The Hindu Business Line : Railway freight hike may dilute excise relief for cement cos

The much-hyped Government stimulus package for the cement industry was partly nullified by a one percentage point hike in freight rates effected by the Railways on Monday.

According to the Railways notification issued on November 28, freight rates for cement, coal and coke have been revised to eight per cent a tonne on reclassification of the products from class 140 to 150. The hike in Railways freight rates comes a day after the Government announced a four percentage point cut in excise duty.

The Finance Ministry has said that cement, which attracts either the ad-valorem rate of 12 per cent or specific rates (Rs/tonne) depending upon the retail sale price, the specific rates have also been reduced in the same proportion as the ad-valorem rate. Bulk cement would now be chargeable to either 10 per cent ad-valorem or Rs 280 a tonne, whichever is higher. Mr A.L. Kapoor, Managing Director, Ambuja Cement, said the company will announce a price cut in a day or two after factoring in the impact of rise in freight cost announced by the Railways.

Cost factor

“Most of the cement factories are located on the outskirts and the product needs to be transported efficiently to the consuming location cost effectively,” he added. Depending on the distance, the transportation of cement by road works out to about Rs 15-22 a bag and Rs 10-15 by rail.

Mr Vinod Juneja, Managing Director, Binani Cement, said the quantum of price cut will be decided by mid-week.

For instance, he added, “a variety of cement costing Rs 195 a 50 kg bag in Rajasthan will be sold between Rs 225 and Rs 260 a bag in south and Rs 250 a bag in Mumbai. So, the price cut will not be similar across the board. A benefit of two to three per cent will be passed on to the consumers.” Cement companies will benefit by about Rs 8-10 a bag from the duty concessions, while the freight hike will take Re 1-Rs 2.50 a bag. The hike in railway freight will result in 7-8 per cent rise in transportation cost for cement companies.

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