Steel industry concerned over ‘proposed facilities’ for TSML revival

[CrazyZ]

Steel industry concerned over ‘proposed facilities’ for TSML revival
By
Ghulam Abbas
-
March 13, 2020
0
190

ISLAMABAD: Expressing serious concerns over the government’s intention to facilitate the revival of Al-Tuwairqi Steel Mills Limited (TSML) through heavily subsidized gas and tax exemptions, the local steel industry has claimed that the proposed plan would cause an annual burden of over Rs13.2 billion to the national exchequer.

Through a letter sent to Prime Minister Imran Khan and Adviser to PM on Commerce Abdul Razaq Dawood, the Pakistan Association of Large Steel Producers (PALSP) has claimed that the particular project was being pushed with great haste and by ignoring the tenets of meritocracy.

TSML, a joint foreign direct investment project of KSA’s Al-Tuwairqi Group of Companies, was established at Bin Qasim, Karachi, over an area of 220 acres. The Saudi firm had halted its plant operations after the Pakistan Muslim League-Nawaz (PML-N) government had refused to provide gas at a discounted rate.

The plant has been dysfunctional since June 2013.

The TSML management had sought gas supply at Rs123 per million British thermal units (mmbtu) in a bid to efficiently run the plant. However, the then government had turned down the request, arguing that it would amount to a subsidy of Rs25 billion over five years.

According to sources, while the bureaucracy was reluctant to approve special facilities being proposed for the revival of TSML, an influential lobby was forcing the government to consider the revival plan.

“Although officials at the Ministry of Industries and Production and Federal Board of Revenue (FBR) are opposing the special facilities being offered to TSML, at least half a dozen reminders have been sent to FBR and relevant authorities to consider the revival plan,” an insider told this scribe. “The officials are opposing the summary related to the TSML revival to avoid court cases as they consider the proposed plan to be a clear case of the National Accountability Bureau (NAB).”

The proposed tax exemptions include exemption of minimum income tax for 10 years, exemption of 2pc additional customs duty (ACD) on import of pellets, and waiver of regulatory duty and ACD on import of DRI (direct reduced iron)-based billets for a period of one and half year.

It was also proposed to give TSML the status of a ‘Special Economic Zone’ so that it could enjoy all exemptions given by the government to seven SEZs under the China Pakistan Economic Corridor.

“At full capacity, Tuwairqi Steel Mills will be getting a subsidy of almost Rs13.2 billion per annum from the government, including subsidy on gas and income tax exemptions,” the PLSP noted in its letter sent to the PM.

“Tuwairqi’s product, DRI, will try and replace imported scrap, but import substitution numbers will be negative when considering the subsidies required for the Pakistan Steel Mill to be operational, i.e. major components of DRI manufacturing are RLNG and iron ore, both imported products.

“Moreover, import substitution will only be done partially because technology predominantly used in Pakistan for steel making can only process maximum 20pc of gas-based DRI, while balance will still have to be imported scrap.”

As per the PLSP, “Given that many DRI exporting countries are those where gas prices are in the range of $2.5 per mmbtu and may even have iron ore available domestically, it doesn’t seem that TSML will be viable in the export market even after subsidized gas is available to them at $4.65 per mmbtu.”

The association further stated that since DRI must be at least 15pc cheaper than shredded scrap prices for it to make commercial sense, maximum local buyers would be willing to pay $260 per tonne for DRI.

“As subsidised gas price and iron ore pellets alone will cost Tuwairqi $220 per tonne, will they be able to cover all other costs and overheads in just $40 per tonne?” the association asked. “It is now clear that we will be giving perpetual gas subsidy to Tuwairqi and we will have to import RLNG to augment our demand for gas which doesn’t make sense. Therefore, we must promote the production of DRI and iron pallets through the use of coal gas and iron ore.”

https://profit.pakistantoday.com.pk...ed-over-proposed-facilities-for-tsml-revival/

 

[CrazyZ]

Al-Tuwairqi Steel Mills Limited should be revived in my opinion, irrespective of the concerns local mafias. We need to show gulf investors that Pakistan has changed. The idiots in previous regimes created this mess....by not thinking through the energy requirements of a new steel mill. We should have a dedicated minister to facilitate gulf and Turkish investments in Pakistan....similar to CPEC.

 

[Haris Ali2140]

Steel industry concerned over ‘proposed facilities’ for TSML revival
By
Ghulam Abbas
-
March 13, 2020
0
190

ISLAMABAD: Expressing serious concerns over the government’s intention to facilitate the revival of Al-Tuwairqi Steel Mills Limited (TSML) through heavily subsidized gas and tax exemptions, the local steel industry has claimed that the proposed plan would cause an annual burden of over Rs13.2 billion to the national exchequer.

Through a letter sent to Prime Minister Imran Khan and Adviser to PM on Commerce Abdul Razaq Dawood, the Pakistan Association of Large Steel Producers (PALSP) has claimed that the particular project was being pushed with great haste and by ignoring the tenets of meritocracy.

TSML, a joint foreign direct investment project of KSA’s Al-Tuwairqi Group of Companies, was established at Bin Qasim, Karachi, over an area of 220 acres. The Saudi firm had halted its plant operations after the Pakistan Muslim League-Nawaz (PML-N) government had refused to provide gas at a discounted rate.

The plant has been dysfunctional since June 2013.

The TSML management had sought gas supply at Rs123 per million British thermal units (mmbtu) in a bid to efficiently run the plant. However, the then government had turned down the request, arguing that it would amount to a subsidy of Rs25 billion over five years.

According to sources, while the bureaucracy was reluctant to approve special facilities being proposed for the revival of TSML, an influential lobby was forcing the government to consider the revival plan.

“Although officials at the Ministry of Industries and Production and Federal Board of Revenue (FBR) are opposing the special facilities being offered to TSML, at least half a dozen reminders have been sent to FBR and relevant authorities to consider the revival plan,” an insider told this scribe. “The officials are opposing the summary related to the TSML revival to avoid court cases as they consider the proposed plan to be a clear case of the National Accountability Bureau (NAB).”

The proposed tax exemptions include exemption of minimum income tax for 10 years, exemption of 2pc additional customs duty (ACD) on import of pellets, and waiver of regulatory duty and ACD on import of DRI (direct reduced iron)-based billets for a period of one and half year.

It was also proposed to give TSML the status of a ‘Special Economic Zone’ so that it could enjoy all exemptions given by the government to seven SEZs under the China Pakistan Economic Corridor.

“At full capacity, Tuwairqi Steel Mills will be getting a subsidy of almost Rs13.2 billion per annum from the government, including subsidy on gas and income tax exemptions,” the PLSP noted in its letter sent to the PM.

“Tuwairqi’s product, DRI, will try and replace imported scrap, but import substitution numbers will be negative when considering the subsidies required for the Pakistan Steel Mill to be operational, i.e. major components of DRI manufacturing are RLNG and iron ore, both imported products.

“Moreover, import substitution will only be done partially because technology predominantly used in Pakistan for steel making can only process maximum 20pc of gas-based DRI, while balance will still have to be imported scrap.”

As per the PLSP, “Given that many DRI exporting countries are those where gas prices are in the range of $2.5 per mmbtu and may even have iron ore available domestically, it doesn’t seem that TSML will be viable in the export market even after subsidized gas is available to them at $4.65 per mmbtu.”

The association further stated that since DRI must be at least 15pc cheaper than shredded scrap prices for it to make commercial sense, maximum local buyers would be willing to pay $260 per tonne for DRI.

“As subsidised gas price and iron ore pellets alone will cost Tuwairqi $220 per tonne, will they be able to cover all other costs and overheads in just $40 per tonne?” the association asked. “It is now clear that we will be giving perpetual gas subsidy to Tuwairqi and we will have to import RLNG to augment our demand for gas which doesn’t make sense. Therefore, we must promote the production of DRI and iron pallets through the use of coal gas and iron ore.”

Why are private manufacturers concerned about Govt. spendings???

 

[CrazyZ]

Why are private manufacturers concerned about Govt. spendings???

A new mill would threaten their monoply. They may have a valid point on using Thar coal gas, but there is no infrastructure to pipe it to Karachi. Imported LNG is simpler. With oil prices this low and new large discoveries of NG in KSA and UAE. Now may be a good time to negotiate a long term LNG supply contract with KSA or UAE for this steel mill or future mills.

 

[khanmubashir]

Why are private manufacturers concerned about Govt. spendings???

because gov is favoring a particular company which would hurt local competitors besides u would complain too if yr competition is facilitated by the regulator and rightly to do so deary

instead of giving billions; in gas subsidy from Pak $
gov should encourage it to mine thar coal and use it as energy source

 

[AZADPAKISTAN2009]

All-State assets should be sold under a State-Private Cooperation

• The private group should be allowed to rehire workers

• Management should be handled by Consulting Firm who have to make it profitable under contract, and with performance incentives

• Unions should not be allowed

 

[CrazyZ]

because gov is favoring a particular company which would hurt local competitors besides u would complain too if yr competition is facilitated by the regulator and rightly to do so deary

instead of giving billions; in gas subsidy from Pak $
gov should encourage it to mine thar coal and use it as energy source

It boils down to cost benefit analysis. Infrastructure required to get Thar coal or gas to this site is not there or would be costly. It may easier to have a dedicated DRI plant near mine mouth in Thar in the future. And supply this mill with LNG.

Fun fact: Some of the first commercial LNG plants were used to provide energy to Japanese steel mills in the 60's.

 

[niaz]

According to the World Steel Association data, during 2019 the largest steel producers in the word were:

China: - 996-million tons, India: - 111-million tons & Japan 99-million tons.

Both India & Japan are heavily dependent on imported LNG; Japan imports about 6-million tons per month, Indian imports over 2-million tons per month. LNG imported price to Japan has averaged about $10/mmbtu and for India about $8.5/mmbtu, thus steel mill in Pakistan would not be at a disadvantage except that India has substantial local Iron ore & coal available thus able to produce large quantities of cheaper pig iron & local scrap compared to the imported scrap used by Pakistani steel producers.

China is a different matter altogether. Even though China imports about 7-million tons per month of LNG during normal times, it also has a lot of gas associated with coal production and also significant tight gas production. The gas prices to the Chinese Steel Mills are heavily subsidized. I can’t be certain because most of the data from China is unreliable, but it could be close to $2.5/mmbtu. That is why the Chinese steel plate is the cheapest in the world and she produces about 9 times more steel than India and 10 times more than Japan.

If Pakistan is to rely on import from China 'ad infitim' than the revival or even steel manufacture in Pakistan would be an economic blunder. However, I would not hedge all my bets on imports from a 3rd country for a basic necessity like steel. Assuming that due diligence has been exercised on the feasibility, I would go for it.

 

[AZADPAKISTAN2009]

Revival of Steel Sector is important , as Pakistan is building new infrastructure and the state-owned entities could benefit from purchase of Local Steel

Alot of Pakistani cities are old , and it is approaching time when old buildings will have to come down for new buildings to go up

• The best solution would be to change the power plant to Electric
• Plant a massive solar farm nearby
• Transport the energy to Steeles Mills
• Subsidy is a temporary solution, converting to Solar Power is a permanent solution
• Make a 1-time purchase of new power plant

Use none farming barren land in 4-6 months such a project can finish
The money spend would be same as subsidy cost

We can also order a new power plant for steel mills which would generate heat from an electric source and get off the Gas solution

 

[Pakistansdefender]

because gov is favoring a particular company which would hurt local competitors besides u would complain too if yr competition is facilitated by the regulator and rightly to do so deary

instead of giving billions; in gas subsidy from Pak $
gov should encourage it to mine thar coal and use it as energy source

You cannot mine thar coal for a single plant in karachi. Besides that coal power plants and in Thar. And government is developing them too.
Besides everyone hates competetion in business. But everyone too have the right of running a business that you are doing.

 

[CrazyZ]

Revival of Steel Sector is important , as Pakistan is building new infrastructure and the state-owned entities could benefit from purchase of Local Steel

Alot of Pakistani cities are old , and it is approaching time when old buildings will have to come down for new buildings to go up

• The best solution would be to change the power plant to Electric
• Plant a massive solar farm nearby
• Transport the energy to Steeles Mills
• Subsidy is a temporary solution, converting to Solar Power is a permanent solution
• Make a 1-time purchase of new power plant

Use none farming barren land in 4-6 months such a project can finish
The money spend would be same as subsidy cost

We can also order a new power plant for steel mills which would generate heat from an electric source and get off the Gas solution

Good points. I would note that iron production will continue to require fossil fuels for the foreseeable future. Most iron ores are iron oxides. In order to free the iron you need to add carbon from fossil fuels to fuse with the oxygen atoms. The by product is carbon dioxide and iron. This can be done in the DRI process using NG or coal gas or in blast furnaces that can use NG or coal.

 

[BATMAN]

Tuwarqi steel produce only pellets. PSM has been importing those pellets thus far... which was at expense of national exchequer. Needless to say import of pallets by PSM would be stopped once TSM is in operation. Otherwise there's no reason of concern for PSM (read Zardari mafia).
Hope people knows, it's an investment of >500 million$ going scrap only because of sectarian reasons.
Investment belongs to a Saudi individual, who as well is highly educated.

 

[Mentee]

because gov is favoring a particular company which would hurt local competitors besides u would complain too if yr competition is facilitated by the regulator and rightly to do so deary

instead of giving billions; in gas subsidy from Pak $
gov should encourage it to mine thar coal and use it as energy source

Or simply could allow the private businesses to generate their own electricity to get rid of gas pipes in households. Many are willing to add extra megawatts to national grid.

 

[khanmubashir]

You cannot mine thar coal for a single plant in karachi. Besides that coal power plants and in Thar. And government is developing them too.
Besides everyone hates competetion in business. But everyone too have the right of running a business that you are doing.

no issue with business
but is with gov giving public $ to it in form of subsidy
we already have many white elephants

Revival of Steel Sector is important , as Pakistan is building new infrastructure and the state-owned entities could benefit from purchase of Local Steel

Alot of Pakistani cities are old , and it is approaching time when old buildings will have to come down for new buildings to go up

• The best solution would be to change the power plant to Electric
• Plant a massive solar farm nearby
• Transport the energy to Steeles Mills
• Subsidy is a temporary solution, converting to Solar Power is a permanent solution
• Make a 1-time purchase of new power plant

Use none farming barren land in 4-6 months such a project can finish
The money spend would be same as subsidy cost

We can also order a new power plant for steel mills which would generate heat from an electric source and get off the Gas solution

electricity based steel production hasn't proven to be feasible anywhere even Japan has to import LNG for it's steel Mills instead of using local electricity it has self-sufficient in

 

[Pakistansdefender]

no issue with business
but is with gov giving public $ to it in form of subsidy
we already have many white elephants


electricity based steel production hasn't proven to be feasible anywhere even Japan has to import LNG for it's steel Mills instead of using local electricity it has self-sufficient in

That depends on the whole picture. If the mill earn enough that those subcidise are nothing then OK.
If not then no. Look every glass is half empty and half full. We don't have to discard everything at once. We should see it throughly.