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. PHOTO: REUTERS
“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 15th, 2015.
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COMMENTS (12)
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On one hand we are trying to attract foreign investment, while on the other we are letting an already made investment go!
Isn't it a contrast in our policy?
For those who question why subsidized rate should be given: if that is what was contractually agreed at the time investment was made, it should be honored. Whether that contract was appropriate or not at the time it was made is a different issue.
It is the totally loss of Pakistan economic, if the Steel Plant move. What is the future of employees in which working since 2005 ?
Its a sad state for Pakistan. For those against this gas supply kindly look around and see if any of the foreign investors have invested a penny in long term projects like Tuwairqi just did? They believed Governments commitment of provision of natural Gas and invested $350 million i.e Rs 35 Billion. if a Government cant honour its word who else would come in Pakistan to invest based on their claims? Btw the Government has given more than Rs 30 billion to Pakistan Steel as direct cash subsidy just on the provision of salaries and import of raw material, repairs etc. i read in the article that they are willing to offer 15% shares. Please ask any of the local fertilizer companies if they would give even 5% shares to Government, they wont, why? because they want to keep all the profits in their own kitty and don't want to share the rewards with the Government and people of Pakistan. If Tuwairqi leaves i think no steel maker will ever invest in Pakistan's steel sector for a very very longtime and that would be really unfortunate for the economic future of Pakistan.
All investors using natural gas as feed stock shall be treated equally. However preference shall be given to those utilizing it more efficiently. Tuwairqi shall be evaluated accordingly. The decision should go on fast track before they decide to move.
A solution..
Allow the tuwariqi to import LNG from KSA free of tax... and use it in the plant..
If they can get cheaper fuel from there and lower labor cost in Pk then they should have no objection.
Gov just let them import their own fuel hence a win win for both
This is a fiasco between the investment thru respective Govt., which sold NG, as all our natural gas is wasted to the CNG sector, Amonia, Fertiliser plants, Cement plants, period. The cement, fertiliser plant made bumper profits becaused of the cheap gas they used, for patriotic policies by the respective Governments, poor regulation, governance. The International Energy Agency, has all data available for tariff worldwide. I suggest gas should be disconnected to fertiliser, cement, and steel plants. As alternative energy they can use coal for limited period. As the Climate Change will not let any country use coal beyond 2016. Is Tawarqi Steel bribing the Government by giving shares, for reduced tariff.
@Roshni:
It is requested that from Al-Tuwairqi management that plz do not show us how charmingly you are helping Pakistan in this or that way. Kindly do us a favor either plz do not ask for subsidize gas as u r a private entity and further by giving u subsidy the overall consumer (except domestic & fertilizers) are hitting 3.3% in their wallet.
And if you do not like here, then plz leave. thx. We welcome foreign investment not foreign arm-twistment.
regards,
Please DONT sell our natural gas, at all. Dont waste it in cars or domestic use. Use it purely for electricity generation.
How could you say that it is unjustified. I think you should first find the facts and then comment. TSML is not only getting subsidy but also giving 15%equity shares to GOP along with confirmed future investement of $900. Being in EPZ, for each product we dispatch from our gate, we have to pay advance income tax and 1.5% EPZ surcharges of revenue. In this way, GOP can recover taxes advance which no big company is doing so rather by showing loss they can waive the IT. There is more than 1000 families which are run by this company on the employment basis. Do u have any data of Gas prices given to Steel sector in Middle East, as per my knowledge, the gas prices are lower what TSML is demanding. By giving generalizing statement, the facts are twisted.
Tuwairqi steel's demands are completely unjustified. The rate they want gas supplied is unheard of anywhere in the world, even lower than the middle east. Our policy makers are giving massive subsidies to the fertilizer industry in the form of cheap gas and it seems like tuwairqi steel also wants to ride that gravy train. Why should the rest of industry and consumers pay higher tariffs than blue eyed fertilizer industry.