Mr. Ghulam Farooq, the then chairman of the Pakistan Industrial Development Corporation, resigned in protest. Interestingly, this Kalabagh iron ore was of such high quality that in June 1966, M/S Salzgitter of Germany procured 15,000 tonnes of the ore, and produced 5,000 tonnes of quality steel which was bought by the world-famous automobile company, Volkswagon.

Consequently, M/S Salzgitter offered to set up Kalabagh steel mill based on Kalabagh iron ore, and imported coal. This project was estimated to cost only Rs1.5 billion. It adds to the credibility of the project that certain European banks offered to finance the project. Once again, the offer was rejected.

In April 1968, President Ayub Khan accepted the Russian offer for Kalabagh steel mill project, and his successor President Yahya Khan inked the project agreement with Russia. However, it was later learnt that Russia did not possess the technology to produce steel from the Kalabagh iron ore.

Common-sense would indicate that German offers for the Kalabagh iron ore should have been revived. Instead, the site of the steel mill was shifted to Karachi. Not only was its machinery comparatively inferior, but it was based on ore and coal that had to be imported.

The Nokkundi iron ore project: In 1972, experts from China discovered a substantial quantity of high quality iron ore in Nokkundi, Balochistan. Steel experts from America and Japan confirmed its suitability for steel production. They, therefore, recommended that a mini steel mill be set up in Balochistan. Even till 1999, offers from China and Iran were submitted to our government for this steel mill in Balochistan. Like the Kalabagh iron ore project, this too was never to see the light of day.

The Pakistan Steel Mill (PSM): After the engineered demise of the Kalabagh steel mill and the Nokkundi iron ore projects,the construction of the Pakistan Steel Mill was commenced with an estimated cost of Rs14 Billion. It was completed in 1985, but only after the costs had soared by an additional Rs10 billion.

Moreover, while the installed capacity has been 1.1 million tonnes per year, the average utilization hovers around only 80 per cent of this target. An enlightening comparison with a Brazilian Steel Mill dispels the belief that the fault lies only with the outdated machinery:

Table-1: PS Mill and the Brazilian Steel Mill: a comparison

Pakistan Steel Mills Brazilian Steel Mills

Year of

completion 1985 1956

Origin of

Technology Russia Japan

Employees 28,000 13,000

Annual

Production

(tonnes) 0.8 million 4.3 million

Financial considerations: In March 2002, the Public Accounts Committee (PAC) announced that PSM had incurred a loss to the exchequer, in excess of Rs10 billion. Subsequently, the chairman of the PSM confirmed payable loans of more than Rs19 billion. The figures of the PAC would have been even higher if they had considered the initial investment of Rs24.7 billion, frequent government grants, and loans converted to equity because the PSM was totally unable to pay back even the bank interest on such loans. Whereas the PSM has never achieved its installed capacity to date, expansion plans are underway requiring the investment of an additional $1 to $2 billion (Rs58 to 116 billion). Consequently, its already massive financial burden will be multiplied manifold. The Pakistan Steel Mills Corporation was established to develop the steel sector on an all-Pakistan basis. Appropriately, Kalabagh and Nokkundi steel projects were transferred here from the PIDC. Unfortunately, the successive chairmen of the corporation concentrated only on the PSM, which, obviously, was the responsibility of the managing director, PSM. Consequently, the steel sector with its confirmed feasible projects was ignored in other provinces of Pakistan.

Concept of mini steel mills: According to Press reports, an Italian “Danieli & Co.” signed a contract with Philippines F. Jacinto Group of Companies in 1996 to set up a state-of-the-art 1.2 mtpy steel mill (including supply, installation and commissioning) at an estimated cost of $600 million. Clearly, a smaller steel mill of about 0.8 mtpy capacity should cost much less.

This speaks in favour of setting up modern mini steel mills, based on local iron ores, in the provinces of Punjab, NWPF, and Balochistan. Understandably, the preference of recent years is towards state-of-the-art mini steel mills which are more cost-effective than larger mills, and are also much easier to modernize and upgrade, vide “Newsweek” of February 24, 1992 and “The News International” of April 6, 1991.

In view of the above, it may be desirable to constitute a parliamentary committee, comprising representatives from all the provinces, to consider ways and means to develop the steel sector based on local iron ores. Foreign, federal and provincial experts may also be asked to assist. To achieve the desired objective, the committee may consider the following suggestions:

a) a seminar may be held to examine various local iron ores suitable for steel production.

b) The PSM should achieve sustained utilization of its 1.1 mtpy installed production capacity, and then prove its financial viability to justify any consideration of its expansion.

c) The PSM should develop a suitable technology, in collaboration with research laboratories such as the PCSIR, to utilize local iron ore and coal.

d) State-of-the-art mini-mills based on local iron ores may be considered for Punjab, NWFP, and Balochistan to meet about 75 per cent of our steel requirements now being met through imports.

e) A steel sector development authority, with due representation of the provinces, may be established under the administrative control of the Prime Minister to develop steel sector on all-Pakistan basis. However,the PSM may continue to be administered by the ministry of industries and production like other public sector industrial units.

Conclusion: Due to either ignorance, or lack of interest, on the part of decision makers, feasible Kalabagh steel mill and Nokkundi iron ore projects were sidetracked and forgotten. Consequently, Pakistan lost over 20 years of steel making, thousands of employment opportunities for mining and transport of local ore, and untold billions of dollars in foreign exchange spending.

Although it may be too late to revive such long-shelved projects, further projects such as mini steel mills (to be set up in the remaining three provinces) will help strengthen the steel sector in Pakistan, which is currently catering to only 25 per cent of the total steel requirement of the country.