Saudi company may take Pakistan to international court over steel mill dispute

Served notice on govt seeking Rs1b in damages for stalled operations at its mill


Zafar Bhutta July 19, 2016
Served notice on govt seeking Rs1b in damages for stalled operations at its mill. PHOTO: REUTERS

ISLAMABAD: Saudi Arabia-based Al Tuwairqi Holding Company, which had served the government of Pakistan with a notice to pay Rs1 billion in damages because of stalled operations at its steel mill, has threatened to take its case to the international court of arbitration.

Pakistan is already facing arbitration in international courts regarding the Reko Diq copper and gold mining project in Balochistan and a terminal of Progas Pakistan.

Gas supply row: Al Tuwairqi plans to shift steel plant to Saudi Arabia

Tuwairqi Steel Mills - a joint venture between Saudi Arabian and South Korean companies - had planned to set up Pakistan’s largest steel complex with a production capacity of 1.28 million tons per annum. However, the project was stalled due to a dispute over the gas pricing issue.

The problem

The phase-I of the direct-reduced iron (DRI) plant of Tuwairqi Steel had been completed with an investment of $340 million while the investment in phase-II and III was expected to be made in the range of $850 to $900 million. This, however, was dependent on commercial success of the DRI plant.

According to officials familiar with the development, Al Tuwairqi Holding served the notice on the Ministry of Industries and Production, giving it a month’s time to pay Rs1 billion in damages.

The deadline has already ended on July 7 and now the two sides will be facing each other in the International Chambers of Commerce for a legal battle.

Govt approves Rs480m for Steel Mill to pay salaries ahead of Eid

In May 2004, according to a memorandum of understanding signed with the Saudi Arabian government, Pakistani authorities had agreed to create a level playing field for the supply of gas to Tuwairqi Steel.

According to the management of Tuwairqi Steel, the mill was guaranteed gas supply at a lower tariff to enable it to compete in the international market. In this regard, the Ministry of Industries sent a summary to the Economic Coordination Committee (ECC) three times last year and recommended a gas tariff of Rs123 per million British thermal units for five years.

In the ECC meeting, the ministry argued that though the mill was seeking a financial incentive of Rs4 to Rs5 billion per annum, its DRI plant would contribute an estimated Rs12 billion to Pakistan’s economy.

Apart from this, a foreign investment of Rs89 billion was planned to be made in forward and backward linkages of the DRI plant. After establishing the linkages, the ministry said, the mill would contribute Rs100 billion annually to the economy in import substitution.

However, the ECC dismissed the arguments and consequently work on the steel mill came to a halt.

Salvaging the situation

In an effort to reach a settlement, the steel company later offered 5% of shares in the mill and revised the offer to 15% (126 million shares) for the government of Pakistan without any payment in response to gas supply at a concessionary rate. After 10 years, it was estimated, the share price would stand at Rs162.

Gas suspension shuts down steel mill operations

However, the government refused to accept the offer of the company that besides making investment had employed 1,100 people.

According to the officials, the steel company is still investing Rs10 million every month to meet expenses of its staff and maintenance of the plant.

Al Tuwairqi Holding Chairman Dr Hilal Hussain Al-Tuwairqi, speaking at a press conference in November 2014, had warned the government that the company would pack up if it did not receive promised gas at a concessionary rate.

The management of Saudi-based firm had also engaged ambassadors of Saudi Arabia and South Korea to settle the dispute, but despite efforts the dispute could not be resolved.

Published in The Express Tribune, July 20th, 2016.

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COMMENTS (17)

Qasim Khan | 5 years ago | Reply This steel mill should be nationalised and handed over to the management of Pakistan steel mills, atleast they know how to keep their furnaces warm.
Basit | 5 years ago | Reply @irfan: Ever heard of China? They are now responsible for 30% of the steel we consume. The steel market is currently in a bear market and all you fanboys of the steel industry need to reminded of that. Pakistan cannot compete with the Chinese in this industry. We need to focus on other things.
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