of Nepali manufacturers on the Indian companies

for clinker - the main raw material. They are also the suppliers of cement to

Nepali market. If the Indian clinker suppliers form a cartel and increase the

price of the clinker or decide to stop clinker supply so as to remove the Nepali

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competitors, the Nepali cement companies may have to close down. Equally

important is the possibility of excess capacity created by the frequent entry of

new manufacturing units into this industry attracted by the present

opportunities. Since, the new unit can be based on clinker which can be

imported; the entry barrier in the form of huge initial capital investment

required for mine-based units will not be there. This may intensify the

competition among the domestic manufacturers and can affect the

profitability.

2.2.3 Outlook of Nepalese Cement Market

At present, the country’s cement demand is around 2.5 million tonne.

Nepalese industries produce nearly two million tonne cement and remaining

is imported from India. Nepal had imported 586,294 tonne of cement and

649,244 tonne of clinker – raw material used to make cement – from India in

2009-10. Domestic limestone mine-based cement industries fulfill only 15 per

cent of demand means most of the cement industries import large bulk of

clinker from India. Out of 22 cement industries operating in the country

around 16 are dependent on clinker imported from India, though the country

has vast limestone mines.

The demand of cement in Nepal is being met by internal and external sources.

Indian cement producers cover wide range of cement market in Nepal. The

internal sources of cement in Nepal are cement grinding units (Gus) and

cement producing industrial units (IUs) which are also known as integrated

units. In Nepal, the overall market leader is Jaypee (an Indian cement

producer) with 11% market share and other Indian cement industries have

occupied about 11% cement market of Nepal. Names of Indian cement plant

exporting cement to Nepal are given in the following.26

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Table No. 2.7

List of Indian Plants Exporting Cement to Nepal (F.Y. 2009-10)

(Figure in million metric tonne per Year)

Plant Cement

ACC, Chaibasa 0.021

ACC, Kymore 0.010

Birla Vikas, Satna 0.034

Santa Cement, Satna 0.014

JK Lakshmi, Sirohi 0.006

Maugar Cement, Satna 0.067

Ultra Tech, Hirmi 0.003

Ambuja, Farakka (GU) 0.001

Jaypee, Rewa 0.110

Jaypee, Bela 0.099

Lafarge, Arasmeta 0.002

Lafarge, Jojobera (G) 0.010

Binani Cement, Sirohi 0.008

Prism Cement, Satna 0.032

Total 0.417

Plant Clinker

Birla Corp. 0.01

Maihar Cement 0.08

Binani Cement 0.04

The actual production data of existing cement industries both integrated and

clinker based as shown in economic survey report 2006-07 is 613,643 tonne.

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Production is estimated as per capacity utilization. The annual capacity

utilization of the integrated and clinker based cement plants are as under.27

Table No. 2.8

Capacity Utilization of Existing Cement Producing Industries

Year Capacity utilization (%)

2000-01 41

2001-02 45

2002-03 46

2003-04 39

2004-05 49

2005-06 40

2006-07 NA

2007-08 NA

The demand of cement in the country is being met through domestic

production as well as from imports. Nepal has always been net cement

importer. In the past cement was imported from East- Asian countries and

India. However, in the recent past, the import has been predominantly from

India. The domestic production was dominated by the public sector till 2002.

After 2002 the private sector is dominantly gaining ground in the share of

domestic production of cement and market.

Among the various cement industries of Nepal two public limited companies

dominate the cement market in Nepal i.e. Udayapur Cement Industry Ltd., and

Hetauda Cement Industry Ltd., with market shares at 15% and 12%,

respectively. Nepali local grinding units (GU's) collectively; service the

maximum portion of the cement market. Out of total consumption, about

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77% were supplied by Nepalese GUs and IUs production houses while the rest

23% were met through the India imports. The market shares of various players

in Nepalese cement market for 2009-2010, are given in the following chart.

Table No. 2.9

Market Shares of Major Players (F.Y. 2009-10)

S.N. Major players in the market Market Share

1 Nepalese Gus 40%

2 Nepalese IUs 37%

(a) Udaypur Cement Industry 15%

(b) Hetauda Cement Industry 12%

(c) Other IUs 10%

3 Indian Players 23%

(a) Jaypee (Indian Cement) 11%

(b) Century 4%

(c) Prism 2%

(d) Birla 2%

(e) ACC 2%

(f) Others 2%

Total 100%

Source : Ministry of Industry and Commerce, Department of Industry.

Most the privately owned, operating cement industries are clinker based, i.e.

these cement industries import clinker from India and grind in their grinding

plants. In other words these industries import cement clinker from India and

produce Precast Prestressed Concrete (ppc) by grinding the clinker along with

gypsum (about 3–5%) depending on the requirements of the cement

consumers. PPC is the dominant cement type in Nepal. The clinker imported

by the local units from India are also primarily PPC therefore, in order to be

competitive in the market, and have reasonably good realization, these plants

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also import fly ash at a lower cost (compared to clinker) There are only two

government owned plants, i.e. Udayapur Cement industry Ltd. and Hetauda

Cement industry Ltd. and they produce only OPC. The Current product mix in

Nepalese cement is shown in the following chart:

Table No. 2.10

Type of Cement Product in Nepal

S.N. Type of Cement Market share

1 OPC 20%

2 Blended cement (PPC, PSC) 80%

Source : Cement Manufacturers’ Association

The cement industry in Nepal seems already crowded with two state-owned

and 16 private sector units in the market. But a look through the trends

indicates that there is still space for some additional factories in this sector.

Nepal is rich in non-metallic resources especially limestone deposits which is

the basic raw material for the cement production. At present, there is high

potentially to invest in cement industries therefore, the number of cement

industries in Nepal is increasing year after year. The estimation of future

capacity additions have been made based on interaction with cement

manufactures and importers by the cement manufacturer’s association of

Nepal on the basis of permissions granted by the department of industry

under the ministry of industry. According to the Cement Manufacturers

Association, Nepal’s cement manufacturers would add about 2 million tonne

to current production capacities over the next three years. The following Table

shows the expected new capacity addition in cement production over the next

three years in Nepal.28

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Table No. 2.11

Expected New Capacity Addition in Nepal (F.Y. 2009-10) ( Mtpa)

S. N. Plant Location Type Cement Capacity

Commissioning year

1 Shivam Cement Makwanpur IU 0.29 FY-10

2 United Cement Dhankuta IU 0.13 FY-11

3 K.P. Cement Dhading IU 0.06 FY-10

4 Suvashree Jagdamba

Cement

Parsa GU 0.09 FY-10

5 Butwal Cement Dhankuta IU 0.06 FY-11

6 Ghorahi Cement Dang IU 0.30 FY-10

7 Dang Cement Tulsipur IU 0.33 FY-11

8 Sonapur Cement Dang IU 0.13 FY-11

9 Dynasty Cement Kapilbastu IU 0.11 FY-10

10 Agni Cement Rupandehi GU 0.09 FY-10

11 Goenka Cement Rupandehi GU 0.09 FY-11

12 Sunval Cement Sunval GU 0.30 FY-12

In Nepal the mineral based industries are among the top known industries to

contribute towards the increment of Gross Domestic Production. Currently

the main contributors in this field are (i) Hetauda Cement Industry Ltd. and

(ii) Udaipur Cement Industry Ltd. and (iii) private cement industries. Similarly,

in Nepal ample investment opportunities are available in mineral based

industries because the domestic production fulfills only 40% of the current

demand and the Mahabharat Range of the country provides potential target

areas for exploration of high quality limestones. The high purity limes tonne of

chemical grade also show good market in the Indian Sub-Continent Such

opportunities having much promise and worthy of considerations.

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Reference

1. Francis A J, The Cement Industry 1796-1914, David & Charles, 1977, ISBN 0-7153-7386-2, pp 61 ff.

2. World Business Council for Sustainable Development (WBCSD) 2002.

3. Pasley C W, Observations on Lime, Calcareous Cements etc, 1838, appendices 14-16.

4. K E Daugherty, University of Pittsburgh, in a research paper found that cement consumption has a higher degree of correlation with the gross national product per capita than any other of the indicators examined.

5. United States Geological Survey.

6. J. M. Keynes, The General Theory of Employment, Interest and Money Mac. Million 1961, P. 320.

7. M.M., Dobb, Economic Growth and Underdeveloped Countries as Quoted by A. K. Singh, Personnel Management in Public Enterprises, Mitta Publication. Delhi, 1985.

8. Laxminarayan Principles and Practices of Public Enterprises Management, S. Chand and Company Ltd., New Delhi, 1982, P. 1.

9. National Planning Council -Three Year Plan, HMG, Kathmandu Nepal.

10. Corporation Coordination Council, Profile of Public Enterprises in Nepal, HMG of Nepal Kathmandu, June, 1978, P. 3.

11. National Planning Council, Three Year Plan. HMG of Nepal Kathmandu, Nepal.

12. Yadav Prasad Pant, Planning Experience in Nepal, Sahayogi Prakashan, 1975, P. 30.

13. ISC, Development of an Institutional Infrastructure for Industry in Nepal, Kathmandu, UNIDO, 1977, P. 334.

14. National Planning Commission, Fourth Plan 1970-75 H. M. G. Nepal, Kathmandu, 1972, p. 198.

15. Ibid.

16. Ministry of Industry and Commerce, Industrial Policy, 1974, HMG- Nepal, Kathmandu, 1974, P. 4-6.

17. Ibid.

18. National Planning Commission, Sixth Plan (2037-42) Memo Graphed, Kathmandu, Ashad, 2037, P. 1- 4.

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19. National Planning Commission, Sixth Plan 1981-86 H. M. G. Nepal, Kathmandu, 1981, p. 192.

20. National Planning Commission, Seventh Plan, HMG Nepal, 1985.

21. National Planning Commission, Eighth Plan, HMG Nepal, 1992, P. 691.

22. Ibid.

23. National Planning Commission, Approach to Ninth Plan, HMG Nepal, (1997-2002) P. 12.

24. “Scope of Cement Industries in Nepal” By Sudhir Thapa Published in Nation Stride towards Prosperity Engineers’ Version. 2005.

25. Department of Industry, Under Ministry of Industry, Nepal Government.

26. Ibid.

27. Economic Survey 2006/07, Government of Nepal, Ministry of Finance.

28. Market Visit and Ministry of Industries, Nepal as provided by the Cement Manufacturer’s Association of Nepal.

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