Tuwairqi Steel warns: If gas doesn’t come cheap, company will pack up

It offers govt 15% stake in response to energy supply at a lower rate.


Zafar Bhutta November 26, 2014

ISLAMABAD:


The top management of Saudi Arabia-based Al Tuwairqi Holding, while cautioning the government, has said that it will consider packing up if its steel mill in Pakistan is not provided promised gas at a discounted rate.


“Enough is enough, after one and a half years of bleeding, we don’t want to leave Pakistan, but when it comes to business, we have to act like a business,” said Dr Hilal Hussain Al-Tuwairqi, Chairman of Al Tuwairqi Holding, while speaking at a press conference here on Wednesday.

“If they don’t meet our demand, there is no way that we make investment here,” he said. “What you commit, you have to do.”

According to the management, the government has assured them that it will take up the matter in the upcoming meeting of the Economic Coordination Committee (ECC), but they could pull out of the country if the issue is not addressed.

In an effort to reach a settlement, the company has even offered 15% (126 million shares) in the steel mill to the government without any payment in response to gas supply at a concessionary rate. After 10 years, it is estimated that the share value would be Rs162.

The chairman said former prime ministers Shaukat Aziz, Yousaf Raza Gilani and Raja Pervaiz Ashraf had made the commitment, but when the prime minister of South Korea, whose steel giant has co-financed Tuwairqi Steel Mills, spoke to premier Nawaz Sharif, he got no response.

The ambassador of Saudi Arabia also discussed the matter with Finance Minister Ishaq Dar, but it produced no solution.

“If the Korean premier got no response, who will pay heed to me,” the chairman asked. “The government could say yes or no after a month; Al Tuwairqi has plans to make a further investment of $900 million in next phases.”

Replying to a question, he stressed that if they were denied cheaper gas supplies, they would take input and guidelines from legal advisers on what to do next.

The government, according to him, had also committed provision of water and power in a memorandum of understanding (MoU), but it did nothing. Al Tuwairqi has itself set up a power plant and laid a 19km pipeline.

He said Tuwairqi Steel Mills, which is Pakistan’s first private-sector integrated steel manufacturing project, would create 5,000 jobs in Balochistan and 3,000 jobs in Karachi. Tuwairqi Steel Country Head Zaigham Adil Rizvi said the steel complex would have a production capacity of 1.28 million tons per annum compared to Pakistan Steel Mills’ 1.1 million tons.

He pointed out that Pakistan Steel Mills was banking on imported coal and iron ore whereas Tuwairqi would rely entirely on the iron ore produced in Balochistan.

In May 2004, an MoU was signed with Pakistan, under which the government was to provide a level playing field in provision of gas as fuel and feedstock.

“It was promised that gas would be supplied at a lower tariff to enable the company to compete in the international market,” he said, adding the Ministry of Industries had recommended a tariff of Rs123 per million British thermal units for five years.

However, the Ministry of Petroleum and Natural Resources cautions that the financial impact of the reduced tariff on Sui Southern Gas Company will be about Rs5 billion, requiring a 3.3% increase in gas prices for all consumers, except for domestic and fertiliser sectors.

Tuwairqi Steel is a joint venture between Saudi Arabia’s Al Tuwairqi Group of Companies and South Korea’s Pohang Steel (Posco), who have planned to set up Pakistan’s largest steel complex.

On its part, the Ministry of Industries argues that though the mill is seeking a support of Rs4 to Rs5 billion per annum, its Direct Reduced Iron (DRI) plant will contribute to the country’s economy an estimated Rs12 billion. Apart from this, foreign investment worth Rs89 billion will be made in forward and backward linkages of the DRI plant.

After establishing the linkages, the ministry says, the mill will contribute Rs100 billion annually to the economy in import substitution.

Phase-I of the DRI plant has been completed with an investment of $340 million while capital injection in phase-II and III could be in the range of $850 to $900 million. This, however, has been linked with commercial success of the DRI plant.

Published in The Express Tribune, November 27th, 2014.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.

COMMENTS (9)

Karachiwala | 9 years ago | Reply @disgudted Sorry sir you have very narrow vision of course it comes from the same mind that you have Pakistan have chance to establish its back bone almost with no cost and we are slipping this chance away this is steel sector that we are talking about not any textile or dairy it will just not only boost your economy but the exponential growth in the defense sector as well but we are giving gas to auto but not for the steel MANUFACTURING. A VISIONARY SPECTICALS ARE REQUIRED TO ANALYZE THIS DEMAND although it is already compensated with the 15% equity and the further investment in the country of 1.2Billion Dollor.
Disgusted | 9 years ago | Reply

It's unfortunate that Pakistan is the destination of choice for vulture investors. This investment appears ill conceived from day one. Who plans an integrated steel plant (a highly energy intensive project) in a country which has neither high grade iron ore nor excessive supplies of natural gas which could be offered at any concession? What is the strategic advantage to establishing in Pakistan? Why invest, then beg for concessions? If the technology being introduced is so well conceived for the Pakistan market, why not prove it so without asking for government subsidiies as a crutch? We all ready have one bail-out seeking spoilt sick child in the shape of Pakistan Steel Mills, and now here comes another which actually has the gall to pretend it is doing the country a favour by setting up here. The only reason Pakistan was chosen for this project, is that the politicians were deemed malleable enough to sacrifice the entire steel sector to favour one Saudi company.

If this concession is given, a follow up request will entail subsidized power for their steel making divisions that will surely follow, with concessionary access to Pakistani markets (given that the project was originally set up as a special economic zone for export purposes). Why the concessions? why the free infrastructure (PSM port and conveyors)? the additional duty protection which distorts raw material availability for other steel makers- particularly for a unit intended to be export oriented?! And now a requirement for subsidized gas!!!! When will enough be enough?

VIEW MORE COMMENTS
Replying to X

Comments are moderated and generally will be posted if they are on-topic and not abusive.

For more information, please see our Comments FAQ