ISLAMABAD: The government has diverted Rs419 million, earlier earmarked for subsidies, grants and loan write-offs, for paying fee of the foreign counsel defending Pakistan’s case in the international court, approached by Saudi Arabia’s Al-Tuwairqi Group of Companies.
Al-Tuwairqi Steel Mills Limited (TSML), a foreign direct investment project of the Al-Tuwairqi Group of Companies and a joint venture with a South Korean firm, was established at Bin Qasim, Karachi over an area of 220 acres.
The Saudi firm stopped work on the plant after the previous Pakistan Muslim League-Nawaz (PML-N) government refused to provide gas at a discounted rate.
Any steel sector strategy without PSM cannot work
TSML management had sought gas supply at Rs123 per million British thermal units (mmbtu) in a bid to efficiently run the plant. However, the government turned down the request, arguing that it would amount to a subsidy of Rs25 billion over five years.
The Finance Division and the Ministry of Petroleum and Natural Resources also opposed the plan, saying that the government was not legally bound to provide gas at a concessionary rate.
Consequently, the Al-Tuwairqi Group of Companies pulled out its investment and filed a case against the government of Pakistan in the International Court of Arbitration.
It invoked Article 17(2) of the 1981 OIC agreement for the promotion, protection and guarantee of investments among member states of the Organisation of Islamic Cooperation (OIC) to address its grievances.
Proceedings have been initiated in the court. Pakistan has already paid first tranche of the fee to its legal counsel amounting to Rs1.93 million.
Earlier, the government had approved a supplementary grant of Rs110 million to pay fee of the foreign counsel for pursuing the case. Now, it has endorsed a technical supplementary grant of Rs419 million, which has been diverted from the funds allocated to the Ministry of Industries and Production for grants, subsidies and loan write-offs.
There were plans to turn TSML into Pakistan’s largest steel complex with production capacity of 1.28 million tons per annum. However, its Direct Reduced Iron (DRI) plant was shut down for several months in 2014 due to the dispute over gas supply.
Phase-I of the DRI plant had been completed at a cost of $340 million while capital injection in phase-II and III was expected to be in the range of $850 million to $900 million.
Pakistan Steel Mills vs the Economy
Then ambassador of Saudi Arabia had also taken up the matter with former finance minister Ishaq Dar in the hope of finding a solution, but the government remained reluctant.
Speaking at a press conference in November 2014, Al-Tuwairqi Holdings Chairman Dr Hilal Hussain Al-Tuwairqi had warned that the mill’s operations might come to a halt if the government did not provide promised gas at a discounted rate.
In an effort to reach a settlement, the company even offered 15% (126 million) shares in the steel mill to Pakistan government without any payment in return for the gas. Later, the company jacked up the offer to 17% shares, but the issue could not be resolved.
According to a memorandum of understanding (MOU) signed with Pakistan in May 2004, the government was to provide a level playing field in the provision of gas as fuel and feedstock.
TSML management stated that it was promised gas supply at a lower tariff to help the company 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 cautioned at that time that financial impact of the reduced tariff on Sui Southern Gas Company (SSGC) would be about Rs5 billion, requiring 3.3% increase in gas prices for all consumers, except for domestic and fertiliser sectors.
The Ministry of Industries argued in an Economic Coordination Committee (ECC) meeting that though the mill was seeking support of Rs4 to Rs5 billion per annum, its DRI plant would contribute an estimated Rs12 billion to the country’s economy.
Apart from that, foreign investment of Rs89 billion would be made in forward and backward linkages of the DRI plant.
The ministry was of the view that the mill would contribute Rs100 billion per year to Pakistan’s economy after establishing the linkages and in the form of import substitution.
Published in The Express Tribune, October 31st, 2019.
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