ECC refuses to extend Rs25 billion subsidy to Tuwariqi Steel Mills

Govt approves Rs529 million for PSM to cover 5% duty on iron ore.

ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet on Friday turned down a proposal to extend subsidies worth Rs25 billion to the Tuwariqi Steel Mills on account of providing gas at concessionary rates, blocking a move that would have increased the gas bills of other consumers.

Terming the proposal by the Ministry of Industries to give Rs25 billion worth of subsidies to Tuwariqi Steel Mills on account of providing gas at concessionary rates as irrational, the finance minister grilled Secretary Industries for framing a proposal that gives Rs25 billion subsidies to a single party for five years.

The subsidy, if approved, would have been more than the Rs19 billion bailout package that the government had approved to revive Pakistan Steel Mills (PSM).

According to the proposal, Ministry of Industries and Production wanted a Rs5 billion per year subsidy to provide gas at concessionary rates for the next five years to the project.

Dar concluded that there was no justification for the government to extend preferential treatment to any party and there was no room for providing a huge subsidy to the company. According to the Ministry of Finance, Dar directed the Secretary Industries to submit a realistic proposal, complete in all respects with proper recommendations that could be considered in future meeting of the ECC.

Tuwairqi Steel is a joint venture between Saudi Arabia’s Al-Tuwairqi Group of Companies and South Korea’s Pohang Steel (Posco). They have planned to set up Pakistan’s largest steel complex with a capacity of 1.28 million tons per annum.

In lieu of gas at concessionary rates, the Ministry of Petroleum and Natural Resources had demanded that Tuwairqi Steel should give up 5% equity in the mill in favour of Sui Southern Gas Company (SSGC) for gas supply. According to officials who attended the meeting, the issue also came under consideration in the ECC but the representatives of the Tuwairqi Group remained non committal.

The petroleum ministry was of the view that the financial impact on SSGC of the lower tariff, estimated at Rs123 per million British thermal units (mmbtu), would be about Rs5 billion, requiring a 3.3% increase in gas prices for all consumers, excluding domestic and fertiliser sectors.

The Ministry of Industries, on the other hand, was backing the steel mill in its demand for cheaper gas supplies for running the plant.

Rs529 million more for Steel Mills

Meanwhile, the government approved a proposal moved by the Ministry of Industries and Production for providing Rs529 million to Pakistan Steel Mills (PSM) to cover the five per cent import duty on iron ore.

The meeting, headed by Finance Minister Ishaq Dar, said the government was determined to put an end to SRO culture and therefore no exemption was being allowed. Instead, the financial package to PSM was being enhanced.

The minister informed the meeting that Revenue Division has already approved proposals for facilitation to PSM, allowing 3 months time for deferred payment of GST as well as exemption from payment of advance income tax on imported raw material in order to help their cash flow and in view of their accumulated tax losses till date. The meeting expressed its satisfaction over the fact that months after ECC approved the financial package PSM’s production capacity utilization has increased from mere 3 per cent to 30 per cent.

Urea import

On a summary seeking permission to import 600,000 tons fertiliser, the ECC approved import of 185,000 tons of Urea through Saudi Arabian manufacturing company to meet the needs of the Rabi crops. It also directed that a detailed proposal to meet the remaining requirement of 415,000 tons may be submitted to ECC in next meeting.

The Ministry of Industries and Production had worked out a shortfall of 600,000 tons of urea fertilizer for the Rabi season 2014-15 as the production units in the country were not working to the optimal level owing to shortage of gas.

The economic body directed the Ministry of Industries to come up with a comprehensive plan, giving proper proposals for meeting the fertilizer requirements and putting an end to the practice of unnecessary imports, leading to wastage of precious foreign exchange.

The ECC deferred the matter regarding approval of Draft Energy Purchase Agreement (EPA) and Draft Implementation Agreement (IA) prepared for Biomass Based Projects on Independent Power Producers mode. The meeting observed that there was no room for approving the proposal that advocated cost plus basis rather it should be redrafted and would be considered keeping in view the principle of upfront tariff.