The federal government on Friday turned down a proposal to give Rs25 billion in subsidies to Tuwairqi Steel Mills by providing gas at a concessionary rate, blocking a move that would have led to an increase in gas bills of other consumers.
Headed by Finance Minister Ishaq Dar, the Economic Coordination Committee (ECC) of the cabinet found the Ministry of Industries’ proposal irrational. Dar is also said to have questioned the industries secretary for framing a proposal that gives Rs25 billion worth of subsidies to a single party over five years.
The subsidy was even more than the Rs19-billion bailout package that the government had approved to revive the ailing Pakistan Steel Mills (PSM).
The Ministry of Industries and Production proposal entailed Rs5 billion per annum on account of concessionary gas for the next five years, according to a handout issued by the Ministry of Finance.
The finance minister concluded 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. He directed the industries secretary to submit a realistic proposal, complete in all respects with proper recommendations that could be considered in the 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 return for concessionary gas, the Ministry of Petroleum and Natural Resources had demanded that Tuwairqi Steel give up 5% equity in the mill in favour of Sui Southern Gas Company (SSGC). According to officials who attended the ECC meeting, the issue also came under discussion, but representatives of the Tuwairqi Group did not commit anything.
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.
Urea import
On a summary seeking permission to import 600,000 tons of fertiliser, the ECC approved import of 185,000 tons of urea through a Saudi Arabian manufacturing company to meet the needs of Rabi crops. It also directed that a detailed proposal to meet the remaining requirement of 415,000 tons may be submitted to the next ECC meeting.
The Ministry of Industries and Production had estimated a shortfall of 600,000 tons of urea for the Rabi season 2014-15 as the country’s production units were not working at optimal level because of gas shortage.
The ECC directed the Ministry of Industries to come up with a comprehensive plan, giving proper proposals for meeting the fertiliser requirements and putting an end to the practice of unnecessary imports, leading to wastage of foreign exchange.
The ECC deferred the matter regarding approval of the Draft Energy Purchase Agreement (EPA) and Draft Implementation Agreement (IA) prepared for biomass-based projects on the pattern of independent power plants.
Meeting participants observed that there was no room for approving the proposal that advocated cost-plus formula rather it should be redrafted and would be considered keeping in view the principle of upfront tariff.
The ECC also approved the proposal that the government would pick Rs529 million in customs duties on import of raw material for PSM. After the financial package approved by the ECC few months ago, the country’s largest industrial unit has reached around 30% of production capacity from mere 3% just few months ago.
Published in The Express Tribune, September 27th, 2014.
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