Tuwairqi Steel warns: If gas doesn’t come cheap, company will pack up
The top management of Saudi Arabia-based Al Tuwairqi Holding, while cautioning the government, has said that it will consider packing up if its steel mill in Pakistan is not provided promised gas at a discounted rate.
“Enough is enough, after one and a half years of bleeding, we don’t want to leave Pakistan, but when it comes to business, we have to act like a business,” said Dr Hilal Hussain Al-Tuwairqi, Chairman of Al Tuwairqi Holding, while speaking at a press conference here on Wednesday.
“If they don’t meet our demand, there is no way that we make investment here,” he said. “What you commit, you have to do.”
According to the management, the government has assured them that it will take up the matter in the upcoming meeting of the Economic Coordination Committee (ECC), but they could pull out of the country if the issue is not addressed.
In an effort to reach a settlement, the company has even offered 15% (126 million shares) in the steel mill to the government without any payment in response to gas supply at a concessionary rate. After 10 years, it is estimated that the share value would be Rs162.
The chairman said former prime ministers Shaukat Aziz, Yousaf Raza Gilani and Raja Pervaiz Ashraf had made the commitment, but when the prime minister of South Korea, whose steel giant has co-financed Tuwairqi Steel Mills, spoke to premier Nawaz Sharif, he got no response.
The ambassador of Saudi Arabia also discussed the matter with Finance Minister Ishaq Dar, but it produced no solution.
“If the Korean premier got no response, who will pay heed to me,” the chairman asked. “The government could say yes or no after a month; Al Tuwairqi has plans to make a further investment of $900 million in next phases.”
Replying to a question, he stressed that if they were denied cheaper gas supplies, they would take input and guidelines from legal advisers on what to do next.
The government, according to him, had also committed provision of water and power in a memorandum of understanding (MoU), but it did nothing. Al Tuwairqi has itself set up a power plant and laid a 19km pipeline.
He said Tuwairqi Steel Mills, which is Pakistan’s first private-sector integrated steel manufacturing project, would create 5,000 jobs in Balochistan and 3,000 jobs in Karachi. Tuwairqi Steel Country Head Zaigham Adil Rizvi said the steel complex would have a production capacity of 1.28 million tons per annum compared to Pakistan Steel Mills’ 1.1 million tons.
He pointed out that Pakistan Steel Mills was banking on imported coal and iron ore whereas Tuwairqi would rely entirely on the iron ore produced in Balochistan.
In May 2004, an MoU was signed with Pakistan, under which the government was to provide a level playing field in provision of gas as fuel and feedstock.
“It was promised that gas would be supplied at a lower tariff to enable the company to compete in the international market,” he said, adding the Ministry of Industries had recommended a tariff of Rs123 per million British thermal units for five years.
However, the Ministry of Petroleum and Natural Resources cautions 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.
Tuwairqi Steel is a joint venture between Saudi Arabia’s Al Tuwairqi Group of Companies and South Korea’s Pohang Steel (Posco), who have planned to set up Pakistan’s largest steel complex.
On its part, the Ministry of Industries argues that though the mill is seeking a support of Rs4 to Rs5 billion per annum, its Direct Reduced Iron (DRI) plant will contribute to the country’s economy an estimated Rs12 billion. Apart from this, foreign investment worth 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.
Phase-I of the DRI plant has been completed with an investment of $340 million while capital injection in phase-II and III could be in the range of $850 to $900 million. This, however, has been linked with commercial success of the DRI plant.
Published in The Express Tribune, November 27th, 2014.
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It's unfortunate that Pakistan is the destination of choice for vulture investors. This investment appears ill conceived from day one. Who plans an integrated steel plant (a highly energy intensive project) in a country which has neither high grade iron ore nor excessive supplies of natural gas which could be offered at any concession? What is the strategic advantage to establishing in Pakistan? Why invest, then beg for concessions? If the technology being introduced is so well conceived for the Pakistan market, why not prove it so without asking for government subsidiies as a crutch? We all ready have one bail-out seeking spoilt sick child in the shape of Pakistan Steel Mills, and now here comes another which actually has the gall to pretend it is doing the country a favour by setting up here. The only reason Pakistan was chosen for this project, is that the politicians were deemed malleable enough to sacrifice the entire steel sector to favour one Saudi company.
If this concession is given, a follow up request will entail subsidized power for their steel making divisions that will surely follow, with concessionary access to Pakistani markets (given that the project was originally set up as a special economic zone for export purposes). Why the concessions? why the free infrastructure (PSM port and conveyors)? the additional duty protection which distorts raw material availability for other steel makers- particularly for a unit intended to be export oriented?! And now a requirement for subsidized gas!!!! When will enough be enough?
@Virkaul: Posco perhaps had a scheme to loot iron ore by claiming to clean up aluminium. congress goverment had given it plot every where to start plant , rourkela, kanataka, west bengal, jamshedpur. Unfortunately some MNC exploit social issue etc. It is a LOOT scheme to get coal from bihar, ore cheaply. The proposal to build an independant port at Jagtsingpur was scrapped by congress as it is risky for security. sadly BJP exploits this.
@shouib TMSL Probaly will take 210 as well but it seems that no one in the upper grades knows the value of this plant bieng the state of art plant it will easily doubled the capicity of Pakistan. as our politician have other things more in sight they may never understand the importance of this plant or may be it was initiated in the Mushrraf Era other wise no apprent reason for not granting the gas on the previously agreed rate since 15 % of the equity is also in the offering to the govt.
@Virkaul: The international price of gas is expected to go down $6 per mmbtu but currently wants to sell at $14 per mmbtu. When Musharraf power the rupee was almost twice as valuable today Rs. 128 would be Rs. 210. If there is a written and legally binding agreement I agree with you we must fulfill this commitment if we don't have a legally binding agreement we shouldn't. I am against this. Also all PM's should not give assurances Pakistan can not fulfill. It should take all future prospects into account.
This problem exist in india too, gas has become costly. some players have gone for coal bed methane project. Goverment is also playing games by cancelling coal mining license of some major players due to political opposition,. Technology like blast furnace coke technology has to be explored. Or a combination of DRI . BF technology.
@Shuaib: The agreement was done years ago during Musharraf's time and must be abided by. No one would wait for 3 years just because you cannot manage your affairs. This situation is further aggravated by the ego Pak establishment carries when it scuttles agreements on sharing electricity, roads, energy and communications in SAARC summit. Economies don't get built this way.
Your suggestion of lobbying Qatar fir cheaper gas is far fetched. First, in international market commercial interests govern rather than religious sentiments. To buy LNG from Qatar, you need to understand two things; your capacity to purchase gas at 'spot' prices and the other to have receiving, storage and gasification facility for LNG, which is an expensive installation and takes a minimum of 5 years to build as it involves high pressure equipment and refrigeration facility.
No cheap gas + No LNG installation + withdrawal by POSCO + Isolation at SAARC= unhappiness all around.
Life is far more complicated sir.
Pakistan should pledge to give concessionary gas rates only after it can. That would be 3 years from now.
We need to get our electricity issues in ordr first. This is not a light decision. Maybe lobbying Qatar for cheaper gas rates to Pakistan would be the ideal solution. We'll get cheaper gas + Steel Mill stays + economic growth + everyone is happy.
Who builds an energy intensive steel mill in a country which is suppose to have an energy crisis? I suspect plenty of kickback/graft accompanies that decision.