The Federal Constitutional Court (FCC) has questioned the Punjab government’s decision to link royalty payments to cement prices, a development that could provide relief to major cement manufacturers operating in the province.
During the hearing of a case challenging the revised royalty structure on limestone and argillaceous clay used in cement production, a three-member bench headed by Justice Syed Hassan Azhar Rizvi observed that royalty should be charged on minerals rather than on the finished product.
The court raised concerns over the current formula, under which royalty is calculated at 6 percent of the ex-factory price of cement. Justice Hassan remarked that imposing royalty on a finished product appeared, at least prima facie, to resemble a tax rather than a royalty on extracted minerals.
The bench directed government law officers to seek instructions from the Punjab government and also requested details on the potential impact of the levy on cement prices. Justice Rozi Khan observed that any additional royalty burden would ultimately be passed on to consumers through higher cement prices.
The dispute stems from the Punjab government’s decision to replace the previous fixed royalty rate with a variable formula linked to cement prices. Punjab-based cement producers challenged the move, arguing that the provincial government is legally empowered to charge royalty only on minerals extracted from mines and not on cement sales.
Industry estimates suggest the revised royalty translates into a cost of approximately Rs. 1,350 to Rs. 1,400 per tonne, compared with around Rs. 350 per tonne under the royalty structure adopted in Khyber Pakhtunkhwa. Analysts say the difference has created a significant cost disadvantage for Punjab-based manufacturers.
Major cement producers, including Maple Leaf Cement, Fauji Cement, Pioneer Cement, DG Khan Cement and Bestway Cement are closely watching the case. Market participants view the court’s observations as potentially positive for companies with significant operations in Punjab, particularly Pioneer Cement (PIOC), Fauji Cement (FCCL), and Maple Leaf Cement (MLCF).
The hearing was adjourned after the Punjab government’s counsel requested additional time to obtain fresh instructions. A final ruling could have important implications for production costs, cement prices, and competition within Pakistan’s 79 million-ton cement industry.