Development of Steel Sector

The steel sector development based on local iron ore is of great national importance because of its enormous socio-economic benefits to the people of all the provinces, besides substantial forex savings. Unfortunately, the feasible steel-making projects based on Kalabagh and Nokkundi iron ores have been shelved, and the Pakistan Steel based on imported iron ore will be expanded from its existing installed production capacity of 1.1 million tonnes per year (mtpy) to 3.0 mtpy.

It will entail increase in import of iron ore from 1.8 to over 5.5 million tonnes per year from far-off countries like Australia, Brazil, Canada, with much increased permanent forex burden on the poor nation and, also, expansion of Port Qasim facilities to handle this huge quantity.

The PIDC had already received technical and financial offers from some European countries for the Kalabagh steel mill and, by early 1968, it had selected and tested the mill site with about 80 per cent raw materials available within 11 miles radius, when in April 1968 Gen Ayub Khan accepted the Russian offer for the Kalabagh project, and not for the Pakistan Steel based on imported iron ore.

The Kalabagh and Nokkundi iron ore projects were transferred from the PIDC to the Pakistan Steel Mills Corporation during the 1970s for further necessary action. The corporation deviated from its assigned national role of development of the steel sector on an all-Pakistan basis and, practically, concentrated only on the Pakistan Steel. Consequently, no effective organization exists since the ’70s to develop the steel sector on an all-Pakistan basis. This colossal national loss warrants an early remedial action by the authorities concerned.

A brief comparison of the Kalabagh steel mill project with the Pakistan Steel will be of interest to all concerned. After producing 5,000 tonnes of quality steel from 15,000 tonnes of Kalabagh iron ore in Germany, M/s Salzgitter of Germany offered in 1967 to set up the Kalabagh steel mill of 0.815 mtpy production capacity at a cost of Rs1.54 billion, including foreign exchange cost of Rs878 million.

In comparison, the Pakistan Steel with an installed capacity of 1.1 mtpy was commissioned at a cost of Rs24.7 billion, followed by further investments and losses, produced on the average 0.792 mtpy during the last 15 years (based on 72 per cent capacity utilization during the last 15 years as mentioned in a Min. of I. & P. publication of 2003). As such, it is quite fair and logical to expect the Pakistan Steel to prove its technical and financial viability through satisfactory performance for at least five years before consideration of its expansion.

The Newsweek (Feb 24, 1992) and The News International (April 6, 1991) reported preference for state-of-the-art mini-steel mills for being cost-effective as compared to investment in the old, large steel mills with outdated technologies and worn-out machinery. The actual cost-effectiveness of mini-steel mills must have been well-known by now. As such, this preference deserves evaluation in consultation with the leading manufacturers of steel mills machinery to ascertain whether it is in the national interest to expand the Pakistan Steel based on imported iron ore or to opt for steel mills of the latest technologies based on local iron ores.

According to Dawn of June 18, 1994, the ministry of finance raised objections to the expansion plan of the Pakistan Steel saying that it was not viable and may give Pakistan Steel a monopolistic hegemony in the country’s steel market. According to an earlier press report, the finance secretary had objected to the expansion proposal with reference to Rs1.2 billion annual bank interest paid by the government because of inability of the Pakistan Steel to pay. It is not known whether these serious objections to Pakistan Steel expansion are still valid or clarified in the feasibility study report which justifies Pakistan Steel expansion in the national interest.

It is in the national interest to develop the steel sector, including the Pakistan Steel, based on local iron ores and, also, coal if possible, as it is the best way to develop more than one source of steel at locations favourable to downstream industries in each province which will provide far greater and ever increasing socio-economic benefits to the people of all the provinces.