10% VAT will cripple industries, says WAPCO

10% VAT will cripple industries, says WAPCO
Published: 31 May 2007

West African Portland Cement PLC (WAPCO), has reacted to the just hiked VAT from 5-10 per cent by the Federal Government, saying it will cripple industries.

However, despite epileptic supply of  power and high cost of gas which made the company lost 150,000t of cement, its profit and turnover (sales) in the first quarter of  2007, jumped by 24 per cent, and 14 per cent, respectively.

Reacting to the increment in VAT which became effective since last week, Chairman, WAPCO, High Chief Bayo Akinnola, noted that the total cost implication of the 10 per cent increment in VAT on manufacturing industries, especially cement producers, is quite enormous. 

WAPCO Chairman, who said his company’s production capacity is now peaking at 1.98Mta, giving it control of 50 pr cent of market share in the cement industry, observed: “VAT on gas, VAT on energy supply by PHCN, is going to cause ripple. Already our cost of production is 40 per cent.  This will go up to 45 per cent. 10 per cent VAT is going to have a ripple effect on the economy.  It’s going to make a lot of things to stand still for a while.”

In answer to questions on the current high price of cement in the market, Managing Director /CEO, Mr George Lourandos, pointed out that cement manufacturers are not responsible for the increment.

“Open price does not reflect the price the company sell to distributors.  WAPCO, for instance, sells at N1,000 per bag, and distributors are selling N1,850 to N2000 per bag.  Distributors are making more money than manufacturers.

He said stated that for cement prices to fall there is need for government to tackle infrastructures, which he said, impacts on cement manufacturing.  What cement producers can do is to increase volume, and capacity.  And this can only happen when environment for manufacturing is favourable.  Comparatively, he noted that the cost of raw materials like gypsum and transportation of cement is ten times higher in Nigeria compared with Egypt.

On future outlook, he noted that the level of demand for cement is expected to be on the increase with government spending, the deepening of policies of deregulation and the consolidation in the financial services sector providing the right impetus.

“In order to benefit from the forecast increase in demand for cement, we have continued to look at ways of not only sustaining but improving current capacities of our plants. the phased programme for the refurbishment of our Sagamu plant has continued and will enter the part of the second phase in 2007 with the third phase scheduled for completion in 2008. also in order to increase cement girding capacity at our Ewekoro plant, we have embarked on a EUR5m (N850million) investment to convert a raw mill from the old plant to a cement mill. the conversion is planned to be completed and commissioned in the second quarter of 2007 and will add approximately 300,000t of cement once we can develop a commensurate capacity for clinker grinding,” he said.