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

Pakistan may lose investment of $1.2b in country’s largest steel complex.

ISLAMABAD: A planned foreign investment of $1.2 billion may disappear as Saudi Arabia-based Al Tuwairqi Holding is likely to pull out of Pakistan and shift its steel plant to home country following delay in supply of promised gas at a discounted price.

“The top management of Al Tuwairqi Holding has planned to shift its plant from Pakistan in the absence of encouraging response from the government about provision of gas at a lower price according to an agreement,” an official said.

Already, the first phase of Al Tuwairqi’s plant based on Direct Reduction of Iron (DRI) technology has been completed with a capital injection of $340 million and investment in the second and third phases could be in the range of $850 to $900 million. This, however, has been linked with the commercial success of DRI plant.

Tuwairqi Steel Mills with annual production capacity of 1.28 million tons is a joint venture between Saudi Arabia’s Al Tuwairqi Group of Companies and South Korea’s Pohang Steel (Posco), which are setting up Pakistan’s largest steel complex.

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

In an effort to reach a settlement, the company had even offered 15% (126 million) shares in the steel mill to the government without any payment. After 10 years, it is estimated that the share value would be Rs162 per piece.

“We have got no response from the government to our proposal and it is one of the many proposals for shifting the steel plant to Saudi Arabia for installation there,” Tuwairqi Steel Mills Country Head Zaigham Adil Rizvi told The Express Tribune.

The company had also involved the Saudi Arabian ambassador to find a solution, but to no avail.

In May 2004, a memorandum of understanding was signed with Pakistan, under which the government was to create a level playing field in provision of gas as fuel and feedstock.

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. The Ministry of Industries had recommended a tariff of Rs123 per million British thermal units for five years.

In a meeting of the Economic Coordination Committee (ECC), the ministry argued that though the mill was seeking a financial incentive of Rs4 to Rs5 billion per annum, its DRI plant would 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 said, the mill would contribute Rs100 billion annually to the economy in import substitution.

However, the Ministry of Petroleum and Natural Resources has cautioned that 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.

Published in The Express Tribune, January 15^th, 2015.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.