January 29, 2003

Development of Steel Sector in the Past: Detrimental To Employment Opportunities and Foreign Exchange Savings
Group Captain (R) Engr. M. Akram Niazi

Due to ignorance or lack of interest on the part of decision makers and elected representatives, feasible Kalabagh Steel Mill project based on local iron ore was not commenced in 1956 and again in 1967, and Nokkundi iron ore project in 1972. However, Pak Steel Mill based on imported iron ore was established at Karachi in 1985. Pakistan may be the only poor country in the world to adopt a comparatively outdated machinery and technology for which iron ore had to be imported from far away countries like Brazil and Australia. Consequently, the nation lost over 20 years of steel making till 1985, thousands of Pakistanis are deprived of jobs for mining and transporting millions of tonnes of local iron ore, and hard earned foreign exchange is being spent on imports which is contributing towards socio-economic uplift of the people of other countries. Some relevant facts are summarized in the succeeding paragraphs to apprise the worthy readers of the urgency of improving working efficiency of Pak Steel Mill instead of its expansion, utilization of local iron ores found at various locations, and establishing state-of-the-art mini- steel mills near iron ore deposits, instead of depending only on one iron ore import-based steel mill with an outdated machinery which is meeting only about 25% of our annual steel requirements. In 1956, M/S Krupp of Germany offered to set up a steel mill based on Kalabagh iron ore, coal and most other minerals available within about 11 miles. Reportedly, the concerned minister from a steel-importing family managed to shelve this project and, in protest, the illustrious Chairman of PIDC, Mr. Ghulam Farooq, resigned. In June 1966, another German company M/S Salzgitter produced in Germany 5,000 tonnes of quality steel from 15,000 tonnes of Kalabagh iron ore in the presence of some international experts, and sold it to Volkswagon. The company offered in August 1967 to set up Kalabagh Steel Mill of over 0.8 million tonnes per year (mtpy) capacity based on Kalabagh iron ore and imported coal at an estimated cost of Rs. 1.542 billion (including foreign exchange cost of Rs. 878 million). Some European banks offered loans for this project, which confirms technical and financial viability of the project. PIDC selected a site with about 80% raw materials available within 11 miles. Unfortunately, this offer was also shelved. In 1972, Chinese experts found a substantial quantity of iron ore in Nokkundi area of Balochistan. Steel experts from America and Japan confirmed its suitability for steel production and recommended to set up a mini-steel mill in Balochistan. Later on, this ore was found suitable for Pak Steel Mill after upgradation. The News of January 31, 1999 confirmed that offers from China and Iran for a mini-steel mill in Balochistan were under consideration of the government. In April 1968, our President General M. Ayub Khan accepted the Russian offer for Kalabagh Steel Mill project, and the next President General Yahya Khan signed the project agreement with Russia. Subsequently, it transpired that Russia did not have the technology to produce steel from the Kalabagh iron ore. Instead of reviving the German offers based on local raw materials, site of the steel mill project was shifted to Karachi and Pak Steel Mill was established with a comparatively inferior machinery, based on imported iron ore and coal.

Construction of Pak Steel Mill was commenced at an estimated cost of Rs. 14.287 billion and commissioned at a cost of Rs. 24.7 billion in 1985, with an installed production capacity of 1.1 million tonnes per year (mtpy).On the average, about 70% to 80% of installed production capacity of 1.1 mtpy has been utilized during the last 17 years. The installed machinery is generally blamed for this inefficiency. For comparison, a Brazilian Steel Mill set up in 1956 with Japanese machinery and technology was producing 4.3 million tonnes steel annually with 13,000 employees (Newsweek, November 4, 1991), whereas the Pak Steel Mill commissioned in 1985 produced about 0.75 million tonnes steel in 1991 with 28,000 employees including 4,000 temporary. Public Accounts Committee (PAC) announced in March 2002 over Rs. 10 billion loss of Pak Steel Mill (The News, March 22, 2002). Chairman of the Pak Steel Mills Corporation confirmed payable loan of Rs. 19.117 billion (The News, November 5, 2002). It is not clear whether the PAC also considered Rs. 24.7 billion initial investment, government grants from time to time, loans converted into equity of the public sector banks and the government (for paying the bank interest) because of inability of Pak Steel Mill to pay even the bank interest. In brief, technical and financial performance of Pak Steel Mill since 1985 does not prove its viability, rather a perpetual financial burden on this poor nation. Instead of special efforts to achieve sustained utilization of the 1.1 mtpy installed capacity and proving financial viability of Pak Steel Mill, its expansion to 3.0 mtpy at an estimated cost of US $ 1 to 2 billion (as reported in the press on different dates) is under serious consideration since 1994. Pakistan Steel Mills Corporation under a Chairman was established to develop steel sector on allPakistan basis, and Kalabagh and Nokkundi Steel Mill projects were transferred from the PIDC to the Corporation for necessary action. Practically, the successive Chairmen concentrated only on the Pakistan Steel Mill, which, in fact, was the responsibility of its Managing Director. Worthy Chairman should be able to clarify the reasons for ignoring development of steel sector, including the confirmed feasible projects, in other provinces of Pakistan. 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. A smaller steel mill of about 0.8 mtpy capacity should cost much less. It suggests in favour of setting up modern mini-mills based on local iron ores in Punjab, NWFP, and Balochistan conforming to the recent years preference for state-of-the-art mini-mills which are more cost-effective and easier to modernize when required as compared to modernization of the old large steel mills with an outdated technology and worn-out machinery, vide Newsweek of February 24, 1992 and The News International of April 6, 1991. In view of the above, it may be desirable to constitute a Parliamentary Committee, comprised of representatives from all the provinces, to consider ways and means to develop steel sector based on local iron ores, with the assistance of foreign, federal and provincial experts. To achieve the desired objective, the committee may please consider the following suggestions also. a) 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 prove its financial viability to justify consideration of its expansion. Pak Steel Mill should develop a suitable technology, in collaboration with the PCSIR and other research laboratories, to utilize local iron ore and coal.

b)

c)

d)

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.

e)

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