Cement firm seeks BOI incentives for Davao plant rehab

Holcim Philippines Inc. is trying to register with the Board of Investments (BOI) its additional investment for the modernization and rehabilitation of its existing cement production facility in Davao.

Holcim’s modernization and rehabilitation project will not result in additional capacity.

Even though the BOI has recently announced new policies regarding the registration of new cement projects under the 2006 Investment Priorities Plan (IPP), Holcim is still hoping to qualify for BOI registration under the 2005 IPP.

Holcim established its presence in the Philippine cement industry in 1974.

It acquired Alsons Cement Corp., Hi Cement Corp., Davao Union Cement Corp. and Bacnotan Cement Corp.

It operates four major plants – one in La Union, another in Bulacan, a third in Davao City and the Lugait Plant in Misamis Oriental.

The plants account for a total installed clinker production capacity per year of 7.2 million metric tons and annual cement production capacity of 8.7 million metric tons.

Under the revised 2006 IPP guidelines, the BOI is allowing registration of investments in new cement plants provided that they will put up completely new clinker-base cement production with a minimum capacity of one million metric tons per year.

Foreign investors will be allowed to register their project on a pioneer status but will only be given non-pioneer incentives which would entitle them to only a four year income tax holiday.

The BOI will allow existing cement firms to put up a completely new clinker-base production line provided that the new production line operates at 85 percent capacity utilization which must be maintained at any given time.

The tighter condition for existing cement manufacturers is premised on the argument that an existing manufacturer will not expand if it has not attained at least an 85 percent capacity utilization rate.

The 85 percent capacity utilization rate would force existing cement manufacturers to raise their current capacity utilization before they are allowed to register their expansion projects.

Based on a Tariff Commission report, the capacity utilization rate of the local cement industry is at 88 percent.

However, based on the cement industry’s own study, their capacity utilization is only 62 percent.

The low capacity utilization cited by the local cement industry has been their argument against the entry of imported cement.

The Cement Manufacturers Association of the Philippines (CeMAP) had welcomed a possible investigation of the cement industry’s operational capacity in light of conflicting claims that there will be a shortfall of cement supply by 2007 or 2010 even as local cement companies claim under-utilization of existing kilns.

CeMAP claims that based on 2005 figures of cement imports and domestic sales, 11.73 million metric tons was sold last year, showing a four percent decline compared to 2004.

The rise in local cement prices has been attributed to the higher cost of power to produce cement.

CeMap disputes reports that the local cement industry’s operational capacity is at a high 88 percent.

More realistically, CeMAP said the local cement industry’s operational capacity is nearer to 62 percent.

CeMAP is opposed to the DTI’s move to encourage new cement manufacturers to address a projected cement supply shortfall either by 2007 or 2010.

Local cement manufacturers claim that instead of attracting new cement manufacturers, the Government should protect existing players from imported cement.

CeMAP data reportedly shows that local cement demand has stayed relatively flat in the past six years.

From a peak of 14.888 million MT in 1997, demand for local cement fell to 12.9 million MT in 1998 and has not changed much since.