LAHORE: The Federal Constitutional Court has raised serious questions over the Punjab government’s decision to link mineral royalty payments to cement prices, a move that could potentially ease cost pressures on major cement manufacturers operating in the province.
During the hearing of petitions challenging the revised royalty structure on limestone and argillaceous clay, a three-member bench headed by Justice Syed Hassan Azhar Rizvi observed that royalty should be levied on minerals extracted from the ground rather than on the finished cement product.
The bench expressed concern over the current formula, under which the Punjab government charges royalty at six percent of the ex-factory price of cement.
Justice Rizvi noted that, at least prima facie, imposing royalty on a finished product appeared closer to a tax than a royalty on raw minerals.
The court directed Punjab government law officers to seek fresh instructions and submit details on how the revised levy affects cement prices. Justice Rozi Khan remarked that any additional financial burden imposed on manufacturers would inevitably be passed on to consumers in the form of higher cement prices.
The dispute arose after the Punjab government replaced its earlier fixed-rate royalty regime with a variable formula linked directly to cement prices.
Punjab-based cement producers argue that under the law, the provincial government is authorised to impose royalty only on minerals extracted from mines, not on cement sales.
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Industry estimates suggest the revised royalty translates into an additional cost of around Rs. 1,350 to Rs. 1,400 per tonne of cement, compared with roughly Rs. 350 per tonne under the royalty framework currently applied in Khyber Pakhtunkhwa. Analysts say this disparity has created a significant cost disadvantage for cement manufacturers operating in Punjab.
Major cement producers, including Maple Leaf Cement, Fauji Cement, Pioneer Cement, DG Khan Cement and Bestway Cement, are closely monitoring the proceedings.
Market participants view the court’s observations as potentially favourable for companies with a large production footprint in Punjab, particularly Pioneer Cement, Fauji Cement and Maple Leaf Cement, which could see meaningful relief if the royalty mechanism is revised.
The hearing was adjourned after the Punjab government’s counsel sought additional time to obtain instructions. Legal experts say the final ruling could have far-reaching implications for production costs, cement pricing, and competitive dynamics within Pakistan’s roughly 79-million-ton cement industry.
