Proposed Bag-Based Levy Could Erase Competitive Edge Over Punjab Rivals
Key Takeaways:
i) Khyber Pakhtunkhwa (KP) cement producers are bracing for a potential royalty hike as the provincial government considers a shift to a bag-based levy system.
ii) The proposed change could increase royalty payments from 250 rupees per ton of raw materials to 1,100-1,200 rupees per ton, significantly impacting profitability.
iii) While the KP government aims to align with other provinces, cement manufacturers argue the move would erase their cost advantage against Punjab-based competitors.
Islamabad, Pakistan – April 20, 2025 – Cement producers in Khyber Pakhtunkhwa (KP) are facing uncertainty as the provincial government weighs a significant increase in royalty payments. The KP government is considering moving away from the current system, which levies a flat rate on raw materials, to a bag-based system tied to factory prices. This proposed shift mirrors a similar, and contested, move in Punjab and has sparked concerns among KP cement manufacturers.
Currently, cement producers in KP pay a royalty of 250 rupees per ton of raw materials. However, under the proposed bag-based system, this could jump to between 1,100 and 1,200 rupees per ton. The KP Cement Manufacturers Association is strongly opposing this change, arguing that it would drastically reduce their profit margins, which are already under pressure due to rising input costs.
While the Mines and Minerals Department of KP has stated that no final decision has been made, the possibility of a bag-based levy remains.
The association argues that the increased royalty payments would eliminate their competitive pricing advantage over cement producers in Punjab. KP cement plants supply both local markets and also export to Punjab. A higher royalty would make their cement more expensive, potentially losing market share to Punjab-based rivals.
While the Mines and Minerals Department of KP has stated that no final decision has been made, the possibility of a bag-based levy remains. The department’s rationale is to align KP’s royalty system with other provinces.
Some industry experts, however, believe that the cement sector is robust enough to absorb the increased costs. They point to Pakistan’s relatively low cement prices compared to the global average, as well as the sector’s overall profitability and contribution to exports.
The Khyber Pakhtunkhwa Mines Department has denied any final decision, leaving cement manufacturers in uncertainty.
