Optimists have not lost hope, but odds are said to be too heavy against tackling the feedstock gas price issue for Tuwairqi Steel Mills Limited in the time frame set by the company.

Currently, one of the biggest steel plants — tested for running at full capacity in May 2013 —stands idle. Top company executives say it will switch to an exit strategy if the government fails to decide in its favour this month.

The company has waited for the decision for 10 months since September 2013, when it was forced to shut down its plant because of the hike in the feedstock gas price, which, it says, rendered its operations commercially unviable.

The company is demanding feedstock gas at Rs123/mmbtu — a rate at which it is provided to 11 fertiliser plants that also use natural gas as a raw material. It cites provisions of a 2004 MOU signed between investors and the government to support its case of concessionary tariff. The prevalent industrial tariff rate is Rs588 (Rs488 sale price + Rs100 GIDC).

TSML sponsors are ready to sign a Head of Terms document with the government as a firm commitment for an additional investment of $890m if the gas price issue is resolved to make the plant commercially viable

Based on a study by experts, the company claims that its contribution to the public exchequer in taxes and savings on the import of steel will be almost equivalent to the amount that the government will incur on providing the subsidy on feedstock gas. In addition, its sponsors are ready to sign a head of terms (HOT) document with the government as a firm commitment for an additional investment of $890m if the matter is resolved to make the plant commercially viable.

The delay in the government’s decision, however, is not only due to the quantum of the subsidy involved, but also to the extreme positions taken by relevant ministries and the centralisation of power in the finance ministry. While the ministry of industries is actively pursuing the company’s case and the law ministry is supporting it, the ministries of petroleum and finance block the decision every time it comes up before the Economic Coordination Committee (ECC) of the Cabinet.

Ghulam Murtaza Jatoi, the federal minister for industries, told Dawn over phone from Islamabad that the finance ministry, with its narrow vision, has delayed the decision and will be responsible if TSML leaves our shores.

“It is our mandate to promote industrialisation. Had it been for us, TSML would have not only been operating but entered the phase of integration. We would have accommodated them. It is not wise for a capital-deficient country with a huge image problem to let bold investors, who have already invested $380m and promise to subsequently bring in about $1bn worth of investment, quit and depart,” he said.

“Unfortunately, my ministry is treated more as a post office designated with the task of forwarding the concerns of industry, with little say in the final decision on the subject,” he grumbled.

“We will not let it close down InshaAllah,” said Miftah Ismail, chairman of the Board of Investment, while dismissing the impression that the delay has been at the behest of some vested interests.

“What TSML is demanding is a subsidy that involves a cost of Rs5bn per annum to the government. The money will have to be raised, and it may end up reflecting in domestic consumers’ gas bills. It is, therefore, not an easy decision. It involves a tradeoff between commercial and public interests, and will need a detailed cost-benefit analysis,” he added.

“To allay reservations from certain government quarters, we are working on a proposal to negotiate 5pc government equity in the project as a part of a bailout package,” Miftah told Dawn.

Muhammad Zubair, chairman of the privatisation commission, was not convinced. “There is absolutely no justification for lingering over an issue that is so crucial. They should have taken a decision a long time back. I am not ready to buy any excuse by the committee for not doing its job,” he said, referring to the five-member committee designated in the July 15 ECC meeting to present a draft in the September 15 meeting for the decision.

He was also said to be opposed to the idea of government equity in TSML, as it would not reflect well on the business environment in the country.

“The patience of the principals has reached its limit. I am afraid I might not succeed in selling optimism to the set of star steelmakers of the region, while piling losses at an excellent plant in Pakistan. At stake is not just the commercial interest, but the brand reputation,” Zaigham Adil Rizvi, country head of TSML, told this scribe in an meeting in Islamabad last week. He was referring to the Al-Tuwairqi Group of Saudi Arabia and POSCO (formerly the Pohang Iron and Steel Company of South Korea).

Young Ho Yoo, Posco’s resident director, who was also present, said the company had initiated preliminary work in the mining sector in Balochistan for the supply of indigenous iron ore to the mills. TSML

is located at Bin Qasim over 220 acres.

Published in Dawn, Economic & Business, Aug 11th, 2014