Eye Opening Facts: Steel Sector

It is perhaps our greatest misfortune that profitable steel projects based on local ore were carelessly shelved and then shamelessly forgotten. Instead, this impoverished country vainly celebrated ownership of a debt-generating steel mill that depended on ore imported from the far-flung corners of the world. What follows is a brief overview of the false turns and blind alleys we have taken in the steel sector.

1. Kalabagh Steel Mill Project (1956, 1967): In 1956, M/S Krupp of Germany offered to set up a steel mill based on Kalabagh iron ore. Most of the other minerals, including coal, were available in a radius of only 11 miles from the proposed site. Unfortunately, the concerned minister from a steel-importing family managed to sabotage this project. Mr. Ghulam Farooq, the illustrious 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 brought by the world-famous automobile company, Volkswagen. 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 Rs. 1.5 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 uprooted, and shifted to Karachi. Not only was its machinery comparatively inferior, but it was also based on imported ore and coal.

2. Nokkundi Iron Ore Project (1972): 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.
Pakistan Steel Mill (1985-): After the engineered demise of the Kalabagh Steel Mill and the Nokkundi iron ore projects, construction of Pakistan Steel Mill was commenced with an estimated cost of Rs. 8 Billion. It was completed in 1985, but only after the costs had soared by an additional Rs. 17 Billion. Moreover, while the installed capacity has been 1.1 million tonnes per year, the average utilization hovers around only 80% of this target. An enlightening comparison with a Brazilian Steel Mill dispels the belief that the fault lies only with the outdated machinery:

3. Table 1: Pakistan Steel Mill and The Brazilian Steel Mill

A Comparison

Pakistan Steel Mill
Brazilian Steel Mill

Year of completion
1985
1956

Origin of Technology
Russia
Japan

Employees
28,000
13,000

Annual Production (tonnes)
0.8 million
4.3 million


4. Pakistan Steel Mill, Financial Considerations: In March 2002, the Public Accounts Committee announced that Pakistan Steel Mill had incurred a loss to the exchequer, in excess of Rs. 10 Billion. Subsequently, the Chairman of the Pakistan Steel Mill also confirmed payable loans of more than Rs. 19 Billion. The figures of the Public Accounts Committee may have been even higher if they had considered the initial investment of Rs. 24.7 Billion, frequent government grants, and loans converted to equity because Pakistan Steel Mill was totally unable to pay back even the bank interest on such loans. Whereas Pak Steel has never achieved its installed capacity to date, expansion plans are underway requiring the investment of an additional $1 to $2 Billion (Rs. 58 to 116 Billion ). Consequently, its already massive financial burden will be multiplied manifold.


5. Chairman Pakistan Steel Mills Corporation Vis a Vis Chairman Pak Steel Mill : Pakistan Steel Mills Corporation was established to develop 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 Pakistan Steel Mill, which, obviously, was the responsibility of the Managing Director Pak Steel Mill. Consequently, the steel sector with its confirmed feasible projects was ignored in other provinces of Pakistan.

6. The Modern Concept of Mini Steel Mills : According to "The Muslim" of July 29, 1996, an Italian "Danieli & Co." signed a contract with Philippines F. Jacinto Group of Companies to set up a state-of-the-art 1.2 mtpy Steel Mill (including supply, installation and commissioning) at an estimated cost of US $ 600 million. Clearly, a smaller steel mill of about 0.8 mtpy capacity should cost much less. This speaks in favor 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.

7. Parliamentary Committee for Steel Sector Development - A Suggestion: 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 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 please consider the following suggestions also:

A seminar may be held to examine various local iron ores suitable for steel production.
Pak Steel Mill 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.
Pak Steel Mill should develop a suitable technology, in collaboration with research laboratories such as the PCSIR, to utilize local iron ore and coal.
State-of-the-art mini-mills based on local iron ores may be considered for Punjab, NWFP, and Balochistan to meet about 75% of our steel requirements now being met through imports.
Steel Sector Development Authority, with due representation of the provinces, may be established under administrative control of the Prime Minister to develop steel sector on all-Pakistan basis. However, Pak Steel Mill 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. It should be easier to revive such projects in light of modern technological advancements, adding much needed strength and self-reliance to the steel sector in Pakistan.