Karachi, November 26, 2014 (PPI-OT): An Extraordinary General Meeting (EOGM) of Tuwairqi Steel Mills (TSML), the joint venture of Saudi Arabia’s largest private-sector steel producer – Al-Tuwairqi Holding and the world’s third largest steel maker – POSCO of South Korea, was held in Islamabad. The meeting was presided by Dr. Hilal Hussain Al-Tuwairqi, Chairman, Al-Tuwairqi Holding and Mr. Hong-Soo Kim, Senior Executive Vice President and Incharge Overseas Investments, POSCO.
The EOGM was called by the shareholders to decide about the future of TSML, as the Government has not yet been able to honour its assurance for providing feedstock gas at a price that was originally agreed upon to ensure a level playing field.
The DRI plant of TSML after its 100% capacity test run is in ‘shutdown mode’ since September 2013.Consequently, TSML has sustained a loss to the tune of $ 18.6 million in 2013 and almost similar would be the position in 2014.
With an investment of US$ 340 million already made and a further planned investment of around US$ 890 million, through its forward and backward integration (as envisaged in the HOT already shared with the GOP), provided the ongoing operation of the DRI plant is not BLEEDING, the shareholders were aiming to make TSML In Shaa Allah the largest fully integrated steel manufacturing complex in Pakistan, with a production capacity of 1.5 million tons per annum.
The project was supposed to ensure a host of econometric and collateral benefits, including creation of jobs for another 5,000 people and a socio-economic transformation in Baluchistan though its backward integration, with the mechanized mining of iron ore, its beneficiation and pelletization of around 2.2 million tons per annum. Forward integration envisaged a state-of-the-art technology for long/flat products, hot rolled coils through the cutting edge technology of CEM-Compact Endless Mill from POSCO.
Despite the fact that the plant is in a ‘shutdown mode’ for the last over one year, still not a single employee of TSML has been laid off so far, with the hope and keen desire that the operations would restart.
When Al-Tuwairqi and POSCO entered into a Joint Venture Agreement for TSML, the Chairman POSCO and Chairman Al-Tuwairqi took this matter of the relevant feedstock tariff right up to the highest level in GOP, the then Prime Ministers of Pakistan; first in September 2011, and then again in January 2013.
Later, on a letter sent to the MOI by the Prime Minister’s Secretariat, MOI (GOP) advised TSML to move a Petition in OGRA, for the determination of tariff for the Feedstock portion of natural Gas. Though, it was quite at a belated stage, still the shareholders/TSML moved this Petition in May 2013.
After listening to the parties concerned, including Ministry of Petroleum and Natural Resources, referring to the relevant documents viz. MOU, Gas Sale Agreement (GSA) and the Implementation Agreement (IA), etc., the authority (OGRA) opined in August 2013 that there is a requirement of a relevant tariff for the feedstock portion of natural gas, being used in TSML. Authority however, observed that a precise determination of this tariff falls within the jurisdiction of the Federal Government.
Hence, TSML approached the MOI once again, and there it revealed that the appropriate forum in the Federal Government, to take a decision about the feedstock tariff, is the Economic Coordination Committee (ECC). Accordingly, a ‘Summary’ was prepared by the MOI, duly approved by the Federal Minister for Industries and case referred to ECC, for approval in its meeting held on July 17, 2014.
The meeting was briefed that utilization of natural gas of DRI process in TSML was one of the most efficient in the country i.e. about 86 per cent. Efficiency utilization was better than other widely used applications of natural gas.
There would be FDI of Rs 89 billion for the forward and backward integration of the DRI plant. On completion of envisioned integration, there would be a contribution to the country of Rs 100 billion annually as import substitution/ F.E. earning.
The ECC constituted a Committee, comprising Secretaries from the Ministry of Finance (Convener); Ministry of Industries; Ministry of Petroleum and Natural Resources; Ministry of Law; and Ministry of Investment, to evaluate this ‘Summary’. The Committee finalized its recommendations by September 2014, reportedly in favour of TSML which were presented for approval of ECC on September 26, 2014. However, a conclusion could not be reached.
In lieu of concessional gas tariff, Tuwairqi Steel Mills initially offered 5% equity, and later on 7%. Finally, had improved it to 15% (126 million shares) equity as Preferred Shares, with 10% dividend per annum to GOP and a guaranteed buy-back of shares at book/break-up value, after 10 years.
In the offer, GOP has the liberty to either retain its shares or to convert the Preferred Shares into Ordinary Shares and divest these in the market with the consent of the existing shareholders. In economic term, buy-back option is considered to be an ideal option for the preferred shareholders.
In the EOGM held on November 25, 2014 the shareholders weighed different legal options to protect their rights. They also resolved that in the event the ECC in its next meeting does not accord approval to the feedstock tariff to make the ongoing operations of the DRI plant of TSML commercially viable, in line with stipulations of MOU and in consonance with the recommendations made by OGRA, shareholders shall be left with no option but to exit from Pakistan.
For more information, contact:
Public Relations Officer
Tuwairqi Steel Mills Limited (TSML)
Finance and Trade Centre, 1st Floor, Block-D,
Karachi -74400, Pakistan.
Tel: + 92-21 35651272,
Fax + 92-21 35638019
Cell: +92 322 200 4529
E-mail: Saad Tahir (email@example.com)