Displaying items by tag: Tax

Brazil: The state government of Mato Grosso has reached an agreement with Votorantim to recover US$79m in tax from Votorantim. The payment refers to an under-payment of tax made in error by the company's cement plants in Corumbá and Nobres in 2015, according to Midia News. The state’s tax recovery unit absolved the cement producer of any blame, instead attributing the error to an interpretive issue.

Ireland: A proposed Euro100m rise in Ireland’s green energy levy threatens the recovery in construction, according to building materials suppliers. The Commission for Energy Regulation (CER) wants to increase the Public Service Obligation (PSO) levy on electricity bills by Euro104m to Euro496.5m from October 2018 to support renewable energy developers and peat-fired power plants.

However, cement and concrete manufacturers, whose businesses face high-energy bills, have warned the regulator that such a move could hit jobs and endanger the recovery in construction. In a submission to the commission, manufacturer Kilsaran International said that, "Irish electricity prices are among the highest in Europe and the yearly increases in the PSO levy only serve to undermine the cost base and competitiveness of Irish companies, thereby limiting the potential for growth and job creation.”

Many other companies in the industry submitted versions of the same letter to CER analyst Gráinne Black, pointing at the likely cost of the increase to their businesses and its implications for job creation.

According to the CER large energy users, which include cement and concrete producers, will pay Euro234.2m of the Euro496.5m total. The charge guarantees the price paid for electricity to wind farms, other renewable energy producers and peat-fired plants. It is meant to implement government policy to support green electricity generation.

Iran/Iraq: Iraq has imposed a 45% tariff on cement import from Iran, according to the head of non-metal mine products and the Department of Ministry of Industries and Business in Iran. Seifollah Amiri of the Tehran Chamber of Commerce said, “Currently, only exporting clinker to Iraq is possible.”

Iran exported 12Mt of cement worth US$695m in the Iranian fiscal year that ran to 19 March 2017. Iraq took US$441m worth of material. Assuming that all exports are the same price per tonne, this equates to around 7.6Mt of cement.

India: The Cement Manufacturers Association (CMA) says that demand for cement is likely to grow in the second half of the Indian financial year due to the new Goods and Services Tax (GST) and increased infrastructure spending. The cement industry is also expected to benefit from a 30% reduction in logistic costs due to simplified state border checks, according to the Press Trust of India. The CMA’s forecast follows a fall in growth for the cement industry in the previous financial year.

Liberia: The government is considering a 17-year tax reduction deal worth US$200m to encourage the Liberia Steel and Cement Mining (LICEMCO) to build a cement and steel plant. The so-called Investment Incentive Agreement is between the government, the TIDFORE Investment Company and LICEMCO, according to the Liberian Observer newspaper. A government Committee on Investment and Lands, Mines and Energy will investigate and report on the proposal by the end of July 2017.

Saudi Arabia: The trade ministry has cut the export duty on cement by 50%. It has also cancelled all export tariffs on steel for two years to encourage local producers, according to Reuters.

Bhutan: A broken gearbox at a coal mill at the Penden Cement Authority plant in Gomtu has reduced its production. The plant has had intermittent mechanical issues with the gearbox in one of its two coal grinding mills since April 2017 leading to a breakdown in May 2017, according to the Kuensel newspaper. Then in June 2017 a similar problem occurred with the main drive gear in its other coal mill. The plant has been producing cement using imported clinker since then although it shut down completely for several days in late June 2017.

So far the cement producer has been unable to procure replacement parts. It has also been reported that the company has had difficulty importing clinker from India following the introduction of the Goods and Services Tax (GST).

Congratulations are due to India’s UltraTech Cement this week for finally completing its US$2.5bn asset purchase from Jaiprakash Associates. The deal has been around in some form or another since at least 2014 when UltraTech arranged to buy two cement plants in Madhya Pradesh for around US$750m. That deal, publicly at least, became a victim of the 2015 amendment to India’s Mines and Minerals (Development and Regulation) (MMDR) Act. The Bombay High Court eventually rejected it in early 2016 after a period of delays. However, the deal bounced back in a much larger form around the same time and since then everything has gone relatively smoothly.

As chairman Kumar Mangalam Birla put it in his letter to shareholders in the company’s 2016 – 2017 annual report the, “move is essentially for geographic market expansion.” He then went on to mention all the usual keywords like ‘synergy’ and ‘economies of scale’ that you expect from an acquisition. Quite rightly he finished with, “It is with great pride that I record, that UltraTech is the largest cement player in India and the fifth largest on the world stage.” On that last point he meant outside of China but UltraTech does have a small number of assets outside of India, notably in the UAE, Bahrain, Oman and Bangladesh, hinting at an international future for the cement producer.

Map 1: UltraTech Cement’s plants in India. Source: UltraTech Cement Corporate Dossier, January 2017.

To give a scale of the deal, UltraTech has increased its number of integrated cement plants in India to 18 from 12 and its cement grinding plants to 21 from 16. Its overall cement production capacity will increase by nearly 40% to 91.4Mt/yr from 66.3Mt/yr. The new assets are in Himachal Pradesh, Uttar Pradesh, Uttarakhand, Madhya Pradesh and Andhra Pradesh. The main regions that will benefit are the North, Central and South zones. In particular the Central Zone will see its capacity jump to 21.1Mt/yr from 6.2Mt/yr. This area also includes a new 3.5Mt/yr plant at Dhar in Madhya Pradesh that is scheduled for commercial production in late 2019.

The completion of the Jaiprakash Associates deal was followed by the introduction at the start of July 2017 of the Goods and Services Tax (GST), a rationalisation of some of the country’s central and state taxes. UltraTech promptly said it had reduced its product prices by 2 – 3% in light of tax reductions under the new regime. Some producers were warning of a rise in cement prices in the run-up to the introduction of the GST and the Cement Manufactures’ Association said that the new tax rate was insufficient. However, UltraTech said that the new tax rate of 28% was better than 30 – 31% previously. Other Indian producers also reduced their prices this week following the introduction of the GST.

UltraTech’s expansion and the start of the new tax scheme auger well for the Indian cement industry in 2017. Demonetisation knocked cement production at the start of the year and it may have lowered UltraTech’s capacity utilisation rate as well as reducing domestic sales by cutting housing demand. However, sector rationalisation and a simpler tax approach should help to remedy this. Not all government interaction has been helpful to the cement industry in recent years as the MMDR amendment and demonetisation show but the signs are promising.
Roll on the next set of financial reports.

Bhutan: Manufacturers fear that India’s Goods and Services Tax (GST) may reduce exports of cement. Input costs such as coal and limestone may fall in India when rates decrease following the introduction of the new tax regime on 1 July 2017 said Naman Sidarth of the Ims Taxo service in a presentation to the Bhutan Chamber of Commerce and Industry (BCCI), according to the Kuensel newspaper. India is the main target of cement exports from Bhutan and it has previously benefited from the differing taxes implemented between its states. The new GST will amalgamate taxes levied by the central and state governments.

Check out this great graph that the UK Mineral Products Association (MPA) released in its latest sustainable development report this week. It lays out where the MPA says the various direct and indirect costs come from climate change policies per tonne of cement.

Graph 1: The cumulative burden of direct and indirect cost of climate change policies on the cement sector (per tonne of cement). GBP£1 = Euro0.94 at time of writing. Source: MPA. 

If it’s correct then the two biggest contributors from carbon taxes on the price of cement in the UK arise from the Carbon Price Support (CPS) mechanism and the Renewable Obligation (RO). Between them the two policies account for around two-thirds of the carbon tax burden on the price of cement. Of note to an industry advocacy body like the MPA, both of these derive from local legislation and they could be changed or dispensed with separate to the Brexit negotiations to extricate the UK from the European Union that have just officially started.

The MPA then goes on to warn that these added costs could rise from GBP£3.24/t at present to GBP£4/t in 2020 and then the truly terrifying (to energy intensive manufacturers at least) GBP£17/t. Subsequently the MPA has flagged these potentially mounting costs as the biggest threat to the UK cement industry in the near future. Failure to act could mean more foreign imports, loss of jobs and damage to the security of supply. All very heavy stuff. The MPA’s warning was nicely timed to precede the UK government’s response to a consultation on another decarbonisation scheme, the Contracts for Difference (CfD) scheme. Here, the government is about to exempt high-energy users, including cement producers.

Essentially, the key message from the MPA’s report is that the cement sector is picking up but it is still below sales levels in 2007. At the same time it has made all these environmental improvements and, now, steadily tightening regulations threaten its future. Just compare this with the situation in the US where the Portland Cement Association (PCA) recently applauded President Donald Trump’s executive order to roll back environmental legislation from the Obama administration. Despite this it insisted that its members were committed to manufacturing products with a ‘minimal’ environmental footprint.

Funnily enough the MPA didn’t mention environmental issues when it released its updated Brexit priorities for the UK government. This is understandable given the graph above that suggests that the majority of the carbon costs on cement production come from UK legislation. However, sharing a land border with the EU south of Northern Ireland may give rise to all sorts of market skulduggery once any sort of post-Brexit deal becomes clear. And this doesn’t even take into account moving secondary cementitious materials about, like slag, or the UK’s international market in solid recovered fuels (SRF) and the like. Differences in UK and EU overall carbon costs on cement may start to have acute implications for producers in both jurisdictions as the negotiations build. In this atmosphere moves like Ireland’s Quinn Cement’s last month, to build a terminal on the UK side of the Irish border, make a lot of sense.