Cement close-up

Ordinary Portland Cement (OPC), commonly known as cement, once again dominates headlines of the Sri Lankan print and electronic media due to its preserved or real temporary shortage of supply in the domestic market.

The media attributes the supply shortage to the variety of factors. When there is a temporary or seasonal shortage of cement in the market, the tendency for making quick profit by selling the cement above the controlled price has become a natural trade phenomenon though unethical and illegal.

The current temporary shortage will be over soon and the market will reach the stability accordingly. However, there are issues which have to be addressed to meet the future challenges of the industry.

High demand

Cement is an essential ingredient to the construction industry which is growing at a phenomenal pace due to the post-conflict growth trajectory of the economy. The demand for cement has been increasing at a high rate recently due to new infrastructure projects initiated by the Government and the private sector, reconstruction and rehabilitation projects launched in the conflict-affected areas in the Northern and Eastern Provinces, as well as growing trend witnessed in the housing development programmes.

The cement industry and trade estimate the cement market amounts to 4.2 million MT per annum. Some industry experts believe that the quantity of the Sri Lankan cement market is now even at the peak level of 6.2 million MT per annum. It is also estimated that the market is growing at the rate of 10% per annum.

Recognising cement as an essential commodity for economic development drive of the nation, the Government has imposed a maximum retail price of Rs. 750 per 50 kg cement bag under the Consumer Protection Authority Act.

Key players

According to trade sources, the five largest bulk cement/clinker importers (Holcim, Tokyo-Cement, Ultra-Tech, Lafarge and Singha) which processes cement bag packing operations and distribution network in the country represent more than 90% of the market. The rest of the market requirements are being met by the importers of cement bags.

All the five big players in the market have their own bulk cement terminals either at Colombo Port, Galle Port or Trincomalee Port. One manufacturer has an integrated cement manufacturing unit in Sri Lanka. The factory operated by the Ceylon Cement Corporation in Kankasanthurai which was closed due to armed conflict is yet to be reopened.

Sri Lanka imports its cement requirements both in bulk and bag forms mainly from Pakistan and India. Sri Lanka also imports cement from Indonesia, Malaysia and Thailand. Under the Indo-Sri Lanka Free Trade Agreement (ISFTA) and Pakistan- Sri Lanka Free Trade Agreement (PSFTA) Sri Lanka offers Zero-Duty Tariff Concession for import of Cement from India and Pakistan. The MFN Duty for import of cement from other sources is 5%.

Standards

The import of cement is subjected to complying with two technical requirements, e.g.

•    Sri Lanka Standard of Cement
• Conformity Assessment through Import Inspection Scheme.

The Sri Lanka Standard Institute (SLSI) in consultation with all the stakeholders has set four standards in respect of cement. These standards are:

• OPC Sri Lanka Standard 107
• Portland Slag cement (Type 2) SLS 1247
• Portland Pozzolanic cement (Type 1) SLS1247
• Portland limestone cement SLS 1253.

These standards have their own variation of composition ratios in respect of clinker, pozzolana, fly ash, limestone, etc. The most important element of the popular Portland cement is the level of strength which is measured according to days such as three-day strength, seven-day strength and 28-day strength levels.

According to Sri Lanka Standard 107, Portland cement should have 28-day strength level of more than N42.5 to less than N62.5. The strength level mainly depends inter alia on the composite of clinker in the cement mixture.

According to Sri Lanka Standard 107, any cement imported into the country must have at least N 42.5 strength level of 28 days on the expiry date. The ordinary lifespan of a bag of cement is three months. The strength level of cement declines due to the time factor.

In addition, the cement can only be imported to Sri Lanka from overseas factories that are registered with the Sri Lanka Standard Institute. The registration procedures of suppliers have been introduced once again to reassure that the quality of the imported cement conforms to the Sri Lankan standard and the production process comply with the environmental norms. The Sri Lanka Standard Institute has the authority to cancel or to suspend the registered manufacturers/exporters if they supply low-standard cement to Sri Lanka regularly.

At present, the SLS 107 is under review and a working group consisting of all the stakeholders of the public sector engages in formulating the revised standards for cement. The committee is chaired by an academic, who is a specialist on the subject from the University of Moratuwa. In order to address and overcome complex registration procedure, the SLSI also adopted the method allowing cement importers to import cement from the spot market only for three occasions subject to a maximum quantity of 75,000 MT with the Conformity Assessment Certificate issued by the accredited laboratory.

The third type of measure adopted by the SLSI to maintain the quality of the imported cement is to conduct import inspection and laboratory test to assess the conformity of the imported cement with the Sri Lanka standard SLS 107.

The SLSI conducted this inspection by drawing random samples from the imported consignment of cement at the harbour and testing the sample according to the SLS 107 standard. If the test proves that the samples are in conformity with the SLS standard, the Custom Authority will release the consignment.

The SLSI is empowered to conduct inspection, testing and sampling under the Import-Export Control Act and facilitate the work of the Sri Lanka Customs for clearance of imported cement consignment. The SLSI test primarily attempts to ascertain whether the strength level of the imported cement meets the 42.5 compressive strength at 28 days, inter alia. Every bag of cement should bear SLSI approval/registration number and the date of expiry.

All these technical measures are aimed at maintaining the import of quality cement to the country for safe, secure and long-lasting construction sector of the country for the benefit of health and safety of the citizenry at large.

‘Good science’

However, at times we observe conflicting assertion by different parties involved in the cement industry and trade where equilibrium between the measures applied for safety and security of the consumer and the free flow of trade are competing each other to the detrimental of one party.  While safeguarding the safety and security of the consumer by applying technical measures on imported products, the measures applied should not hinder the trade as well. Every technical measure applied should be based on ‘good science’ and as far as possible on the basis of international standard and not excessively be trade restrictive.

In this context, some of the importers of cement aired views to revise the current SLS Standard 107 and the practice of the Import Inspection Scheme. While the large manufacturers and bulk cement importers are looking for improved and revised Sri Lanka standard for cement, the bag cement importers are keen on improving the current practice of import inspection scheme.

Further improvements

With regard to the revision of SLS 107 and current procedure of registering suppliers, the following elements have been highlighted by the trade for further improvements:

• The existing process of registration of cement suppliers under the import inspection scheme exhaustive, complex and time consuming. The current procedure is negatively affecting on the free flow of cement to the country at competitive price.
• Criteria for acceptance of shipments of cement from manufacturing plants which are not registered with SLSI should not be based purely on SLS 107: 2008 but also based on International Standards such as BSEN 197 CEMI, 42.5N type or ASTM C-150 type I for OPC category.
• It is difficult to obtain a cement test report from an ISO/IEC 17025 accredited laboratory abroad to suit the format prescribed by SLSI. The test report should follow the international norms.
• There is a drop test as required by the existing practice passing the bag ten repetitive drops from a height of one meter. To pass the test the bag should be packed with a number of 4 to 3 ply. This is an over-cautious packing method which has a negative effect on cost and environment. 1 to 2 ply would be sufficient as bags do not go through so much handling process after issuing from the warehouse.
• At present, a bag of cement is marked as per the SLS requirement with all the information pertaining to overseas manufacturer of the cement. This marking requirement is unnecessary as the responsibility for the quality of the cement lies with the local importer/processor. It is sufficient to mark only the country of origin along with the details of the local company.
• The SLSI specification insists on net weight of 50 kg in every individual bag. To meet this requirement the local cement processors have to keep a quite high target weight, resulting in the loss of large quantities of cement during the packaging. To avoid this loss, it may be useful to adopt method given in the Indian standard where the overall weight of the number of bags is taken in calculating the net weight for bags on cumulative basis.
• At present, the SLSI does not issue laboratory test reports to the importers/cement processors. Test reports should be issued to the importers as cost of the test are being borne by the importers and also for the purpose of maintaining transparency.
• The current SLS 107 standard had been formulated by the Sectorial Committee on Building Material. Considering the importance of the cement and associated complex scientific evaluations, it is proposed to establish a separate standard committee for cement with enhanced representations from all the stakeholders including the industry representatives.

Import Inspection Scheme

With regard to the current Import Inspection Scheme, a Committee headed by Mr. Kosala Wickremanayake, the Immediate Past President of the Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL), had studied the issues involved in consultation with the all the stakeholders and apparently has submitted a report. Following are the issues raised by the trade in respect of the current Import Inspection Scheme:

• Undue delay in testing samples.
• The method of drawing samples should be more scientific and methodical.
• The sample should be kept in store for future reference.
• Testing report should be shared with the importer.
• When the test is failed, another sample tests are carried out at present for the verification process, while the independent third party tests are being carried out (pending receipt of third party test reports) suspension of registration should not be implemented. If the third party tests report is also negative, then the suspension of the registration could be carried out.
• Sample should be drawn in the presence of an independent agency.

It should be emphasised very clearly that the FCCISL neither subscribes nor reject the assertions aired by the trade, in respect of current SLS standards or the existing Import Inspection Scheme. These aspects have to be carefully studied by the authorities, particularly the Sri Lanka Standard Institute and its new committee appointed to review the current standard on cement.

The committee which is fully geared to assess the merits and demerits of these suggestions may make a decision while drafting the new standard. According to the practice of the SLSI, the draft standard will be available for public scrutiny before it is adopted. When the draft standard is available, the public, particularly the traders can provide their inputs for further improvements.

Fine balance

All the stakeholders involved in this issue should clearly recognise that it is the responsibility of the standard setting institution to draft standards and implement it in the way that they deemed appropriate on the basis of scientific evidence with the view to safeguarding the quality of construction sector by allowing only to manufacture and import quality cement to the country for the benefit of long-term sustainable development. This aspect should not be compromised for the benefit of trade alone.

Similarly, ‘trade restrictive’ and ‘more than necessary’ technical requirements should not be applied, making obstacles to the trade. A fine balance between these two paradigms will definitely serve the national interest.

It is an acceptable principle that our standard should be based on the recognised international standard as far as possible. However, according to multilateral trade rules pertaining to this subject, countries are free to formulate its own standards provided that these standards are based on ‘good science’.

It is also worthwhile to see whether Sri Lanka can negotiate Mutual Recognition Agreements (MRAs) at least with our main supplier such as Pakistan and India to avoid delay in conducting conformity assessment procedures. Furthermore, the negotiating MRAs would be in line with the current free trade agreements Sri Lanka entered into with India and Pakistan. At present, we have only one laboratory at the SLSI to test the quality of the cement. It may be useful to have another accredited laboratory possibly at the Sri Lanka Industrial Institute of Technology which will definitely speed up the testing procedure.

Proper care needed

Although there is sufficient technical monitoring applicable for cement at the point of importation to assure the quality of the cement, there is a likelihood of deteriorating the quality of the imported cement at the point of retail distribution.

It has been observed that the storing of cement at the retail distribution point is to be improved with proper care. The exposure of cement to moisture at the distribution point deteriorates the quality.

Cement has to be kept at least six inches above the floor level with the space for air circulation. Even the good quality cement is imported to the country; the end consumer will not have the opportunity to use quality cement, if the cement is not being stored properly at the point of distribution.

The current shortage of cement reported in the media has been attributed to veritable reasons. The free flow of quality cement to the market will ensure the smooth functioning of the construction industry. In order to meet the development aspirations of the nation, all the parties involved should carry out their responsibilities and practice the business according to the best ethical norms.

 

(This case study has been compiled by the Research and Policy Advocacy Unit of the Federation of Chambers of Commerce and Industry of Sri Lanka – FCCISL. Papers of similar nature can be accessed at [email protected]. Readers are invited to send their comments to [email protected].)