OUR STAFF REPORTER LAHOE - The government is likely to reduce federal excise duty (FED) on cement by Rs10 per 50 kg bag to Rs25 from existing Rs35 in the forthcoming federal budget. Similarly the FED cut would reduce the cement price by Rs200 per ton to Rs500 from current levy of Rs700. Cement sector experts said that in the wake of rising energy cost and lower dispatches especially after floods, government wants to bring some relief to the sector in the upcoming budget FY12. The steps would improve retention prices while the higher utilization of development expenditure would reflect positively on local dispatches. Experts opined that Public Sector Development Project allocation would be at Rs610 billion both for federal and provinces as against Rs663 billion of last year. However, the actual allocation is expected to remain higher on the back of better fiscal discipline, they added. They believe that the government is most likely to continue with recently imposed 1.5 percent additional Special Excise Duty (SED) to 2.5 percent on cement in next fiscal year FY12. The reduction in FED would improve the net retention prices by Rs10 per bag, hence would provide cushion to the sectors rising conversion and energy cost. Despite reduction in PSDP target, actual utilization in FY12 is expected to remain better compared to FY11 due to better fiscal space. This would allow the government to spend on high cement usage areas like small reservoirs and dams, including Daimer-Bhasha. SED is a pass though item and hence neutral for the sector. The likely reduction in the FED in the upcoming budget is expected to augment sectors profitability as companies would not pass on the cost reduction to the final consumer amid strict price discipline. Experts believe this would bode well for companies having larger local share in their sales mix like DGKC, having local sales 68 percent. In addition to strict price discipline adopted by cement producers (North Rs400 per bag and South 380 per bag), higher utilization of PSDP is expected to yield positively on sectors volumetric sales. However, on the export front oversupply scenario in Middle East would continue to restrict growth in export sales.