LNT agrees to procure Dragon cement

Dungsam:  Dungsam Cement’s production may pick up now with the biggest cement consumer in hydropower construction, Larsen and Toubro (LNT) agreeing to procure the Dragon cement.

Earlier, it was learnt that Dungsam cement supplied about 20 percent of the total cement requirement for the hydropower construction, with LNT refusing to procure Bhutanese cement, even though Dungsam cement could easily meet both the demand and standards at a competitive price.

Officials from both Druk Holding and Investments’ (DHI) and Dungsam cement met several times but could not come to a common consensus.  In its annual report, DHI stated that its consolidated profit from its companies slumped by 29 percent because of a sharp increase in expenditure on Dungsam Cement.  Dungsam Cement is one of the 12 DHI owned companies.

The board director of Dungsam, Pema Wangdhee, who represented the company at the press conference yesterday, said the company would be supplying about 15,000-20,000MT (metric tonnes) this year at an agreed price of Nu 291 a bag of 50kg each.

However, he said, the requirement would shoot from next year since the dam construction for Punatsangchu I would be in full swing and cement consumption would be huge. “But we want a tentative schedule for supply  and requirement a month ahead and LNT aren’t firm on this,” he said. “This is not helpful for the company.”

The number of credit days was agreed on 60 days after the supply.  Pema Wangdhee said LNT initially wanted 120 days of credit. “But other contractors, like Jai Prakash, Hindustan Construction Company and Gammon India, were allowed 30 days and they’re sincerely complying by it,” he said, adding it would not be fair to grant LNT more credit days than others.

Dungsam then sought government intervention and it was granted 60 credit days with guarantee from the two project authorities of Punatsangchu and Mangdechu.

The DHI chairman, Dasho Sangay Khandu, who is also the chairman of the company, said the inter-government agreement on hydropower mandates the construction companies to import goods and services from India and Bhutan.  However, it also states that, if there are equal factors in terms of competitiveness, Bhutanese products should be given preference.

Let alone giving preference, the chairman said even tenders were not called, despite the company’s request to do so.

But challenges do not end for Dungsam.  Pema Wangdhee said, even with LNT procuring Dragon cement, it would be difficult for the company to break even.  To break even the plant has to run on 65 percent of the total installed capacity of 4,130MT of cement a day and 3,000MT of clinker a day. Currently, it is running at 40 percent of its total capacity.

The ultimate answer is in the Indian market, which officials said, was already saturated.  The director said northeast India and West Bengal had a surplus of cement and, to compete with the price of Indian cements, the company needed to scale-up production.

He said that Dungsam is working hard on branding and even looking for potential institutional buyers like the Public Works Department (PWD) in Sikkim.

At the DHI annual press conference yesterday, Dasho Sangay Khandu said Dungsam’s loss of Nu 1.1B last year was mainly on the cost of financing.  About Nu 671M was incurred as financial charges, Nu 400M on depreciation and Nu 42M on operating loss.

However, the financing cost has now been reduced through inter-corporate borrowing, with minimum interest rates to service high interest bearing loans.

Dungsam also faced teething problem with its machines last year when the sales picked up.

The project to set up Dungsam plant had been shelved since 1986 when the initial cost to set it up was Nu 46M. Today, its establishment cost  is Nu 10B.

“Dungsam doesn’t seem to be lucky,“ the chairman said.

Tshering Dorji

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