The Federal Constitutional Court (FCC) has raised concerns over the Punjab government’s decision to calculate royalty payments based on cement prices instead of the minerals used in production, a move that could significantly impact cement manufacturers operating in the province.
A three-member bench led by Justice Syed Hassan Azhar Rizvi heard a petition challenging the revised royalty structure on limestone and argillaceous clay, two key raw materials used in cement manufacturing.
During the proceedings, the court observed that royalty is generally charged on extracted minerals rather than on the value of the finished product. Justice Hassan noted that the current system, which links royalty to 6 percent of the ex-factory cement price, appears to resemble a tax rather than a royalty on mineral extraction.
The bench directed government representatives to seek instructions from the Punjab government and provide details about the levy’s impact on cement prices.
Justice Rozi Khan pointed out that any increase in royalty costs would likely be passed on to consumers through higher cement prices, potentially affecting construction costs across the country.
The case stems from Punjab’s decision to replace the previous fixed royalty rate with a variable formula tied to cement prices. Cement manufacturers challenged the policy, arguing that provincial authorities are only authorized to impose royalty on minerals extracted from mines, not on the sale of cement.
According to industry estimates, the revised royalty system increases costs to around Rs. 1,350 to Rs. 1,400 per tonne. By comparison, manufacturers in Khyber Pakhtunkhwa reportedly pay approximately Rs. 350 per tonne under a different royalty structure.
Industry experts believe this difference has placed Punjab-based cement producers at a competitive disadvantage compared to manufacturers operating in other provinces.
Several major companies, including Maple Leaf Cement, Fauji Cement, Pioneer Cement, DG Khan Cement, and Bestway Cement, are closely monitoring the case. Market analysts suggest the court’s observations could be encouraging for firms with significant production facilities in Punjab, particularly Pioneer Cement, Fauji Cement, and Maple Leaf Cement.
The hearing was adjourned after counsel for the Punjab government requested additional time to obtain fresh instructions from provincial authorities.
The court’s final decision could have significant implications for production costs, cement pricing, and competition within Pakistan’s cement industry, which currently has an annual production capacity of around 79 million tonnes.
