How to revive steel sector

Undoubtedly Steel industry is the backbone of the national economy but due to lose control and wrong policies of the successive governments over the years over and above personal interest of business oriented prime ministers Pakistan Steel faced closure in 2015 thus writing epitaph of biggest industrial unit of the country. Pakistan Steel Mills (PSM) was the only integrated iron and steel plant spread over 19000 acres of land 40 kilometres Southeast of Karachi at Bin Qasim which was established with the techno-financial assistance of the former USSR at a cost of Rs. 24.7 billion. The mill had a production capacity of 1.1 Million ton per annum with a built in potential for expansion up to 3 million ton per annum. The most modern technology adopted for steel making was through BF-BOF route which is the most popular and advanced steel making technology for almost 65% of steel making output in the world. Manpower had never posed any problem as long as it was generating profit. At one time it had 22000 employees against recommended strength of 10500 with 80 percent production giving billions of rupees profit each year. But when it was deeply politicised it ended up in disaster. It paid over Rs. 100 Billion as taxes and duties whereas the capital cost of the mill was Rs. 25 billion. There were the usual ups and downs, but alarmingly at times the very existence of the mill had been at stake but it survived owing to hard work and dedication of its workforce.
On one hand the Steel Mill was shut down and on the other hand ship breaking industry was also destroyed apart from laying off 10 to 15000 workers depriving them from their livelihood. There was a time when 150 to 200 ships were being dismantled in a year and provided raw material to our local steel manufacturers. Local raw material does not match international grading therefore it was imported from China and Russia. Nawaz Sharif wanted monopoly in steel therefore ship breaking industry was systematically destroyed. PML N government if wanted could have revived the mill through phased maintenance program but this option did not suit the government for reasons mentioned earlier. They were also interested in its privatization instead running it and increasing its production capacity. While the steel mill was sinking new CEO’s were appointed who carried out fresh induction for which there was no justification. Maximum reliance was placed on import of steel because you cannot afford to ignore the domestic needs which keep multiplying with new projects. Apart from this Pakistan at present is involved in one of the biggest project of CPEC that requires millions of tons of steel and our dependence on import of steel for the CPEC projects means dead loss to our steel industry and extra burden on national exchequer
Government has to take special measures to ensure our steel sector takes on this gigantic task of providing steel for the various industries to be set up under CPEC projects to meet growing demands of steel needed for other domestic projects. Our domestic steel manufacturers kept the ball rolling and the wheel of economy running though with lesser profit and suffered losses and kept requesting government to reduce the cost of doing business but it had no effect. It is so strange when the steel requirement is growing fast government is not interested to revive the steel mill. At present there is now a huge customer base for steel commodities in defence, automotive, transportation and appliances sectors. Second, an increase in overall industrial activities has created further room, as most of the construction-allied industries are investing heavily in expansions and due to incentives by the government demand is increasing day by day, private housing projects and governments housing schemes launched by the government creating shortfall of steel has to be tackled with speed. The domestic manufacturers face tough competition from imported finished products, particularly from China that are cheap and its good quality. The imported products are especially affecting sales of domestic steel manufacturers who are unable to compete due to high costs of doing business and fluctuating taxation
The country has lot of potential and is capable of meeting growing domestic demand of steel. The steel sector needs a comprehensive package as given to construction industry by the government. The government is already late there is immediate need to introduce relief package for the steel sector due to closure of steel mill. The most important is the power needed to run any steel industry that is already on higher side raising the cost of production. With over 2.5 trillion circular debt and further pressure by IMF to further raise the tariff shall certainly create more problems for the government because IMF has already made it clear that its stalled program of Extended Fund Facility will only be revived subject to power sector tariff adjustment, tax collection and removal of subsidies and restructuring of state owned enterprises. For revival of steel sector power tariff, prices of furnace oil, gas and reduction in taxes is prerequisite it must be compatible to match the steel sector globally. Our steel manufactures have suffered a great deal due to covid-19 but as reported in the media even with 50% production the workers were not laid off as we have seen government has fired 4544 workers of steel mill without realising its overall impact on economy and unemployment.
However to revive steel mill following strategy may be followed. BOD be reconstituted and professionals of repute in finance, marketing and manufacturing be inducted.CEO be selected on merit by following transparent procedure. Introduction of VRF scheme, and induction or professionals in production, finance and marketing required for smooth production. Development of downstream industries on surplus land available with the company is given priority. Following phase wise repair and expansion plan be considered as under: Phase 1: Complete repair, maintenance and up gradation of electric/automation equipment to ensure production at 1.1 million ton level Phase 2: Increase in capacity from 1.5 million ton per annum Phase 3: Increase up to 3 million ton per annum.Total expenditure involved in above three phases approximately 1 to 1.5 billion US dollars.
Companies are having expertise in steel related business from China and Russia with local participation be engaged for revival of the mill, preferably Russians.Since the plant is in shut down position since 2015, therefore following actions may be completed before undertaking revival plan. We have fleet of trained Russian engineers; retired, and retrenched. A team should be formed to carry out the following tasks. The team should be headed by Russian engineer having complete knowledge of metallurgical plant of similar nature. The best option would be to request Russia to come and revive the steel plant as they have raised this huge structure, it may be mentioned here it is worthwhile probing as to why Russian offer to revive the mill in the past was turned down
a. A technical audit of the plant machinery, high rise building steel structures
b. The team should also prepare action plan to revive the mill and cater for 3 million ton production and minimum manpower required to run the plant
c. Based on the recommendations final strategy may be worked out with time frame
Lastly Prime Minister should call immediate meeting of steel manufacturers and take their input so that till such time the steel mill is revived imports of steel items should be cut down to give boost to our entrepreneurs with announcement of compensation due to covid-19. They deserve special treatment as they have done wonderful job in meeting the requirements of steel since 2015