PPC’s carbon tax bill could reach R90m
Substitutes for coal are being sought
LISTED cement and lime producer PPC would be liable for an estimated R90 million in carbon tax in terms of the proposed draft carbon tax bill published in November.
However, Darryl Castle, the chief executive of PPC, said the company was currently looking at a number of initiatives to reduce the carbon tax burden, including the replacement of coal with carbon-neutral energy sources and improving the opportunity to increase cement extension.
Castle added that the carbon tax regime did not apply to imports into South Africa and had not been meaningfully implemented elsewhere, and was scrapped in Australia because of the impact on the industry.
“PPC is ready for the implementation of the carbon tax regime in January 2018. However, we will continue to engage the government on this matter,” he said in a presentation at the Merrill Lynch investor conference in Sun City.
The reference to imported cement appears to have been prompted by the intensive competition and excess cement production capacity available in the South African market because of new entrants.
This has resulted in producers facing severe margin pressure and limited ability to increase the price of cement.
This competitive environment has been aggravated by cement imports, with local producers in 2015 lodging a dumping complaint with the International Trade Administration Commission (Itac) about cement imported into South Africa from Pakistan.
Itac made a final determination in December 2015 on the anti-dumping duties and imposed duties ranging between 14.29 percent and 77.15 percent on cement imported from Pakistan.
This resulted in cement imports into South Africa from Pakistan dropping by 30 percent year-on-year to September.
However, the Pakistani government has also approached the World Trade Organisation in a bid to have the anti-dumping rules imposed by Itac on cement exported from Pakistan revoked.
There were also indications last year that South Africa’s cement industry was facing a new import challenge, this time from Chinese producers.
Castle said it was confirmed in the Budget speech last month that a revised carbon tax bill would be published for public consultation and tabled in Parliament in the middle of this year.
He said CO2 emissions in the cement industry resulted from the thermal and chemical processes required in the manufacturing of cement.
Castle said the tax structure currently proposed for the first phase was for R120 a ton of CO2 emitted.
He added that carbon tax would be treated as an environmental levy as contemplated in section 54A of the Customs and Excise Act.
Castle said there were allowances that PPC qualified for in the first phase up to 2020, which substantially reduced the effective tax rate to less than 30 percent of the proposed value.
In his presentation, Castle made a number of comments related to consolidation in the cement industry and the rationale for the merger of AfriSam and PPC, but did not provide any update on the proposed transaction.
PPC and AfriSam, two of South Africa’s biggest cement producers, jointly announced in February that they had entered into formal discussions to assess the merits of a potential merger.
AfriSam, which was previously known as Holcim South Africa and was taken over by the Government Employees Pension Fund in December 2011, made a conditional, non-binding proposal to PPC in December 2014 about a merger, but PPC rejected that proposal a few months later.
Shares in PPC gained 0.29 percent on the JSE yesterday to close at R6.80.