Cement factory likely to be delayed due to govt apathy

April 27, 2017

The Kathmandu Post, Narayan Sharma, 27th April 2017, Nawalparasi 

Construction of the Hongshi Shivam Cement factory, a Nepal-China joint venture, is likely to be delayed as the government has been slow to build a road leading to the limestone quarry. 

The Hongshi Holding Group of China has poured Rs36 billion (70 percent) into the project while its local partner has put up the rest of the capital. Slow progress in the construction of the road has irked Chinese investors who were upbeat about starting production by May 2018.

“A study has shown that Rs3 billion will be required to construct the 40-km road. However, the government has allocated Rs100 million for the current fiscal year,” said Shiva Ratna Atal, general manager of the factory. “At this rate, it will take 20-25 years to finish the road.”

According to Atal, the company has not been able to transport heavy machinery to the factory for lack of a proper road. The alternative gravel road cannot be used to transport heavy equipment. 

Likewise, a 5-km tunnel needs to be built to reach the limestone quarry. Heavy equipment needed to bore the tunnel cannot be brought in as the alternate road is too narrow. 

“Apathy and dillydallying by the government has worried investors,” Atal said. “The government has not treated the project as a model and provided the necessary support.” Chief executive officer of Investment Board Nepal (IBN) Maha Prasad Adhikari told the Post that they had taken up the matter with the National Planning Commission and the Ministry of Finance. The government should allocate Rs1.5-2 billion in the budget for the upcoming fiscal year to develop the project efficiently, he added. 

Likewise, another major requirement of the project—electricity—hasn’t been considered seriously. The cement factory, which will be operating around the clock, is estimated to consume 80 MW of power and pay Rs1 billion in energy bills annually.

The government has agreed to provide electricity to the plant directly from the national grid by constructing a substation at Bardaghat in Nawalparasi. The estimated cost of electrifying the factory and quarry is Rs500 million. 

However, the Ministry of Industry has allotted Rs30 million for the purpose in the budget of the current fiscal year. Moreover, the Nepal Electricity Authority (NEA) has only recently issued a tender notice to erect the transmission line.

Delays in the construction of the factory will also affect government revenues. The project will be paying Rs12 billion in taxes once it starts functioning at full capacity. 

The cement factory being constructed at Sardi in Nawalparasi will have a daily production capacity of 6,000 tonnes (120,000 bags daily). The company plans to double the factory’s output to 12,000 tones daily in the next five years. 

Hongshi has sunk Rs36 billion into the project which is the largest Chinese investment in Nepal’s cement industry and the second largest after Nigeria’s Dangote Cement, which has entered Nepal with a $550 million foreign direct investment pledge. 

Hongshi Shivam’s foray into the domestic market will mean displacement of cement imported from India. The company also plans to export the cement produced at its plant to India, Pakistan and Sri Lanka. 

The country’s annual requirement of cement is estimated to be 5-5.5 million tonnes. Domestic factories fulfil around 80 percent of the total demand. The rest is imported from India. Likewise, 30 percent of the clinker required by local factories comes from India.

According to the Trade and Export Promotion Centre (TEPC), the country imported clinker worth Rs8.97 billion in the first six months of the current fiscal year. The figure is an almost six-fold jump from the Rs1.52 billion in the first half of the previous fiscal year 2015-16 when the construction sector was hit hard by the economic blockade.