Stating that it has become impossible to provision for the wide fluctuations in cement prices, the Builders Association of India (BAI) said it plans to set up about four captive cement plants to meet the demand of its members numbering over 11,500, besides those of the builder fraternity and the National Highway Builder Federation.
Mr B Krishnaiah, Chairman, BAI–Cement Action Committee, said it has becoming increasingly difficult to quote fixed rate government contracts for roads, bridges and highways with high fluctuation in cement prices.
Mr Krishnaiah said cement prices last March were between Rs 150 and Rs 170 a bag, while it is Rs 270 to Rs 290 now, depending on locations.
Such wide fluctuations could not be provisioned for by contractors in government fixed contracts, where increased competition had led to wafer-thin margins. For road contracts, which included bridges, cement cost worked to 4-5 per cent of the project cost and if the prices were up by Rs 100 a bag, then the project margins would be hit by almost half, given that the contractors worked with three to four per cent mark-ups.
Mr Krishnaiah said the BAI members, a fortnight ago, had decided that it would be in their best interest if they set up plants close to consumption areas which could supply cement at cost with a 10 per cent mark-up to address debt servicing and management overheads. The association plans to set up four-five million tonne capacity plants costing Rs 2,250 crore each in which the equity component of 25 per cent could come from members ranging from Rs 10 lakh each to Rs 5 crore. As for debt, it would come from financial institutions at eleven per cent interest. Most FIs wanted to know how one would market the cement and if captive requirement was stated, funding would not be an issue.
Limestone-rich areas
The association had zeroed in on limestone rich areas in Andhra Pradesh, Karnataka and Gujarat and Chhattisgarh.
In Andhra Pradesh, the plant could be put up in Nalgonda or Cuddapah districts where limestone is available in plenty. The plant could serve Chennai, Hyderabad, Bangalore and parts of Maharashtra. Similarly, in the western region it could be in Gujarat or Rajasthan, and Chhattisgarh could cater to Madhya Pradesh and the eastern states.