Cement History

1972 to 1986: Regulation and Rationalization

Reeling from the effects of overcapacity, the Philippine cement industry turned to the government for answers. This was a period of social unrest and political instability when people were taking to the streets in protest over oil price increases, higher fares, graft and corruption, and poverty.

Citing threats to the republic, President Ferdinand Marcos declared Martial Law in 1972 and immediately introduced his vision of a New Society that sought to dismantle what he called the rule of the oligarchy.

Earlier, some of the uncompetitive cement plants which could not pay their debts to the Development Bank of the Philippines – the only long-term lender at the time – started shutting down. The newer entrants, however, relied on political connections in acquiring DBP assistance.

PHINMA’s Magdaleno Albarracin said it was easy for those with links to the “powers that be” to contract loans from the DBP and set up their own cement plants despite the glut.

“All they needed was for President Marcos or whoever was in power to approve or endorse the loan,” he added. “More than that, some even made money right from the start by overstating the loan amount.”

Thus, the cement plants continued to mushroom. As a result of the overcapacity, however, there was price cutting and many of the less financially stable cement companies went broke and had no capacity to settle their loans with the DBP. To Albarracin’s mind, that was the first financial crisis that beset the cement industry in the country.

Government cartel

Technocrats hired by President Marcos to push his New Society vision tried to address the overcapacity and oversupply problems suddenly hampering the growth of the cement industry.

Their solution – create the Philippine Cement Industry Authority or PCIA and form a cartel led by the government. Albarracin said it was a move that could not be questioned because it was legal and had a credible purpose of restoring stability in the market.

“The government-led cartel determined the demand and set quotas for the different cement plants so that the supply and demand in the country would balance,” he added.

As added measures, the government made sure there was no price-cutting while, at the same time, instituting price controls in order to safeguard the consumers. Effectively, the government created a cartel that operated with price regulations.

“In a sense, the government played God in determining the levels of production and sales of each cement company as well as setting the prices of the cement products in the market,” Albarracin noted.

If the cement companies did not stick to the agreements, especially the pricing, the government reserved the right to foreclose them because they owed the DBP huge amounts. The price rose to a level that allowed the companies to survive. Meanwhile, the government agreed to a restructuring of their loans in order to help the industry.

The government also introduced a checking mechanism by employing CJ Valdez as auditor. The audit firm assigned people in each plant to check how much cement went out. If the prices remained stable, it meant that people were not cheating.

“That was the hallmark of the Martial Law years because the Philippines did not prosper much. There was the necessity for a government-controlled cartel, on one hand, and the imposition of price controls, on the other,” Albarracin pointed out.

Stronger industry alliance

Around this time, the industry’s umbrella organization – Cement Association of the Philippines – changed its name to Philippine Cement Corp. (Philcemcor) in line with a presidential decree issued by President Marcos that gave it authority to engage in more active commercial operations, including those related to the development of the export market that would make the industry more globally oriented.

With its rebirth as Philcemcor in 1973, the industry association was primed to assume a larger perspective in relation to its domestic operations. In a way, it was a strengthening of an industry suffering from an extended period of birth pains and facing a slew of stiffer odds.

One of the odds it confronted was the limited utilization of the cement plants’ overall capacity. So, the industry looked beyond the domestic market and tried to export. In fact, the Philcemcor created an export committee to look for export markets and ensure that the price of exported cement was competitive enough.

The main competitors in the export market during that period were Japan, Korea and Taiwan while the major importers were Indonesia, Malaysia, Hong Kong, Singapore and some Middle East countries.

The chairman of the Philcemcor at the time was the vice chairman of DBP – Jose V. de Ocampo (the father of Roberto who was appointed finance secretary during the Ramos administration in the 1990s) because almost everyone in the industry owed its existence to the bank. Having a top DBP executive at the helm was also a means to ensure government’s active hand in the industry’s affairs.

As of 1974, there were 17 cement plants in operation throughout the archipelago with a combined rated capacity of 172.8 million bags per year – a figure that didn’t quite reflect the potential capacity of the entire cement industry at the time.

Coping with oil crunch

In 1973 and again in 1978, the world was jolted by crippling energy crises as a result of the Yom Kippur War in Israel (1973) and the Iran revolution that overthrew the Shah (1978). In both instances, the Philippine cement industry had to resort to drastic measures in order to minimize the devastating effects of the oil shock.

Traditionally, cement plants relied on bunker oil for their power needs. But because of the energy crises, the industry had to look for alternative, cheaper sources of power. Most of them were compelled to shift to coal. Earlier, Bacnotan pioneered the use of coal as an energy economy measure.

However, the shift to coal entailed costs which included installing certain equipment that many of the cement companies could ill afford. So, again, DBP had to enter the picture. The bank bought the equipment and distributed them to the different plants. For the companies, this meant additional borrowings from the DBP.

“But the DBP allowed the cement companies to pay in installment and that’s how most of them survived the crippling consequences of the energy crises,” Albarracin noted.

The experience of the 1970s’ oil crunch had its upside for the cement industry. It served as a big lesson in energy and power rationalization. Moreover, it prepared the cement companies for future crises of the same nature that would threaten their existence.

Remarkable moments

Uneventful the Martial Law years may seem, but there were some notable developments that served to perk up the cement business which was struggling to keep its nose above the water.

In the late ‘70s, Iligan Cement was tapped to provide slag cement in constructing the expansive royal palace of the Bolkiahs in Brunei Darrusalam. Owned at the time by the Alcantara family, Iligan was trying to promote slag cement as “sementong may bakal” (cement with steel).

During this period, the government – through the Bureau of Public Standards (BPS) – allowed the introduction in the market of various types of special cement such as pozzolan and masonry. This was done through the initiative of the Cement Industry Authority.

About the same time, the Cabarrus family which was then operating Island Cement under Marinduque Mining and Industrial Corp. promoted pozzolan cement by marketing it as Isla – the title of a hit movie at the time starring former beauty queen Maria Isabel Lopez.

Not to be outdone, Pacific Cement Co. (PACEMCO) pioneered the production of other special types of cement like oil-well, sulphate-resistant pozzolan. PACEMCO even exported this type of cement to India, Pakistan and Bangladesh. Locally, the special cement was used by the Philippine National Oil Co. or PNOC in its oil drilling projects.

Meanwhile, the industry alliance continued to consolidate in the face of many challenges. In 1980, Philcemcor added the word “manufacturers” to its name in order to distinguish it as an organization of cement makers.

As the industry tried to live with the advantages and disadvantages of a regulated environment, the number of cement firms went down to seven in 1986 from 13 in 1982.

Fourteen years under the strongman rule of President Marcos taught the cement industry players how to rationalize their business operations under a regulated environment. In the cycle of boom and bust, these were valuable lessons that would serve them in good stead in the years to come. <back to top of first page>

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