China eyes Pakistan steel sector
By Syed Fazl-e-Haider
QUETTA, Pakistan - China Metallurgical Construction Corporation (MCC), which
already runs a copper mine in Pakistan's Balochistan province, is showing
renewed interest in expanding and modernizing Pakistan Steel Mills (PSM), the
country's only integrated steel-manufacturing plant, at a cost of US$2.2
billion.
The Chinese company plans to set up a new plant at a cost of $1.2 billion
within two years in the first phase of the expansion project, capable of
producing 2 million tonnes of steel per annum. In the second phase, MCC would
modernize the existing PSM plant at a cost of $1 billion in another two years.
Local iron and steel traders have already urged the government to look into the
looming problem of acute shortages of steel products, which may hamper
construction activity in the country. Since Pakistan Steel is not in a position
to meet the growing
requirement of steel in the country, local merchants have to import products to
meet their growing requirements of billets and re-rollable scrap.
A visiting MCC delegation told the Minister for Industries and Production Mian
Manzoor Ahmad Wattoo last week that the revamping would raise PSM's production
capacity to 3 million tonnes from the present 1.1 million tonnes per year. The
minister assured the Chinese that a final decision on the project would be made
very soon after an in-depth study of their proposals, according to a Daily
Times report.
MCC, China's leading multi-disciplinary multinational company, is known for its
experience in scientific research, industrial engineering and international
trading capabilities. It is a major driving force behind the growth of China's
steel industry and it has carried out construction of many strategic steel
production bases. The company produced a 500-page report on the expansion of
PSM in 2005 after another delegation expressed interest in expanding PSM in
2004.
PSM, based 30 kilometers southeast of the southern port city of Karachi, was
incorporated as a private limited company in 1968. It commenced full-scale
commercial operations in 1984. The PSM complex includes coke-oven batteries, a
sintering plant, last furnaces, steel converters, bloom and slab casters,
billet mill, hot and cold rolling mills, galvanizing unit and 165MW of power
generation units, supported by various other ancillary units.
The company's image has been tarnished by huge losses and stories of
mismanagement and massive corruption. Its privatization in 2007 involved
considerable scandal because it was auctioned off at throw-away price. The
scandal had serious political repercussions for the government of
then-president General Pervez Musharraf particularly after chief justice of the
top court gave his judgment against the sell-off.
The country's iron and steel sector is much fragmented, with 598 manufacturing
units, but plays an important role in providing raw material for capital
formation and economic development. PSM's dominance among steelmakers declined
steeply in the years immediately prior to its privatization, falling to 30% in
the fiscal year ending in June 2006 from 69% a year earlier and 90% in fiscal
year 2003-04.
The role of the steel industry is growing as Pakistan modernizes and steel
structures fast replace masonry work in buildings from offices to airports.
This is reflected in its increasing contribution to the national exchequer.
Collection from indirect taxes surged to 23.7 billion rupees (US$298 million)
in 2005-06 from 13.6 billion in fiscal year 2003-04. Direct tax collection from
the sector has also grown, but more erratically, growing from a paltry 326
million rupees in the 12 months to mid-2004 to 3.9 billion rupees in 2004-05,
before falling back to 748 million rupees the following year.
MCC is not alone among Chinese companies in showing interest in Pakistan. In
2007, Shanghai Baosteel Group Corporation (SBGC) considered setting up a
300,000 tonne cold rolled steel plant in the country after being among 12
interested parties that had submitted statements of qualifications for
acquiring a 51-74% equity stake in PSM in 2006. In January that year, a
Baosteel delegation attended a forum of national and international
pre-qualified bidders and visited several PSM departments.
Chinese companies are looking overseas as their government tries to enforce
consolidation in the industry, where expansion has outstripped demand. The
country shut 37.5 million tonnes of steel capacity in 2007, short of its target
of 55 million tonnes.
Pakistan also offers the prospect of large supplies of indigenous iron ore, a
key raw material in steel making, and the country plans to import Chinese plant
and machinery used in iron-ore exploration. The South Asia country has,
according to some estimates, more than 780 million tonnes of iron ore, with a
high iron content in line with that found in Chinese iron ore.
Southwestern Balochistan province has relatively good quality of iron ore. A
resource of 50 million tonnes of magnetite iron has reportedly been established
at Chigendik and Pachinkoh in Chagai district.
MCC has already agreed with PSM to extract iron ore from slurry produced at the
Chinese company's Saindak copper mine in Balochistan. According to an estimate,
PSM will eventually get 50,000 to 60,000 tones of iron ore annually and save up
to 120 million rupees.
Iron ore deposits have also been found at Dilband, in Balochistan's Mastung
district, which are considered the country's first economically exploitable
deposits. The resource may contain more than 200 million tonnes of iron ore.
Syed Fazl-e-Haider, sfazlehaider05@yahoo.com, is a Quetta-based
development analyst in Pakistan. He is the author of six books, including The
Economic Development of Balochistan, published in May 2004.
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