JK Cement's UAE project in limbo

The 2.2-million tonnes (MT) UAE cement plant by Kanpur-based cement maker JK Cement, which was scheduled to go onstream by the middle of 2010, is likely to be delayed by at least three quarters as the company is redrawing the strategy amid global slump and meltdown.

A K Saraogi, chief financial officer, JK Cement, told Business Standard, "We have to revisit the strategy and rework the whole project cost of the proposed UAE unit. We initially had estimated the project to go onstream by the middle of 2010 but now it may get into the first quarter of 2011." The company had worked out the project cost at around $400 million with debt to equity ratio of 1:2. The plant is to be set up in the Fujairah province of the UAE, in which the local government is likely to take 10 per cent stake.

"In the next 3-5 months, we will strategise the project on a fresh note and I believe by that time situation will improve and project costs will come down," added Saraogi. At this moment, no banker is ready to fund the project and it is not a good time to go ahead with high interest rates, he said.

Saraogi ruled out the possibility of the company opting out of the UAE. He said that at the proposed location, there was no power supply. "Unless we get power, we cannot start the project," he said. West Asia is a cement deficit region. Companies with their plants located in the western coast of the country dominate the export of cement and clinker to the Gulf region. However, statistics from the report of the working group on cement industry for the eleventh five-year plan (2007-12) suggest that by 2010, majority of the countries in West Asia will be cement surplus.

For instance, UAE will have a capacity of 26.1 MT against the annual consumption of 20.4 MT. Under such circumstances, industry analysts said if JK Cement's project comes through by 2011, it will make no commercial sense as the UAE by that time will have a surplus capacity of around 6 MT.

They added that since the company has not planned the fund required, pull-out could also remain an option.

The Rs 1,450-crore company, which currently has an overall capacity of 4.4 MT, is setting up a greenfield project down south at Muddapur in Karnataka with a capacity of 3.5 MT. Company officials said that Karnataka project was their top priority for the time being and the company would look at other projects once the Karnataka project was commissioned.

In the quarter ending September, the company reported a decline of over 75 per cent in its net profit, compared the corresponding period last year.