The Tuwairqi Steel management stated that it was promised that gas would be supplied at a lower
tariff to enable the company to compete in the international market. PHOTO: REUTERS
ISLAMABAD:
In a bid to encourage Saudi Arabia-based Al Tuwairqi Holding, the Saudi government has committed to providing the company with cheaper gas.
The move comes after the Pakistan government refused to provide gas at a discounted rate to Tuwairqi Steel.
Tuwairqi Steel Mills Limited (TSML) is a joint venture between the companies of Saudi Arabia and South Korea. They had planned to set up Pakistan’s largest steel complex with a capacity of 1.28 million tons per annum.
Its Direct Reduced Iron (DRI) plant has been staying shut for the last several months due to the dispute over gas supply.
Phase-I of the DRI plant has been completed with an investment of $340 million. While the capital injection in phase-II and III will be in the range of $850 to $900 million. However, this investment is subject to the commercial success of the DRI plant.
The management of Tuwairqi Steel has requested for gas supply at Rs123 per million British thermal units (mmbtu) in order to effectively operate the plant. However, the government has refused, saying it would have to bear a subsidy of Rs25 billion over five years on this account.
Also, the Finance Division and the Ministry of Petroleum and Natural Resources have opposed the plan, saying the government is not legally bound to provide gas at a concessionary rate.
“Now, the Saudi government has offered to provide gas at 70 cents per mmbtu to Tuwairqi Steel if it sets up a plant in Saudi Arabia,” an official said, adding the price was lower than the price demanded from the Pakistani government.
According to officials, the ambassador of Saudi Arabia to Pakistan took up the matter with Finance Minister Ishaq Dar several times to reach a solution but the government showed its reluctance.
The officials added a lobby in Pakistan had played a key role in keeping the matter from reaching a settlement as it wanted to buy the Al Tuwairqi plant.
However, the management of Tuwairqi Steel is now dismantling the plant to shift it to Saudi Arabia, they said.
In November 2014, while addressing a press conference, Al Tuwairqi Holding Chairman Dr Hilal Hussain Al-Tuwairqi had warned of an inevitable end of the mill’s operations if the government did not provide promised gas at a discounted rate.
In an effort to reach a settlement, the company had even offered 15% (126 million) shares in the steel mill to the government without any payment in response to the gas supply. Later, the company offered to give 17% shares to the government but the issue remained unresolved.
In May 2004, a Memorandum of Understanding (MoU) was signed with Pakistan, under which the government was to provide a level playing field in provision of gas as fuel and feedstock.
The Tuwairqi Steel management stated that it was promised that gas would be supplied at a lower tariff to enable the company to compete in the international market. The Ministry of Industries had recommended a tariff of Rs123 per mmbtu for five years.
However, the Ministry of Petroleum and Natural Resources cautioned 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.
The Ministry of Industries had argued in the Economic Coordination Committee (ECC) that though the mill was seeking a support of Rs4 to Rs5 billion per annum, its DRI plant will contribute to the country’s economy an estimated Rs12 billion.
Apart from this, foreign investment of 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.
Published in The Express Tribune, January 24th, 2015.
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COMMENTS (17)
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There are many peoples talking over here who don't know nothing of the about the DRI or sponge iron plant STEEL BUILDS NATION This is the slogan of Korean Steel Plant where after the war Korea received 300 mio$ in compensation from USA they in invests 100 to the families of deceased 100 to the infrastructure of nation and with the remaining 100mio they form a steel plant called PASCO the largest in the world now and incidentally a partner who is willing to turn this plant into a steel complex with an investment of 1 billion dollar. I as an employee of the Tuwairqi since the start of construction know that this plant constructed just not as an ordinary plant it is mission and Pakistan progress is coupled with this plant, some future advantages also address by AUSSE but exponential growth is not seen over here. Imagine total indigenous product how much is saved in import substitution Now POSCO in Korea taking bulk of the economy on her shoulder. One thing is for sure this government will not let this plant run as it seem that they have some other ideas as the most damage will be done on the scrap business as no smelter will by scrap on the price of DRI (Direct Reduce Iron)
Government looking for foreign investment, look we have and this company already willing to do more but still they are not getting what was promised by our previous government earlier. what kind of image it will reflect on other foreign investor as our current government dying to bring more investors in Pakistan. Fertilizer sector getting gas at discount rate then why ignoring tuwairqi? this is a big question as per ton of fertilizer have lesser value as compared to per ton of iron.
The officials added a lobby in Pakistan had played a key role in keeping the matter from reaching a settlement as it wanted to buy the Al Tuwairqi plant. if above thing is consider to be rite then Pakistan ka Allah he hafiz hai !
I am still thinking why our government is not giving attention to the biggest steel plant of Pakistan, As steel industry is the back bone of any country, if we talk about Pakistan we are already facing employment issue, As this huge project is closed or shifted more than 1200 employees will suffer. It will also give a negative impact on the image of Pakistan and after this huge disaster there will be no one form Saudi Arabia and Korea to invest in our country. Hope for the better and best.....
SHAME ON US , N.S. & HIS CRONIES MADE SEVERAL TRIPS OVERSEAS TO ATTRACT FOREIGN INVESTMENTS, RECENT LAST WEEK IN DUBAI, QATAR BY ADVISOR WHO STAYS IN DUBAI
I say the the DRI should not go back to Saudi Arab start it by anyway OK
First of all the kick-back was taken by the previous Government, as in the energy sector master minded made the country brankrupt. Wait till that regime come to power, with Arif Habib and they will give free gas fart free, to Saudis as part of GHG.
@Aslam Beig: What an idiot, it was an investment in Pakistan. Creating Jobs and helping the local small players to get some benefit. Now the plant will be shifted to KSA. and what did we get empty hands.
ET editors. Please change my wrong choice of words towards the end by replacing the word "destroying" with "weakening" as below: Many thanks.
I would like to add to my comment of earlier today. Please further observe:
One: Saudi Arabia has been providing Pakistan with at least One Billion Dollars in aid annually, in direct funds and indirectly ( overseas Pakistanis, etc. ). $50 Million is five percent of the amount we are receiving as Saudi assistance every year. How can this concession from free funds pose an unbearable burden to our economy?
Two: In return for this concession the Government of Pakistan has been offered a 17% share in an established, viable, and technically advanced infrastructure venture, and at no cost at all. This grant if accepted is hugely significant.
Three: The venture has already provided employment to thousands, which number will increase as new phases of the project are brought on line.
Four: The technology utilised in Tuwairqi Steel Mills Limited (TSML) is far more energy efficient and advanced as compared with the older blast furnaces of Pakistan Steel, which itself is consuming far greater national resources than $50M.
Five: The sponge iron produced in TSML will lead to lower costs of production of steel product as well as speciality steel alloys for defence, surgical, automotive, industrial usage.
Six: A historical precedent is from the Zia-ul-Haq era when an entirely unexpected change in ship-breaking duties quickly killed off the Gaddani ship-breaking industry which was ranked as among the world's biggest. Tens of thousands were made jobless. A family owned iron and steel concern in Lahore were the immediate beneficiaries and flourished. Very large scale ship-breaking then moved to Gujarat (India) and to Bangladesh.
Seven: The business style of our Man of Steel is to grow by weakening present and potential local competitors. The business style of India's Man of Steel has been to facilitate growth in every way and let all Gujarati and Indians grow.
Let us leave aside any talk of democratic principles, what a sharp and total contrast we find in business acumen, our Mian Sahib vs. their Modi Sahib.
@Aussie : Shahid Saleem Arshad PhD Sydney With Due Respects to your opinion, may I ask, which government will provide to a Private sector company Fuel/Gas at a 85% discount? and why? Companies do a evaluation of economics & feasibility before investing in a venture. Tuwairiqi must have done the same. Indian companies get Land at a discounted price to setup companies and run and this is done to attract investments in their respective states. If the government were to give 85% rebate on gas supplies, you would be the first person to ask "if there were kickbacks". Isn`t it?
@Blithe: Yes, it can but the main issue still remains - cost. LNG will be imported into Pakistan @ $ 14-16 per MM BTU which is around PKR 1500 per MM BTU but the owner wants gas at PKR 125-130. The plant has thus become unviable to operate.
This piece of news is nonsense. All industries in Saudi Arabia are offered gas at the price Tuwairiqi is being offered. There is no special deal. Tuwariqi may be just pressing the Pak government. The company has to decide what is in its best interest: to shift the plant to Saudi Arabia or operate it in Pakistan. Pak government cannot import gas (LNG) at more that $10 per million Btu and give it to Tuwairiqi at $1.20 (Rs. 123) per million Btu. Which sensible government would do that?
There is no counting of the ways in which news stories originating from my beloved Pakistan can make the mind go numb with impotent rage.
Leaving aside stories of mass killings, explosions, etc., which are by now routine items, let us examine a rare good news story regarding iron-steel related industry in which Nawaz Sharif, Shahbaz Sharif & Baradari are the national experts.
Tuwairqi Steel Mills Limited (TSML), is a private joint venture between Al-Tuwairqi Holdings (Saudi Arabia), POSCO (South Korea) and Arif Habib STeel Mill (Pakistan), using the world's most advanced Direct Reduction of Iron (DRI) by the MIDREX process developed by Kobe Steel of Japan. India has now become the world leader in DRI production.
This advanced steel mill, absolutely essential to the National needs of Pakistan may be relocated to Saudi Arabia as the PMN (N) government has refused to provide promised natural gas at discounted rates. The cost of the discount the Nation will have to bear translates to roughly $50 Million per year. $50 Million per year ! The cost of just one VIP Gulfstream IV 450 corporate jet the government buys almost every year for its various departments. The cost of one new F-16 Block 52. The total cost of foreign trips and Kharcha by VIPs and families at government expense must be close to this amount.
There can be only one reason for this which appears plausible and that is of exclusively importing the same sponge iron from India. Either way, whatever the Nawaz Sharif government is doing is harmful to the long term interests of Pakistan.
Can't it be made part of the LNG to be imported from Qatar?
Saudi government please we don't need you arms. We are not beggars. Please take your equipment and leave us alone.