DGKC goes green in style

Complacency is not a trait the countrys cement sector is known for. Despite impressive volumetric growth in domestic markets this year, leading cement companies are on their toes, trying to inch up their gross margins even more. Dera Ghazi Khan Cement (DGKC) is one such prominent cement manufacturer. The company recently signed an agreement with the Economic Cooperation Organisation (ECO) Trade and Development Bank for a loan for three projects with the intent of slashing fuel and power costs. The ECO-TDB is a multilateral development bank established by Pakistan, Iran and Turkey in 2005, with the mandate of financing development programmes and projects, similar to those undertaken by the World Bank and Asian Development Bank. According to Inayatullah Niazi, CFO of DG Khan Cement, the loan, around $21 million, will be used to finance a Waste Heat Recovery (WHR) project at Kalar Kahar as well as two Refuse Derived Fuels (RDF) projects. The total cost of these projects comes to about Rs.3.5 billion (roughly $40 million). DGKC has already received plenty of good press for its environmentally friendly processes. Given the companys continued focus on environmentally-conscious solutions, ECO-TDB has extended its first ever loan to Pakistans private sector; as a soft loan repayable over 5 years with an interest charge of less than 2 percent. The loan is dollar denominated, making it susceptible to any prospective depreciation of the rupee against US dollar. Still company officials are confident that depreciation will not be high enough to erode the benefits of this soft loan. "Besides," Niazi points out, "we also have a sort of artificial hedging since exports also constitute a portion of our revenues." DGKC already has a WHR plant, which started operations in June 2010, and the new WHR project-the one being financed by ECO-TDB-is expected to commence operations by mid-2012. Currently, Lucky Cement, Bestway Cement and Maple Leaf Cement also boast WHR plants, besides DGKC. As for RDF, while one phase of the project has already commenced in Khairpur, the second one-to be set up in DGKC-is likely to see the light of the day come December, this year. WHR will be instrumental in trimming down the Companys power costs, and RDF will help replace coal-a key raw material in cement production-helping bring foreign exchange savings for the company. Given net monthly savings of about Rs.70-80 million per month from the two projects, and the total cost of the project of Rs.3.5 billion, rough estimates suggest that the payback period of the projects will be around 4 years. This means that loan repayment period of 5 years, which includes a grace period of one year; will likely give a comfortable time span to DGKC to pay off these dues. Niazi points out further: "The WHR will contribute a net reduction of 20-30 percent in our WAPDA bill. With electricity tariffs expected to go up further in future; the savings in those terms are likely to be even higher." He further highlights that the WHR plant is even more efficient than WHR plants used previously because it conserves water more than its predecessors. To add icing to the cake, the projects also render DGKC eligible to apply for carbon credits-tradable certificates allowing a company to monetise the benefits of reduced carbon emissions. Things seem to be looking good for DGKC and the investors are likely to look at the move positively. Hopefully, it will also help set a precedent for other industries and companies in the country to diversify sources of power generation.