NATIONAL STEEL POLICY MARCH, 2019
HEAD OFFICE M3, Mezzanine Floor Beaumont Plaza 10 Beaumont Road Civil Lines, Karachi
Tel: (92 21) 3568 0045
Email: [email protected] Implementation of an integrated National Steel Policy will help Pakistan double its annual steel consumption to 18 million tons in the next 5 years paving the way for “self-sufficiency in steel. An integrated National Steel Policy shall lay the foundations for sustainable industrialization for NATIONAL decades to come. STEEL POLICY “ MARCH, 2019 05 NATIONAL STEEL POLICY 06
DISCLAIMER
‘The outcomes, interpretations and conclusions expressed do not necessarily reflect the views of the entire domestic steel industry. Although every effort has been made to cross-check and verify the authenticity of the data, the National Steel Advisory Council does not guarantee the topicality, accuracy, completeness or quality of any data, information or methodology provided herein and therefore shall not be held liable for the accuracy of same. All data and statistics used are correct as of November 2018, and may be subject to change.
Furthermore, NSAC will not be liable in respect of any business losses, including without limitation loss of or damage to profits, income, revenue, use, production, anticipated savings, business, contracts, commercial opportunities or goodwill. Any conclusions, interpretations and analysis based on data from World Steel Association, International Iron and Steel Institute, Morgan Stanley, International Trade Centre and Pakistan Bureau of Statistics does not necessarily reflect the opinion of these authorities.
For any feedback or queries regarding this report, please contact [email protected]
ACKNOWLEDGEMENTS
Team Leader: Syed Hasan Adnan
Researchers: Rahat Azhar Zahir Navrozally 0507 NATIONAL STEEL POLICY 0805
TABLE OF CONTENTS
09 About the Council 55 Tariff and Duties
11 Executive Summary 57 Sales Tax Special Procedures, 2007
13 Overview of the World Steel Industry 59 Conclusion
21 Overview of the Domestic Steel Industry 61 Annexure I
30 Industry Analysis 62 Annexure Il 31 Pakistan Steel Mills (PSM) 63 Annexure Ill 33 Shipbreaking Industry 67 Annexure IV 34 Al - Tuwairqi 68 Annexure V 34 Long Products 36 Flat Products 39 Engineering Steels 40 Tubes & Pipes 43 Key Risks For The Domestic Steel Industry
44 National Steel Policy
46 Creation of Steel Demand 47 Raw Material Availability 48 Land 49 Logistics 49 Water 50 Power 51 Environmental Management 52 Technological Efficiency 52 Human Resource Development 53 Steel Research & Technology 53 Steel Development Committee (SDC) 54 Steel Standard Enforcement 55 Income Tax Incentives 09 NATIONAL STEEL POLICY 10
ABOUT THE COUNCIL FOUNDING MEMBERS OF THE COUNCIL
The National Steel Advisory Council (NSAC) is a consortium of key players in the Pakistani steel industry.
The Council serves as a not-for-profit, Steel Policy advocacy platform, registered under the Societies Registration Act, 1860. The body was constituted to ensure sustainable growth and development of the steel industry in Pakistan by advising the government on key policy matters.
The Council is led by professionals and steel industry experts in order to have a collective voice for representation at various forums, including Government Authorities and Functionaries to seek an enabling and conducive environment for the growth of the steel industry. The NSAC is a non-partisan, steel industry advocacy group which does not advocate for any specific steel product sector and prides itself on equal representation of all members. The Council aims to highlight the valid concerns and problems faced by the local steel industry and seek their resolution with the concerned authorities at appropriate forums.
The NSAC desires to work closely with the relevant government departments, ministries, regulators and institutions, as well as other stakeholders including professional bodies, to develop consensus on major issues which impact the conduct of steel business in and from Pakistan. The Council will be responsible for formulating policy as a roadmap for the domestic steel sector while promoting Responsible Steel. 11 NATIONAL STEEL POLICY 12
EXECUTIVE SUMMARY housing and public infrastructure, energy, engineering and automotive & consumer goods across the country. According to The World Bank, Pakistan is Pakistan is the world’s fifth most populous nation with an estimated demographic short of almost 10 million housing units, which will require substantial steel input footprint of over 210 million people. Our nation’s geostrategic location provides if we are to bridge this gap. Through successful policy intervention, if The convenient access on the west to the resource rich Middle East, Africa, and Central Government of Pakistan (GoP) is able to attract investment in the industry in the Asian States. Whereas, adjoining to the east, lie two major centers of economic power coming years, the country will benefit from estimated savings from import – China and India. The country is also blessed with an abundance of natural resources, substitution of US$ 2.2 billion/annum, investment of US$ 2.2 billion and an such as high value minerals and ores, fairly good quality coal and massive theoretical addition of 100,000+ direct & indirect jobs. offshore reserves of natural gas, for which exploration by international energy companies are underway. Pakistan’s human resource base has contributed immensely 03. The strategic nature of the steel industry is well established and towards the infrastructure development and socio-economic uplift needs of many self-sufficiency in steel is a longstanding objective of major industrial and countries in the region and this base is expanding - both in terms of numbers and skills military powers. Steel is a key ingredient for the defense industry and acquisition. It is therefore no surprise that the extensive US$ 62 billion undertaking, self-sufficiency would provide a strategic advantage as the global steel termed The China Pakistan Economic Corridor (CPEC), was envisioned to accelerate industry consolidates and eliminates excess capacity, making availability of growth via investments in energy, road & rail connectivity, industry and agriculture in finished steel products more challenging. order to leverage Pakistan’s tremendous potential as a gateway state and hub for economic activity. Such broad based investments are expected to lift the economic In light of the above, the objective of the NSP is to help develop a modern steel prospects of the country and bring about a structural transformation in the industry that is globally competitive in terms of cost, quality and global benchmarks and it is now more critical than ever economy. Pakistan is in effect ready to ‘takeoff’ of efficiency, sustainability and productivity. Key areas in need of policy direction that policies and reforms be designed to take full advantage of the opportunities that from the GoP to achieve the objectives are creation of sustainable demand, lie ahead. availability of raw material and land, energy and water requirements, logistics, criteria for technological efficiency, environmental management and quality To this end, a nationwide consortium of large scale steel manufacturers, control standards. It is hoped that the Policy will go a long way in establishing Pakistan representing various segments of the steel industry, have formulated a roadmap for as a major player of in steel production, processing and trading in the region. As part of the sustainable growth and development of the indigenous steel industry in the a philosophy of continuous improvement the Steel Policy will also be under continuous shape of the first ever integrated National Steel Policy (NSP). An integrated steel review keeping in view the dynamic nature of the steel industry. policy is the need of the hour for the country as:
01. The steel industry serves as a key enabler in the economy by providing the basic raw materials for public infrastructure development projects and key industries such as, housing and real estate development, energy, automotive, defense and various micro, small & medium enterprises (MSME) engaged in downstream engineering and fabrication business.
02. Steel consumption is currently one of the fastest growing areas in the economy, with consumption growing at a compounded annual growth rate (CAGR) of 19%, i.e. approximately a doubling of steel consumption every 5 years. Industry sources estimate that an additional 9 million tons of steel will be required in the next 3-5 years to support investments and expenditure on OVERVIEW OF THE WORLD STEEL INDUSTRY 15 NATIONAL STEEL POLICY 16
The iron and steel industry is the backbone of modern society and often termed the World crude steel production in 2017 was 1,689 million MT. The category-wise ‘mother of all industries’. The industry has significant forward and backward linkages breakup of the same is depicted in Figure 1 below: in terms of material flow, employment and income generation. Mining and scrap recycling industries provide the basic raw materials for steelmaking, whereas FIGURE 1 finished steel products are used in building and infrastructure development, WORLD STEEL PRODUCTION AND PRODUCT MIX energy, automotive, consumer goods, engineering applications and as raw Source: World Steel Association, 2017 materials for various downstream fabrication industries. From an engineering perspective, steel offers a range of unique properties with respect to its durability, Category Product Range Production Share (%) (MT in millions) strength, cost-effectiveness and safety. Flat Products Sheet & 763 45% Steel is an indispensable product in that the production and per capita consumption Plate of steel is a major contributing factor towards growth of a country’s gross domestic Long Products Billet product (GDP) and as an indicator of its industrial and economic wellbeing. Empirical evidence suggests that for developing economies there exists a strong positive Rebar 734 44% correlation between GDP growth per capita and steel consumption per capita as steel Wire Rod is a key input used to propagate industrialization and socio-economic development. Bar However the importance of steel, and commodities in general, diminishes as economies mature and transition towards production of higher value added goods and Structural services. Rail
Tubes & Pipes 137 8% Finished steel products can be classified into the following three broad categories: Engineering steels /SBQ 47 3% 01 02 03 Total Crude Steel 1,681 100% LONG PRODUCTS FLAT PRODUCTS TUBES & PIPES Billets, Re-enforcing bars, Hot Rolled Coil (HRC), Seamless pipes, structural sections, wire Cold Rolled Coil (CRC), longitudinally welded pipes rods, bars, rails etc. Hot Dipped Galvanized of up to 406.4 mm (≤ 16”) Flat Products 45% Coil (HDGC), Color and diameter, and other Coated Coils, and spiral-welded pipes of a Long Products 44% Plates. diameter of more than 406.4 mm (> 16”). Tubes & Pipes 8%
Special Steel (Flat & Round) 3% 17 NATIONAL STEEL POLICY 18
World steel production has almost doubled from 847 million MT in the year 2000, to FIGURE 2b 1,689 million MT in 2017, as per Figure 2a below. China features as the largest steel GLOBAL STEEL INDUSTRY GROWTH AND ECONOMIC ENVIRONMENT producing nation today, with crude steel production volume of 831 million MT in 2017, Source: International Iron & Steel institute
equivalent to roughly 50% of the total global steel production. In Figure 2b, post year NEW GOLDEN AGE 2000, the powerful impact of China on world steel production, has been labelled as 1250 Fall of ‘The China Effect’. China, is also currently the largest net exporter of steel (60 million THE GOLDEN AGE Oil Shocks Berlin Wall 1000 1945 - 1973 6.2% pa THE CHINA tons) and plays a major role in dictating international steel prices. It is worthwhile to AGE? 750 RISE OF
note that China can produce Pakistan’s annual demand of finished steel products in a MT JAPAN THE CHINA AGE? mere 4 days, on top of which, the Chinese steel industry have been provided 1996 + >4.6% pa 500 THE EMERGING AGE REBUILIDNG OF EUROPE THE EFFICIENCY AGE preferential access to the Pakistani market by way of the China Pakistan Free Trade pre 1945 2.8% pa 1974 - 1994 0.2% pa
Agreement (CPFTA). Other major players include Japan (104 million MT) and India (101 250 Privatisations million MT). Consolidations 0 1920 1930 1940 1950 1960 1970 1980 1990 2000 FIGURE 2a CRUDE STEEL PRODUCTION BY COUNTRY (MILLION TON) Source: World Steel Association As depicted in Figure 3, world steel installed capacity surpassed two billion MT in 2012-13. Steel production has traditionally been lower than capacity due to the Country 1980 1990 2000 2010 2017 nature of the production process. Since steel production is measured in tons, the quantity produced varies with the product mix (sizes, thicknesses, etc.). China 37 66 127 639 831 Japan 111 110 106 110 104 Post 2008-09, as global overcapacity escalated due to slowing demand and further India 10 15 27 69 101 capacity additions, primarily in China and the Far East, steel has increasingly become a politically sensitive topic, resulting in dumping, export subsidies, price wars and USA 124 90 102 80 81 generally softer prices of finished steel products and their raw materials. A wave of USSR/Russia 147 67 59 67 71 anti-dumping investigations were initiated worldwide against Asian manufacturers in South Korea 6 23 43 59 71 2014-15 as affected countries stepped up efforts to protect their domestic steel industries. This wave of protectionism culminated in the imposition of Section 232 Germany 7 38 46 44 43 tariffs of 25% on steel imports by the United States of America in mid-2018, in an effort Turkey 3 9 14 29 38 to revive domestic manufacturing and reduce unemployment. Brazil 15 21 28 33 34 Ukraine - 42 31 33 21 Pakistan n/a 0.78 1 0.8 5
World Total 717 770 847 1,443 1,689 19 NATIONAL STEEL POLICY 20
FIGURE 3 Figure 5 below categorizes a broad range of steel products, as per international WORLD STEEL CAPACITY AND PRODUCTION norms, as raw materials, intermediate products and finished products. A detailed Source: Morgan Stanley Research Estimates, CRU Company Data listing with HS Codes is referenced in Annexure II.
2500
2000 FIGURE 5 CATEGORIZATION OF STEEL PRODUCTS 1500
1000 Material Category Definition Products MILLION TONNES 500 Raw Raw materials are materials or substances Iron ore, Materials used in the primary production or Direct Reduced Iron 0 manufacturing of crude steel. (DRI), Steel Scrap, Hot Briquetted Iron 2011 1999 1998 2017 2016 2015 2013 2012 2001 2010 2014 2007 2009 2006 2005 2003 2008 2002 2000 2004 2018e (HBI), Ferro-Alloys,
Capacity Production Coking Coal
Intermediate A product which is not used for final Slab, Billet, Bloom, Figure 4 below outlines the two major methods of producing crude steel, i.e. the Products consumption, but is used in the Ingots blast furnace process and electrical melting process. The blast furnace process manufacture of another product. of steelmaking was the preferred route up until the 1980’s. It is highly capital and Finished Products Finished goods are goods that have Bar & Rod, Angles, resource intensive, with estimated breakeven output levels of 3 million MT per completed the manufacturing process and Shapes & Structural annum. The electrical melting process has become increasingly popular for are ready for use. Sections, Plate, Hot small-medium sized steelmaking units as the capital and resource requirements Rolled Coil, Cold Rolled Coil, Hot are significantly below that of the blast furnace process. Breakeven output levels Dipped Galvanized may vary from 0.5 – 2 million MT per annum depending upon the size of the Coil, Colour & Other investment. It is estimated that today approximately 70% of crude steel is Coated Coil, Pipes, manufactured using the blast furnace process, with the balance 30% being Tubes & Fittings Rails manufactured via the electrical melting process.
FIGURE 4 ROUTES TO MANUFACTURING CRUDE STEEL
Production route Type of Furnace(s) Basic raw materials Share (%) used
Blast Furnace Blast Furnace and Iron Ore(s), Coke, 70% Process Basic Oxygen Furnace Flux, Oxygen (BOF)
Electrical Melting Electric Arc Furnace Steel Scrap, DRI/HBI, 30% Process (EAF) / Induction Oxygen, Ferroalloys & Furnace Electrodes 05 NATIONAL STEEL POLICY 05
OVERVIEW OF THE DOMESTIC STEEL INDUSTRY 23 NATIONAL STEEL POLICY 24
Pakistan has made noticeable progress in almost all important sectors of the economy - agriculture, commerce, industry and services. Although, primarily an agro-based Flat Products 32% economy, the contribution of engineering, automotive, building and construction sectors in the GDP of the country is significant. Engineered goods, medical and Long Products 56% surgical equipment consist of 20% of total manufactured goods export and rely heavily on steel inputs for providing a constant supply of raw materials. Similarly, the Tubes & Pipes 9% transportation and automobile sectors contribute 12% in GDP and are also steel intensive. Rapid urbanization, provision of basic infrastructure for rural areas, CPEC Other Miscellaneous 3% projects and industrialization are recognized as the primary stimulants for steel demand.
The current market size of the Pakistan steel industry is estimated at 9 million Total domestic installed production capacity is currently estimated at 8.5 – 9 million MT per annum. The category and product wise breakup of which is as shown in Figure MT per annum, including 1.1 million MT of PSM capacity, which has been offline since 6 below: June 2015. Capacity utilization ratio of the industry as a whole is typically 75-80%. Total steel imports during FY 2017-18 were 8 million MT, of which 5.3 million MT were in raw material form and 2.7 million MT in finished product form. Despite the fact that FIGURE 6a local manufacturing capacity of tubes, pipes and long products including rebar, bar, PAKISTAN STEEL MARKET SIZE wire rod and sections is sufficient to meet domestic demand, Figure 6B below shows Source: ITC, Industry Sources that over the last 4 years import of tubes, pipes and long products has been fairly static, as predominantly only those special grades of tubes, pipes and long products Category Product Range Market Size Local Capacity Share (%) that were not manufactured locally were imported. (MT in 000’s) (MT in 000’s)
Flat Products HRC 1,500 550 However imports of scrap increased as more long products were produced CRC 700 32% domestically from scrap. Furthermore, import of HR coils increased as the domestic 1,750 production of value added flat products like cold rolled, pre-painted galvanized iron HDGC 700 and hot-dipped galvanized flat products increased, which are made from hot-rolled Long Products Billets coils. As a result the country made significant foreign exchange savings as the Rebar cheaper scrap and HRC was imported instead of the more expensive rebar and cold rolled and galvanized coils. Wire Rod 5,000 5,000 56%
Bar The import of special steels however seems to have been continuously increasing Sections/Beams even though there is sufficient manufacturing capacity to meet domestic demand. Rail All Domestic steel sectors continued to be hurt , some more than others, by cheap under invoiced imports and a collection of SRO that allow specific industries Tubes & Pipes 780 1,750 9% subsidized import duties even if the products they require are imported locally. Other miscellaneous 320 - 3%
Total Consumption 9,000 100% 25 NATIONAL STEEL POLICY 26
FIGURE 6B FIGURE 7 STEEL IMPORTS (IN MT) PER CAPITA STEEL CONSUMPTION Source: Pakistan Bureau of Statistics (PBS) Source: World Steel Association, 2017
World Average Steel Consumption: 2013-14 2014-15 2015-16 2016-17 2017-18 228 Kg/Capita (2017)
Raw materials/ Scrap / Semi 2,032,281 3,111,264 4,054,236 4,268,283 5,288,315 Intermediate Finished China, 545 goods Products USA, 338
Flat Products 1,255,582 1,469,871 2,109,304 2,219,525 2,221,166 Iran, 273 Finished Long Products 83,306 129,927 131,532 164,831 141,428 products Alloy / Special 95,066 107,777 180,892 136,129 181,326 India, 75 Steels Pakistan, 46 Bangladesh, 27 Tube & Pipe 140,474 196,723 207,991 198,135 197,835
Total Finished Product Imports 1,574,428 1,904,298 2,629,719 2,718,620 2,741,755 Currently the steel industry’s average net profit margins (extracted from public listed Grand Total 3,606,709 5,015,562 6,683,955 6,986,903 8,030,070 company accounts) are approximately 7%. It is imperative to support capital formation in the industry as this is the means through which the industry can re-invest in technology, scale and innovate to make itself globally competitive. Around ten steel Finished product imports have been rising at a CAGR of 29 between FY 2013-14 and FY producers are listed on the Pakistan Stock Exchange (PSX), most of them having 2015-16. This trend has only recently been arrested in FY 2017-18 as domestic capacity entered into the capital market between 2011 and 2017. This represents the highest additions came online and some protection was provided to local manufacturers. number of new listings during the six-year period in any one sector. It should be However, these capacities and measures are inadequate to fulfill future needs. As per noted that two of the entrants are from the flat products (ISL & ASL) segments, international standards, every 5 MT of cement used in infrastructure projects requires whereas the other eight are all manufacturers of long products and tube & pipe. 1 MT of steel. With local cement dispatches estimated at 41 million MT (APCMA, Topline Domestic steel companies have gained major supply contracts in energy and Research) for FY 2017-18, current domestic steel production capacity is lagging infrastructure, including, Orange Line, Karachi-Lahore Motorway, Neelum-Jhelum behind. Furthermore, the cement sector plans to increase capacity to 70 million tons hydropower project, SSGC & SNGPL gas distribution projects and LNG transmission by 2021, which will require domestic steel capacity in construction grade products to projects among others. rise by approximately 4.5 million MT to keep up with envisaged demand.
Pakistan is still amongst the lowest per capita consumers of steel at 46 kg/capita, which is well below the world average of approximately 228 kg/capita (World Steel Association, 2017), indicating immense potential for growth in this industry. Given Pakistan’s large population base, a mere 10 kg per capita increase in steel consumption would require additional supply of 2 million MT of steel. This shows the sheer magnitude of steel that will be required in the years to come as Pakistan embarks upon the journey of ensuring self-sufficiency in steel. 27 NATIONAL STEEL POLICY 28
FIGURE 8 WHY SELF-SUFFICIENCY IN STEEL IS ESSENTIAL FOR PAKISTAN PAKISTAN STEEL INDUSTRY MANUFACTURING CAPACITY AND MARKET SIZE Pakistan imported roughly $4.9 billion worth of metal products in the first 11 months of FY 2017-18 (Pakistan Business Council, Imports Break-up 2017-18). During this period, Category Product Line Company Company Total Total the contribution of metal products in the total import bill of Pakistan was roughly 9%. Capacity Domestic Demand (MT) Capacity (MT) Year-on-year growth in the metals category over the corresponding period in the (MT) previous year was approximately 22%, which was the third highest behind vehicles and Amreli Steels Ltd. 700,000 petroleum products.
Billets Mughal Steel Ltd. 700,000 Steel consumption in Pakistan has been rising at a compounded annual growth rate Rebar, (CAGR) of 19% during the last 5 years (World Steel Association, 2018) - representing Long Wire-Rod, Agha Steel 400,000 Products Angles, Shapes, 5,000,000 5,000,000 roughly a doubling of steel demand every five years. At this rate and at current prices, Structural Abbas Steel Group 300,000 Pakistan’s import bill for metals by 2022-23 would amount to roughly $10 billion. Sections, Although this is an unsurprising statistic for the industry, as growing nations require Beams, Girders Others 2,350,000 significant steel input for investment in public infrastructure and downstream raw Pakistan Steel Mills (1) 550,000 material requirements, such an outcome would clearly be a significant challenge for a country that is already prone to systemic balance of payment crises from time to time. Hot Rolled Coil Pakistan Steel Mills (1) 550,000 550,000 2,700,000 Furthermore, empirical evidence strongly suggests that the price elasticity of steel Flat Cold Rolled Coil, Aisha Steel Mill Ltd. 750,000 demand is very low (Mo and Wang, 1970) as most industrial and retail consumers Products cannot easily replace steel with other inputs. Galvanized Coil, 1,750,000 1,400,000 International Steels Ltd. 1,000,000 Color Coated Coils There is substantial agreement among development economists that a successful trade policy features a healthy mix of import substitution and export promotion Crescent Steel & Allied 250,000 Spiral Welded strategies, and that successful trade policy should be an integral part of a general Products Ltd. 450,000 (3) PROJECT Pipes, Polymer industrial policy framework - this is also one of the key takeaways from the Chinese BASED Coated Pipes Others 200,000 industrial development experience (Heiden, 2013). As it stands today, Pakistan is Tubes & largely a labor-intensive and capital-scarce economy, implying the need to focus on Pipes Longitudinally International Industries Ltd 750,000 labor-intensive light industry; as a short term approach this would seem as a viable Welded Tubes & 1,150,000 780,000 Pipes, Galvanizing Others 400,000 way forward, however, in a broader industrial and trade policy context there is a need to formulate forward looking industry specific strategies and policies with a wider Seamless Pipes Huffaz Seamless Pipe Ltd. 100,000 timeframe of 10-20 years in mind. Successful industrialization in China, India, and 150,000 140,000 other East Asian economies have all featured multiple cascading 5 and/or 10 year Peoples Steel Mills (2) 50,000 plans, with careful focus on implementation, evaluation, control and recalibration. On Alloy & Bars, plates, the other hand, countries without long term policy objectives are bound to remain in a Engineering Peoples Steel Mill 75,000 75,000 75,000 forgings etc. perpetual state of under-development; the Prebisch-Singer hypothesis (Prebisch Steels 1950, Singer 1950) is a well-articulated manifestation of this outcome, whereby 9,125,000 9,125,000 8,895,000 developing countries continue producing (and exporting) low-value added commoditized goods whose prices are highly sensitive to business cycle fluctuations, (1) Pakistan Steel Mills (PSM) has been out of commission since June 2015 resulting in weak and often deteriorating terms of trade vis-à-vis their trading (2) Peoples Steel Mills’ seamless pipe plant will be operational in March 2019 (3) 450,000 MT capacity of Spiral Welded Pipes & Polymer Coated Pipes includes Crescent Steel & Allied Products Ltd. and Data Steel partners. Conversely, the import profile of such countries usually consists of high value added goods and services, leaving significant room for exploitation by 29 NATIONAL STEEL POLICY 30
industrialized countries (Heiden, 2013). There are numerous examples of such INDUSTRY ANALYSIS underlying patterns in the economic structure of developing nations, the same must be recognized, and counter strategies be developed to mitigate such results.
The development of basic industries such as iron and steel offers an obvious way out SUPPLIER'S POWER BUYER'S POWER for Pakistan with respect to the, focus on technology-intensive steel products such as No local integrated steel-making Many operators supplying cold-rolled steel strip/sheet, coated or clad steel sheets, electrical/grain-oriented Not enough local steel scrap products, fragmented industry steel and various alloy steels shall pave the way for indigenization of downstream generation Switching costs are low manufacturing of motor vehicles, household appliances and light and heavy Hindrance in availability of energy Buyers want best quality at machinery. Limited exploration and mining minimum price. Have the option efforts for iron ore to import. Due to the large size of the domestic economy, Pakistan is not expected to face the limitations of a limited market, in fact, in terms of market size, Pakistan ranks fairly high at number 28 amongst 137 countries assessed as per the World Economic Forum (WEF) Global Competitiveness report 2017-18. This will allow the build-up of scale by INDUSTRY RIVALRY local steel manufacturers and ultimately help in reducing high fixed costs. The issue of Competition from foreign players, especially China domestic availability of raw materials for steelmaking should also not act as a Competition from the unorganized sector roadblock for development of the iron and steel industry; Germany, Japan, Taiwan, Korea, and more recently, China, Vietnam, and Turkey have developed steel industries, regardless of the availability of developed local mining of iron ore and coal.
THREAT OF SUBSTITUTES THREAT OF NEW ENTRANTS Limited & expensive High capital costs substitutability - Aluminum, Very few players enjoy economies plastic of scale Low buyer inclination to Low barriers - product substitute differentiation Time consuming land, infrastructure & environmental approvals Strength of established relationships with customers and suppliers 31 NATIONAL STEEL POLICY 32
PAKISTAN STEEL MILLS (PSM) inability to compete with cheaper Chinese imports, despite considerable duty protection in the form of Regulatory Duties (RD) imposed on PSM’s finished products, The Pakistani steel industry was once dominated by the state-owned Pakistan Steel left the mill in its current state. As there have not been sufficient BMR and major Mills Corporation Limited (PSM), which has a nameplate production capacity of 1.1 repairs done to upgrade the steel mill over the years the current technology is million MT per annum of flat and long products and is spread over 19,000 acres outdated and it is highly unlikely that the mill in its present condition can be run (including 8,000 acres for employee housing colonies. The plant was formally efficiently in order to be able to compete with imports. Furthermore, the hot and cold inaugurated in 1985. The technology at PSM is based on imported high grade iron ore rolling mills can only produce 15 MT coils against the international norm of 25 MT and and coking coal as the primary raw materials. Support infrastructure in the form of outdated electronics makes the revival of production of flat products highly berths and conveyor belts for unloading and transporting iron ore and coal present. improbable. Other minor raw materials such as limestone, dolomite (from own mines), silica sand, refractory clays and calcium fluoride have historically been sourced locally. At the It should be noted however that the plant has a built-in potential for expansion up to current level of capacity, PSM would require a 5 times increase in order to meet 3 million MT per annum. current domestic demand of just long products. While the blast furnace can be reinsulated and brought into operation with some Currently the plant has been lying dormant since June 2015 due to massive investment, PSM can only be viable if significant investment is made in state of the accumulated losses and liabilities. The accumulated liabilities comprise of loans from art manufacturing facilities to convert semi-finished goods into finished goods, the NBP, unpaid SSGC bills, employee related liabilities (gratuity, PF, leave whether they be in the long or flat segments. The demand for semi-finished goods in encashment), loans from the government of Pakistan used for payment of salaries and Pakistan such as billet or slab is negligible and not worth exploring. It must be outstanding supplier payments. The previous government had already tried to revive highlighted here that the infrastructure that PSM has with the jetty, raw material PSM through a Rs. 18.5 billion bailout package since a failed selloff in 2006. However, handling systems, and water reservoirs are valuable and can be put to good use as political meddling, gross mismanagement, lack of investment in machinery and their replacement costs are significant.
Apart from the technical front, PSM’s viability also rests on many other factors. While political consensus is a must on whether the mill should be privatized, the government must also be willing to finance the liabilities over a period of time as these liabilities have surpassed the replacement cost of the asset. Finally, the labor unions will have to be rationalized and technical expertise be built up if the state owned enterprise is to be run in a modern and sustainable manner. A brief roadmap for the revival of PSM is provided in Annexure V. 33 NATIONAL STEEL POLICY 34
SHIPBREAKING INDUSTRY AL-TUWAIRQI STEEL
Gadani shipbreaking yard is the world’s third largest shipbreaking yard, consisting of Al-Tuwairqi Steel was set up to 132 shipbreaking plots. In the 1980s it was the largest shipbreaking yard in the world produce DRI from natural gas, to and currently has the capacity to produce 1 to 1.5 million tons of steel a year. For the be supplied by the government at last few years, the shipbreaking industry has supplied roughly 700000 tons of raw subsidized rates. However, after materials for the production of long products in the country. The quality of these hot commissioning, the plant was products is not up to standard for large infrastructure products and high rise buildings forced to shut down as the but is suitable for small houses and low rise buildings. Moreover, the shipbreaking government was unable to supply activities at Gadani are performed under dangerous working conditions, with workers gas at subsidized rate due to the suffering from chronic health issues, exposure to toxins, falling steel plates and gas shortage of natural gas in the explosions. Hazardous wastes recovered from the ships are not always handled and country. As this DRI plant is stored properly. Recently the EPA has become stringent with regard to shipbreaking unlikely to work economically activities in light of the accidents that took place at the shipbreaking yards. using LNG at current market based prices, it is likely that this investment will lie dormant.
LONG PRODUCTS
Long steel products comprise of bars, structural sections and wire products. In Pakistan currently, long products are manufactured by melting and refining steel scrap from ship breaking, automotive and other ferrous sources. It is then cast to At present duties and taxes favor the industry as the incidence of taxes is form billets, which are subsequently rolled on stands to form rebars, sections and wire approximately Rs 13500 per ton whereas it’s approximately Rs 15500 per ton for rods. Rebars are the largest segment of the steel industry and are used across the competing raw materials. The government should encourage steel produced from the country in housing and infrastructure projects, high rises, power projects, ports, shipbreaking industry to cater for small constructions but limit the use for large high bridges, dams etc. rise and infrastructure projects. Also, duties and taxes should be equitable so that the price differential between the bars made from shipbreaking and other traditional The steel melting sector includes producers of steel ingots and billets, which feeds sources is minimal, in order to curb the dangerous use of substandard materials in down-stream industries such as steel re-rolling mills, foundries, steel fabricators and construction of large projects. There is a need to ensure that proper health and steel shaping units. The sector has grown steadily to its present status; 224 steel safety measures are taken. Supporting shipbreaking in Pakistan will increase melting units having more than 300 furnaces. Some of these units have modern domestic steel capacity and reduce reliance on imports. It will also safeguard and facilities consisting of continuous casting plants while the majority are still using generate employment for thousands. obsolete technology and are unable to meet local or international standards. Domestic 35 NATIONAL STEEL POLICY 36
capacity is approximately 5 million MT, with a stronger presence in the Central Punjab A major problem that limits major expansion and documentation in the sector is the region around Lahore. Most of the steel melting units have induction furnaces with a inadequacy of regulatory bodies to enforce compliance to standards. Some players melting capacity of 5 MT or below and about 30 units have induction furnaces of in the industry use obsolete technology and manufacture sub-standard products that capacity 10 MT or above, whereas there are only 10 units which employ Electric Arc are not in compliance with PSQCA standards. This is not only a national infrastructural Furnaces (EAF) of capacity 5 MT or above. The Steel Re-Rolling sector is engaged in risk but also undercuts the documented sector in price and market share since most the production of steel bars, rods, structural sections/beams, etc. to cater the customers lack awareness. In fact steel plays a critical role in the infrastructural safety demand of construction and other industries. Nation-wide installed capacity is of the country, as the geographical location of Pakistan make it particularly estimated at over 5 million MT. Over 500 units have been installed to date, only 70% of susceptible to the risk of earthquake disasters. which are currently in operation. The PSQCA needs to be provided with adequate Governance, Technical resources, It is estimated that the long steel sector is currently contributing USD 1.2 Billion import which are available locally, and a fully equipped metallurgical institute, enabling substitution, 55,000 direct jobs, over PKR 60 Billion to the national exchequer, and has them to monitor and thereby ensure compliance. Members of the NSAC would be an investment base of PKR 200 billion. This sector has an annual production capacity happy to spearhead such an initiative. of 5 million tons and the industry structure is highly fragmented. The government has provided a net protection to the local industry consisting of The demand for steel has been fueled by a wave of expenditure on public regulatory duties and customs duties on both finished goods as well as raw infrastructure projects, CPEC projects and construction of mega housing schemes. materials. However, all imports in the recent past have been through FTA Large scale manufacturers with in-house melting facilities, include Amreli Steels concessions, bypassing the statutory customs duty on finished goods, and leaving Limited, Mughal Steel Limited, Agha Steel and Abbas Steel Group. Other than these, negligible net protection to the local industry. While demand has been robust in the there are scores of small melting and rerolling units scattered all over Pakistan. Given recent past, current average industry net profit margins hover around 6-7%. The local the robust demand outlook most of the top-tier players have either successfully industry is also expanding capacities and planned entry of new players is expected to concluded or are undergoing expansion to enhance both melting and rolling capacity. intensify competition. Industry projections estimate that an additional 4.5 million tons of construction grade steel will be required in the next 3-5 years to support the development expenditure on public infrastructure and housing across the nation. Moreover, with increasing rates of population growth and urbanization, the production of high quality steel will be required to support high rise construction and mega housing communities.
FLAT PRODUCTS
Flat steel products comprise of Hot Rolled Coils (HRC), Cold Rolled Coils (CRC), Hot Dipped Galvanized Coils (HDGC) & Pre-Painted Galvanized Iron Coils (PPGI). HRC is the primary feedstock for manufacturing CRC, HDGC and PPGI. HRC can be manufactured via the reduced iron route or the electrical melting route.
With the shutdown of Pakistan Steel Mills (PSM), there is currently no active producer of HRC in Pakistan and local industry is entirely dependent on imports. It should however be noted that PSM does not produce low carbon re-rollable grade HRC that is required to manufacture CRC, HDGC and PPGI. The private sector 37 NATIONAL STEEL POLICY 38
cold-rolling and galvanizing sector is relatively young and consists of two companies, The consumption of flat products relative to long products reflects the degree of International Steels Ltd. (ISL) and Aisha Steel Mills Ltd. (ASL), both of which were set industrialization in an economy. As countries build up requisite public infrastructure up with FDI and in technical collaboration with Japan. The two companies commenced and move towards indigenizing production of higher value added items such as commercial operations in 2011-12 with combined production capacity of 470,000 MT automobiles, consumer appliances, machinery etc., the consumption of flat steel per annum. ISL enhanced its production capacity to 500,000 MT in 2015-16, however products outpaces that of long products. Flat products are used in a vast number of strong demand has since prompted both ISL and ASL to expand capacities in 2018-19 applications including cold rolling and galvanizing, as raw materials in automotive to 1 million MT and 750,000 MT respectively. With these expansions in place Pakistan and white goods manufacturing, pipe and tube manufacturing, infrastructure and stands self-reliant in finished flat steel products (CRC, HDGC and PPGI). Going forward, construction, general engineering and numerous downstream fabrication one expects that commercial imports of these value added materials that can be applications. A detailed chart of flat product applications is referenced in domestically manufactured will be minimized as a result of non-tariff barriers to trade, Annexure IV. as well as other actions taken by the government to protect the local industry from imports. Initially it was expected that the protection for this sector would be 10%. However subsequently, due to concessions provided to steel products under the China Pakistan To date ISL and ASL alone have contributed saving of roughly $280 million through FTA (CPFTA) and increase in concessionary import duty on HRC for cold-rolling, this import substitution; with the current enhanced capacities, these savings in foreign protection effectively fell to 5% and later to 0%. At this point, fixed cost absorption exchange are projected to swell to $165 million per annum. In addition, the localization was the only option left for this sector in order to remain competitive. Currently the of flat steel manufacturing has resulted in valuable transfer of technology and cold rolling and galvanizing industry has 13% tariff protection, consisting of regulatory technical expertise. duties and customs duties on both finished goods as well as raw materials. However, all imports in the recent past have been through FTA concessions, bypassing the As a result of their success, further backward integration into manufacturing of HRC is statutory customs duty on finished goods, and leaving negligible net protection to the imminent. Although the investment here is significant, the savings in foreign exchange local industry. will be even higher as scrap and other raw material will need to be imported in place of HRC. The flat products sector faces significant hurdles including:
01. A flat duty structure on all its finished products, CRC, HDGC & PPGI instead of a cascading model. 02. Under-invoicing of imports in order to avoid paying higher duties is prevalent 03. Mis-declaration of imports (i.e. HR coils as CR, CR coils as galvanized, galvanized coils as color coated coils or secondary products as primary) in order to reduce the incidence of duties and taxes 04. Some manufacturers also work as traders and use tax incentives meant for manufacturers to get illegal income tax and sales tax benefits on their commercial sales. 05. Low ITP valuation of secondary flat products allowing for dumping of inferior products from the international market 39 NATIONAL STEEL POLICY 40
ENGINEERING STEELS TUBES & PIPES
The automotive industry is the primary driver of engineering steel demand. In The steel tube & pipe sector can be sub-divided into 3 major segments: Pakistan, sufficient capacity is available to produce special steels that are usedto manufacture engine and transmission components for the automotive industry, yet 1. Longitudinally welded pipes & tube of ≤ 16” diameter due to competing import of finished components by the automotive industry, a great This is by far the largest segment of the tube and pipe sector catering to deal of capacity remains unutilized. customers in the commercial & industrial market. The primary raw material for the segment is HRC, CRC and HDGC. Finished products include black pipes, In Pakistan, it is only farm tractors that have a deletion level of about 95%, as their galvanized iron pipes, hollow structural sections, API line pipes, cold rolled steel engine and transmission components are being produced in the country. In the tubing and profiles, scaffolding pipe and stainless steel pipes & tubes. These motorcycle industry, amongst the 40 odd local manufacturers of motorcycles, it is only products are used in a wide range of applications including, construction, Atlas Honda which produces the engines in Pakistan, and is therefore a consumer of automotive, agriculture, water, oil & gas distribution, fencing, fabrication and locally produced engineering steels. All other motorcycle manufacturers import scaffolding. International Industries Ltd. (IIL) is the only listed and largest finished parts and components. To ensure The Government should encourage local manufacturer in this segment with manufacturing capacity of 750,000 MT producers of automobiles to localize engine and transmission components so as to supplying 70% of its output domestically, with the balance 30% being exported. increase production of engineering steels in the country. Up till 2011-12 100% of the raw material of this segment was imported, however with the commissioning of ISL and ASL in the flat products sector, 40-50% of the The industry faces several hurdles limiting its expansion, the major ones including: raw material requirements in this segment have been localized.
01. Substantial quantity of tractor parts is imported for the aftermarket. A great deal This segment has a stronger presence in the North, compared to the South of the of under invoicing and duty evasion exists in this segment of the market. country, with most small-medium sized manufacturers located either within or in 02. Certain categories of engineering steels have been allowed preferential rate of close proximity to Lahore. Their facilities consist of local or second-hand import duties in the FTA with China. imported equipment. The segment is largely undocumented and therefore prone 03. The aftermarket of leaf springs for the trucking industry. This market is flooded by to unethical business practices. Furthermore, the lack of quality standards has substandard local material which is non-compliant to any international standards. allowed sub-standard products to infiltrate the market. The segment is however Quality standards should be developed and implemented by the relevant self-sufficient and fulfills more than 95% of domestic demand with enough spare government authorities to ensure compliance to standards of this critical capacity to cater to export markets. Ample and consistent supply has also component. spawned a vast nationwide distribution network of dealers and sub-dealers 41 NATIONAL STEEL POLICY 42
which relies on credit. The sector therefore also fulfills critical financing Implementation of further tax for unregistered businesses adversely affects the requirements of small-medium sized businesses which are normally not industry as the majority of distributors and wholesalers are unregistered. Given the available in the unorganized sector. sector already operates on thin margins (2% to 3%), this makes it difficult to prevail in the market. There is also a different advance income tax on sales to: 2. Seamless pipes This segment caters primarily to the requirements of the oil & gas drilling and 01 02 exploration sectors. Local manufacturers operating in the segment include, Distributors, dealers and Retailers Huffaz Seamless Pipe Industries Ltd. (HSPI) with a capacity of 100,000 wholesalers MT/annum, and Peoples Steel Mills Ltd. (PSMLTD) whose 50,000 MT/annum plant is expected to be commissioned by Q3 2018-19. The segment is currently not This method of taxation is obscure, since the above categories are not clearly defined. self-sufficient as significant quantities are being imported to meet domestic requirements. Demand from the oil, gas and construction is expected to generate significant demand in tube & pipe requirements. Spiral welded pipes and longitudinally welded API line 3. Spiral-welded pipes of a diameter of > 16” diameter pipes shall cater to the bulk of the demand emanating from gas transmission and distribution projects to be tendered by SSGC and SNGPL. This segment is largely project based and does not cater to the needs of commercial market and is dependent on tenders relating to oil and gas transmission projects. The segment is comprised of Crescent Steel & Allied Products Ltd. (CSAP) and Data Steel with a combined capacity of 450,000 MT per annum. 43 NATIONAL STEEL POLICY 44
KEY RISKS FOR THE DOMESTIC NATIONAL STEEL POLICY STEEL INDUSTRY Untapped potential with strong policy support becomes the ideal platform for growth. The critical importance of the steel industry in stimulating and laying the foundation Changes in duty structure that will reduce support to local manufacturers for sustainable economic growth has necessitated the formulation of a National Steel Policy. The policy seeks to accomplish its goal of ‘Make in Pakistan’ by providing policy Adverse movement in HRC Cold Rolled Coil (CRC) spread in international guidance to incentivize domestic manufacturing to leverage its existing competen- market cies and invest in scale.
High and/or rising cost of utilities (electricity, water and gas) and disruption in supply VISION To foster industrial growth and downstream Slowdown in economic activity manufacturing by making locally made steel products readily available to the entire country Concessionary SRO’s applicable at the time of imports and for specific projects by the government
Increasing trend in imports of semi-finished auto components resulting in MISSION an adverse impact on capacity utilization of industry 01 02 Non-implementation of cascading principle on imports of finished and To achieve self-sufficiency Develop policy guidelines semi-finished components, hurting steel manufacturer as well as auto in steel production by to incentivize investment in vendors. providing a policy state of the art technology framework which guides that will lead to Mis-declaration and under-invoicing of steel products at import stage and incentivizes cost-effective and globally Influx of substandard imports secondary products at low ITP valuations state-owned and private competitive steel sector steel manufacturers production to build scale
03 04
Leverage existing Develop a roadmap to strengths and encourage use of locally opportunities to attract produced Responsible foreign investment in the Steel. local steel industry 45 NATIONAL STEEL POLICY 46
GOALS CREATION OF STEEL DEMAND The following goals and objectives are set to reflect the consensus reached amongst the participants of the consultative process who collectively recognized the need to Creation of steel demand is one of the foremost tasks to restructure and modernize the steel industry in order to meet the increasing demand be undertaken. for quality steel in Pakistan: To drive steel demand, the following steps should be encouraged: Revive domestic Iron & Steel Industry, with emphasis on Blast Furnaces, DRI, EAF/Induction Furnaces Usage of steel should be encouraged in all buildings and structures. Efforts Build a globally competitive steel industry with production capacity of 45 at government level to promote lifecycle costing in project evaluation, rather million MT by 2030-31 than looking at just the upfront cost in isolation should be encouraged.
Increase steel consumption to 160 Kg/capita by 2030-31 (population growth No concessions on import duties or taxes be ensured under CPEC projects 2.40% per annum) for any materials manufactured locally Meet 100% of local demand for commercial quality steel by 2025 Steel intensive designs and structures should be promoted in housing Implement quality standards for domestic steel products by 2020 schemes.
Meet 100% of local demand of high-grade automotive steel, electrical steel, Replacement benefits of existing bridges, pavements, etc. should be special steels and other alloy steels for strategic applications by 2030-31 evaluated.
Be a net-exporter of value-added steel products by 2030-31 Efforts to be made to increase steel usage in making railway stations, foot over bridges, etc. Develop new technologies for the utilization of indigenous raw materials such as iron ore and coal A policy on preference for domestically manufactured steel products in government procurements should also be implemented to lend necessary Develop a sound human resource base equipped with appropriate technical support to the domestic industry. expertise to drive innovation Deletion of engine and transmission components of the automotive industry. Support the public and private sector in developing efficient and quality infra- structure i.e., land, roads, rails, electric power, water, information & telecom- munication network Control on imports of semi-finished / finished auto parts and components, with an aim to achieve minimum 90% localization ratio of automotive parts Establish independent materials testing & certification institutes, as well as within 3 years research, design & development centers based on public-private partnership Compliance to standards in the aftermarket To encourage material and energy efficient processes across steel making and downstream industries
To encourage industry to be a world leader in energy efficient steel production by 2025-30, in a safe and sustainable manner 47 NATIONAL STEEL POLICY 48
RAW MATERIAL AVAILABILITY to assess the potential for enhancing domestic availability of scrap. If so, incentives for investment in modern steel shredding plants must be offered. Scrap processing is The electrical melting process is the most prevalent route to steelmaking in Pakistan a highly labour intensive process and the success of such an endeavor will have far as the blast furnace process is significantly more capital intensive, requires ranging effects on employment generation and environmental sustainability. substantial support infrastructure and relies on developed iron ore and coal deposits or bulk imports. However, the blast furnace process can be more cost efficient and Pakistan and Afghanistan partnership in the mining sector can be jump started with flexible depending on different factors. The steel industry uses different raw materials joint development of mineral deposits that are close to the Pakistan border. Recent depending upon the technology installed. For the blast furnace process, iron ore and conclusions from the US Geological Services indicate existence of huge quantities of coking coal are critical raw material inputs. Their timely and assured availability in exploitable minerals in this region. These include iron ore, copper and gold. Being a adequate quantity and quality, on long-term basis, is a prerequisite for the rapid and landlocked country, Afghanistan’s best partner for mineral development is Pakistan, orderly growth of the sector. with convenient access to ports, infrastructure and low cost technical and construction expertise. The Hajigak iron ore deposits are reputed to be among the Iron ore deposits have been discovered in the country but the majority of these may largest high grade iron ore deposits in the world. These reserves of 1,800 million not be of the quality required for steel production. The government needs to ensure tones can be converted into approximately 1 billion tons of finished steel valued at that a thorough working is performed to evaluate and estimate the iron ore $400 billion. formulation and its quality. However, exploration, beneficiation and mining can be an extremely costly venture running into hundreds of millions of dollars and there are only a few private groups that have the capacity for such an endeavor, particularly when many mineral deposits are in remote areas with poor law and order conditions and LAND connectivity. In India, for example, a state owned company is responsible for the exploration, mining and supply of iron ore to the steel industry. Pakistan must continue One of the major stumbling blocks for investment in the steel industry is the exploration of iron ore as this is the only way that the integrated steelmakers using the appropriate availability of land and utilities. Investors that are willing to invest billions blast furnace process can have a competitive advantage over imports. of rupees in the sector can’t seem to find a suitable tract of land where utilities such as electricity, water and natural gas are available. Steel plants generally need large tracts Coking coal is also an important raw material for steelmaking. Up till now, we have not of land ranging from 10 acres to 200 acres depending upon the size of the plant and been able to find high-grade coal required for coking purposes. However, exploratory technology employed. Due to the sharp increase in land prices over the past couple efforts must continue. It should also be noted that mineral and coal production is decades, the cost of land in the overall project cost has become very high and brings gaining importance in the steel value chain due to increase in freight rates. As such down the ROE. When moving to areas where the land is cheap and available in large any investment in the mining of these products could result in Pakistan having a new tracts, the availability of electricity, water and gas becomes an obstacle. avenue for exports. Apart from iron ore and coking coal, other steelmaking raw materials, such as limestone, dolomite, manganese ore and fluorite are also found in Moreover, steel is a very heavy product with costly transportation. Currently, Pakistan. majority of the raw materials for steelmaking are imported. As such it is recommended that a Special Economic Zone (SEZ) exclusively for steel industry Since the majority of steelmaking in Pakistan is based on the electrical melting investments is set up near the port with same incentives applicable to already process, steel scrap and DRI are the primary raw materials used for crude steel established steel industry. Creation of related common infrastructure on partnership production. Ensuring local availability of raw material helps increase the quantum of basis will be promoted to optimize land use. To promote economic activities in the import substitution, self-reliance and global competitiveness. There is not enough zone, the Government should provide a viable and properly maintained infrastructure steel scrap generation in Pakistan to feed the steel industry and therefore consisting of roads & bridges, information & communication network, water and gas approximately 90% of the scrap requirements are imported. A detailed feasibility of supply lines, and dedicated uninterrupted power supply. The Government must nationwide scrap segregation, collection, processing and recycling centers is required encourage cooperative investment supported by special incentives to set-up captive 49 NATIONAL STEEL POLICY 50
power generation plants, as well as to build and operate water and gas supply systems POWER to ensure higher productivity and market competitiveness. The private sector may be allowed to finance the infrastructure cost and obtain a tax credit for the amount. Such Although steel manufacturing is an energy intensive process, the industry has made infrastructure will be required to facilitate the large amounts of raw materials, finished immense efforts over the last few decades and energy consumption today is half of goods and other traffic movement that the zone will generate. what it was in the 1960s. However, the availability of energy has always been a hindrance for the growth and profitability of the industry. While it seems that Currently Pakistan Steel has formed their national industrial park (NIP) on some of availability of electrical energy may be eased in the short term with new power its land and it is proposed that all land in NIP and all free land around PSM should be generation sources coming online in the next few years, the price of electrical allocated exclusively for the steel manufacturing industry. This land can be energy is a major constraint in making the industry globally competitive. For e.g. it provided at concessional rates to genuine investors in the steel sector. Clear rules constitutes about 20% of the steel cost when employing the electrical melting need to be framed in order to ensure that this land is be used for the stated purpose route. Also, even though the influx of RLNG may solve some gas availability issues, and hot commissioning be completed within a Stipulated timeframe of 2-3 years the price will increase the cost of manufacturing in Pakistan and make our industry only. less competitive in the global arena. As Pakistan has shortage of power, it is proposed that all new steel manufacturing facilities have in-house power generation. The government should incentivize installation of co-generation power plants where the waste, heat and air produced as a result of the generation is used to LOGISTICS produce free steam and chilled water, both of which are essential for steel production. In order to ensure cost effective electricity generation and distribution, the Steel is a very difficult product to transport. The current transportation system in government should look to facilitate synchronizing of energy generated with the Pakistan is based on trucks and is very expensive. Furthermore, as trucks are national grid as this allows the power generation to run at an efficient rate, which in overloaded beyond 50 tons, wear and tear of roads is very high. As such the turn would lower the rate of electricity generation to competitive levels. The steel government needs to develop a rail link to facilitate transport of steel to the north of industry, in view of high power peaks, should be facilitated by the government with the the country. This will not only reduce cost of transport but will also save time. purchase and sale of electricity via synchronization of power plants to the national grid. Realistic time-specific targets for energy (gas, electricity) consumption per MT of Locating the steel industry in Pakistan Steel (PSM) dedicated downstream area will steel production should be developed in consultation with all stakeholders. give companies an added advantage on both incoming and outgoing freight making exports much more viable. Port handling capacity and building a jetty in the steel SEZ Furthermore if the steel industry is set up in the Dedicated Pakistan Steel (PSM) must be considered, as large steel plants will need to import raw materials in bulk downstream area then special LNG pipes can be laid from the new LNG terminals at quantities. Port Qasim directly to these mills. This needs to be facilitated by the LNG producers, SSGC and K-Electric. WATER
Adequate water supply is essential for steelmaking. Keeping this requirement in view, the government should allocate water to the steel industry on priority basis. The government also needs to incentivize the setting up of reverse osmosis (RO) plants and also look to have a sea water desalination plant which could provide industrial quality water useable for steelmaking. The steel industry should in turn be required to pursue plans and strategies to achieve time-specific targets to reduce specific water consumption per ton of steel produced. Water conservation at all levels should be encouraged and the industry’s efforts should be supported. 51 NATIONAL STEEL POLICY 52
ENVIRONMENTAL MANAGEMENT TECHNOLOGICAL EFFICIENCY
Steel is the world’s most recycled material. The recycling rate of It is recommended that all investments in the steel sector be made with state of the steel is 86% art technology that is conducive to effective and efficient utilization of domestic resources. This is essential in order to gain a competitive advantage against the economies of scale of countries like China. Almost 35% of new steel today is produced from old steel Steel companies will be encouraged to enter into strategic joint ventures for production and development of technologically advanced products. Transfer of Steel is very friendly to the environment technology for production of automotive steel and other special steels will be facilitated by helping set up JV’s with global leaders in such products. Specific indicators for productivity and wastage generation should be outlined and The life cycle of steel is potentially infinite, as its properties remain benchmarked against international norms. Targets should be discussed and agreed unchanged no matter how many times it is recycled with all stakeholders for strict implementation.
Steel has great durability, and compared to other materials HUMAN RESOURCE DEVELOPMENT requires relatively low amounts of energy to produce Owing to numerous advancements in steel technology and management techniques, the human resource requirements across whole spectrum of the industry have The steel industry has made immense efforts to limit changed. Furthermore, quality human resource is intimately linked to higher environmental pollution in the last decades. Energy consumption productivity, production of globally acceptable products, higher profits and greater and CO2 emissions today are half of what they were in 1960’s import opportunities. The local industry, however, continues to employ semi-skilled, self-trained labor force on shop floors in general and very rarely properly trained and qualified staff in supervisory and managerial positions. Owing to paucity of properly trained manpower, the productivity of the sector is well below the international bench All investments in the steel manufacturing sector must include investments in mark. Through continuous education/ training programs, under the sponsorship of the effluent treatment plants and air pollution mitigation. The bulk of the solid waste Government, the quality of human resource can be raised to an acceptable level. It is produced as a result of steel making is recycled and is therefore not a major also imperative to strengthen relevant institutions at various levels to enhance their concern. It should be made mandatory that all steel manufacturing companies have capacity as well as create a quality human resource trained on new paradigm in line the ISO 45001 certification for environmental management systems. Apart from with international standards. The Government should support the industry to start adherence to stringent energy efficiency parameters, the steel sector will be quality training schools at various cities and towns offering competency based encouraged to assume best available practices and technologies to ensure a clean and training in important domains of the steel processing and business promotion. As a green environment. PSQCA should be encouraged to develop in-house expertise in short term measure, the facilities at PITAC and similar public sector centers may be assisting manufacturers to obtain this certification. Greenhouse gas emissions should made available to private sectors for training the existing workers of steel industry in be controlled and targets for carbon dioxide emissions per MT of steel produced via collaboration with international qualification awarding entities such as City & Guilds the Blast Furnace Process and electrical melting process must be set in consultation (UK) to raise capable and motivated manpower for the industry. Further, exchange of with all stakeholders. experts with the friendly and neighboring countries can help in resolving this issue on fast track. The private sector shall also be encouraged to set up a cooperative fund 53 NATIONAL STEEL POLICY 54
with annual contributions from the government for continuous education & training of STEEL STANDARD ENFORCEMENT supervisory, technical and managerial staff pertaining to the industry. The enforcement of quality standards is a recurring theme in any segment of the steel industry. Since steel plays such a central role in the economy, reinforcing the nation’s STEEL RESEARCH & TECHNOLOGY infrastructure and housing as well as being a raw material for various other industrial sectors, the government must ensure that all steel units are in compliance with International standards. All stakeholders of the steel industry should be brought under one platform to promote and conduct steel research, develop skill and expertise, as well as The National Steel Advisory Council aims to spear head an initiative for Responsible strengthen the synergy amongst the industry and academic institutes. The Steel. Government should encourage research institutes within the country to develop less resource and energy intensive steelmaking technologies as well as new products. NSAC will aim to work closely with PSQCA and other institutions in order to form a standard and certification program for the domestic steel industry. The standard will be finalized Pakistan Steels Metallurgical Training Centre should be funded by the government during 2019, ensuring sustainability goals regarding availability of clean water, reducing but managed by the private sector steel mills through the Steel Infrastructure greenhouse gas emissions, creating jobs that benefit individuals and communities, etc. Committee (SIC). This center should seek to give quality education in metallurgy and This will bring about improvements across the sector, by encouraging those who could also provide hands on training supplemented with theory classes in order to develop a operate more responsibly to raise their game. team of steel professionals. This center can issue diplomas in metallurgy as well as graduate/postgraduate degrees in metallurgy using the industry for their research and NSAC will either administer an independent third-party certification program or work with on-the-job training. PSQCA for the steel value chain and define and promote steel that has been produced and sourced responsibly.
STEEL DEVELOPMENT COMMITTEE (SDC) A special steel committee should be formed within the PSQCA (including members from ministry of science and technology, ministry of industries and production, EDB as well as A SDC needs to be formed as a public private partnership. The Chairman of the distinguished personalities from the engineering community) to monitor the regular vigilance committee should be from the private sector with at least 25 years of experience in and testing of steel products manufactured locally. Moreover, PSQCA license should not be the steel industry. The committee should consist of no more than five members, three given to any manufacturer that does not have a testing laboratory (with minimum from the private sector (one each from long products, flat products & tubes & Pipes), requirements to be set by the SDC) within the premises of the manufacturing unit. and one from the government preferably Secretary Industries and the last being the Managing Director of Peoples Steel Mill. The committee should meet monthly and Further, the PSQCA Act needs to be clarified to ensure foreign manufacturers should require should be responsible for approving all allocation of land at Pakistan Steel (PSM) a license from PSQCA to export to Pakistan for all items that are on the List of Compulsory dedicated downstream area for steel industry. The SDC should also be responsible for Items, Appendix N. of the Import Policy Order. Since local manufacturers are required to ensuring that all qualifications have been met by new investments in the steel sector obtain a license from PSQCA for such items, it only makes sense that foreign manufacturers for being eligible for the income tax incentive. should be subject to the same laws and conditions. For those items being imported which are not under the Mandatory List, the special committee on steel under the PSQCA to monitor the compliance to standards through laboratory testing at import stage.
NSAC will help fund and set up, possibly with PSQCA, state of the art Steel Testing laboratories that will provide the required independent world class testing facilities needed by the industry. 55 NATIONAL STEEL POLICY 56
INCOME TAX INCENTIVES domestic demand. It is however, pertinent to note that two days’ worth of steel production in China, is equivalent to Pakistan’s annual consumption of the same. Since it is aptly demonstrated that Pakistan needs to add domestic steel capacity, Due to overcapacity in China, various countries have levied anti-dumping and incentives for fresh investment in new plants or capacity addition of current units countervailing duties against Chinese steel, whereas Pakistan on the other hand should be considered. Moreover, such incentives will counter the high cost of bringing has signed an FTA with this global giant, allowing Chinese steel to be dumped into basic infrastructure to any new manufacturing facility, which reduces the ROE on new Pakistan at preferential duty rates at the expense of the domestic steel industry. investments given that the industry average for net profit percentage is merely 6-7%. As such it is necessary especially with the favors being given to China under CPEC Income tax incentives can be offered by extending the Section 65 of the income tax to ensure local steel companies are given regulatory support in the form of ordinance or creating a new section specifically for the steel industry where any regulatory duties (RD), anti-dumping duties (ADD) and countervailing duties (CVD) investment in capacity addition of over PKR 3 billion and with a minimum 30% equity in order to protect the nascent domestic steel industry. Moreover, no concessions component would be eligible to a tax holiday for 5 years. The reason for adding a on duties and taxes should be given to any CPEC project for materials that are locally minimum investment criteria is because Pakistan requires new capacity addition in manufactured as that hurts business sentiment and enables duty free products to plants that have economies of scale and a PKR 3 billion investment in the steel make their way to local markets. industry will generally get you a plant that can produce quality products and is just on the brink of minimum economic scale. The income tax incentive will only be applicable Pakistan should use USA as a role model in implementing protection for its if the units can demonstrate within the first year of operation that they have obtained domestic industry. The prevailing tariff structure in Pakistan does not reflect the third party certificates on health, safety and environmental compliance, e.g. ISO, fundamental cascading principal, for some product lines, whereby tariff rates typically OSHA etc. Moreover, such exemption will only apply to those companies that are either increase with the degree of processing of a product, which is meant to incentivize unlisted public companies or publicly listed companies to promote entities to be a part import-substituting manufacturing and discourage commercial imports that are of the documented economy. draining foreign exchange. With respect to the above proposed tariff structure for steel products, it is essential for any successful import substitution policy to grant higher protection to higher value-added products to limit their imports and provide TARIFF AND DUTIES protection to domestic manufacturers of such products. Imports of these value-added products are then expected to be replaced by imports of low-value added raw materials, which are not a significant drain on a nations foreign exchange In recent years, the global demand slowdown and overcapacity resulted in reserves. Countervailing (CVD) and regulatory duty (RD) should be imposed on import historically low steel prices. Steel producers in China, Japan and Republic of Korea, of those products that are made locally in sufficient quantity to be able to meet over where overcapacity exists, adopted a predatory pricing policy and began dumping 50% of domestic demand. These industries must also submit plans for enhancing their products in emerging markets, sometimes even operating at artificially capacity to progressively meet self-sufficiency ratios of at least 90% in the next 3 to 5 depressed costs levels. This has seriously impacted Pakistan’s relatively nascent years. Given the ever-changing nature of the steel industry, the government should steel industry and the government should provide a level playing field for domestic also work to prevent unfair trade practices. They must be vigilant and ready to producers. With current demand for steel in Pakistan estimated at 9 million MT per conciliate in the market as and when required with trade remedial measures, to annum, and strong fundamentals in place for economic growth, the iron & steel sector protect the interests of the domestic steel sector. is ready to “take-off” given the appropriate government and institutional support. As per the Pakistan Economic Survey 2017-18, domestic steel was the second highest On the raw material side, customs and regulatory duties on basic raw materials such as growing sector with production growing by 30.85% in 2017-18 and 16.15pc in 2016-17. scrap, iron ore and coal should be removed as these items are not available in Apart from residential and infrastructure projects, the auto, energy and water sufficient quantity or quality locally, for steel making applications at the moment. transmission and general fabrication sectors have also made a strong contribution to Currently, iron ore and coal based steel making is non-existent in Pakistan’s steel demand for steel products. landscape so removal of duties on at least iron ore will not hamper government revenue and will boost the local mining industry to provide iron ore and coal to the local Yet, local producers have to compete with global giants like China to meet the steel industry (such as the case when Pakistan Steel was operational). 57 NATIONAL STEEL POLICY 58
SALES TAX SPECIAL PROCEDURES, 2007
A large portion of the steel industry, particularly the long steel segment, is under the Sales Tax Special Procedures, 2007. The Special Procedures were introduced in 2007 only for rebars to aid the FBR in collection of sales tax from the steel industry and it has proven to be a successful formula in such terms, increasing revenue collection by many folds over the years. It is suggested that it should now include other long products such as billets as well as pipes and tubes. However, the Special Procedures has many anomalies and needs to be amended so that tax evasion can be curbed and vertical integration, particularly into power generation and iron ore based steel making, can be promoted. This will help the government with revenue collection and the industry with addressing key cost parameters to become more competitive. 05 NATIONAL STEEL POLICY 05
CONCLUSION
In recent times, robust demand and an annual industry growth of over 20% has allowed the industry on modern lines without compromising on the obligations pertaining to domestic producers to increase capacity utilization and new investments are underway. conservation of environment and producing quality steel products for domestic as well as However, due to a lack of long term policy direction from the government and the recent foreign markets. losses incurred by the steel sector due to steel dumping from foreign manufacturers, investors are wary of taking large investment positions in the industry. It will be On the whole, the local steel industry, in comparison to other developing countries, has imperative to give certainty on tariff structure for the next 15 years until the government to do a lot to become a vibrant and state-of-the-art industrial sector yielding high is able to reduce the high cost of doing business in Pakistan and the industry is able to productivity on competitive price. It shall however require focused efforts and sincere ensure capital formation and invest in scale and technology via timely policy action from policy formulation to its implementation by all the stakeholders. Import intervention by the government. Industry experts believe that with an aligned policy substitution policies should be supported by implementing a cascading customs and statement, the government can attract large investments that can add millions of tons of regulatory duty (RD) structure whereby the duty on raw material is less than that on steel capacity in the country, thus enabling jobs, increasing government revenue and value-added finished products. The creation of enabling and conducive conditions to having a multiplier effect that would benefit all. ensure adequate availability of quality steel to wide range of consumers shall form the basis to achieve the Policy’s Objectives derived from its Vision. The country has sufficient natural resources needed to build and establish a steel industry based on new paradigms and responsive to local, regional and global To that end, the National Steel Policy (NSP) outlined in this document, is directed to challenges. The proven and estimated iron ore and coal deposits are sufficient to support address the sector-specific special concerns of the steel industry within the such an initiative. It shall, however, require sizeable investments in the mining sector, boundaries set by the overall macro-economic policy. The basic idea is to assist the development of infrastructure for access to already discovered deposits and usage of industry to overcome various internal and external constraints to its growth. The Policy modern extraction and refining technologies. While the government is expected to fulfill includes certain incentives aimed at stimulating the development of mining and steel its obligations in developing capable human resource, ensuring regular supply of raw production and processing sectors on fast track. Such incentives are also meant to materials, supporting research & development activities, encouraging substantial encourage local and foreign investors keeping in view the prevalent financial and economic investments and creating consistent domestic demand and gradually removing challenges the country and the world are facing. With the tremendous potential in supply-side constraints, the local private sector has to proactively play its role to revamp Pakistan, adoption of such policies will catapult the local industry to greater heights. Usage of steel should be encouraged in all buildings and structures. Efforts at government level to promote lifecycle costing in project evaluation, rather than looking at just the upfront cost in isolation should be encouraged.
No concessions on import duties or taxes be ensured under CPEC projects for any materials manufactured locally
Steel intensive designs and structures should be promoted in housing schemes.
Replacement benefits of existing bridges, pavements, etc. should be evaluated.
Efforts to be made to increase steel usage in making railway stations, foot over bridges, etc.
A policy on preference for domestically manufactured steel products in government procurements should also be implemented to lend necessary support to the domestic industry.
Deletion of engine and transmission components of the automotive industry.
Control on imports of semi-finished / finished auto parts and components, with an aim to achieve minimum 90% localization ratio of automotive parts within 3 years
Compliance to standards in the aftermarket
61 NATIONAL STEEL POLICY 62
ANNEXURE I ANNEXURE II
List of Key Recommendations Material Product HS Code Products Category Category Make a tariff roadmap for the next 10-15 years based on cascading principle for steel products manufactured domestically 7204 Steel Scrap 7203 Direct Reduced Iron (DRI), Hot Briquetted Iron Remove duties and taxes on basic raw materials such as steel scrap, iron ore and coal (HBI) Raw Steelmaking 2601 Iron ore Amend the Sales Tax Special Procedures, 2007 to promote vertical integration and Materials Raw Materials 2701 Coking Coal prevent tax evasion. 7202 Ferro-Alloys Form a special committee on steel at PSQCA that will enforce compliance to standards 7207 Billet, Bloom & Slab Intermediate Semi-Finished through licensing and vigilance Products Steel Products 7218 Stainless Steel Ingots, Billets
Offer 5 year income tax holiday to new investments in the steel sector that meet 7224 Alloy Steel Ingots, Billets certain criteria as listed in the document 7208 Hot-Rolled Steel Coils & Sheets 7209 Cold-Rolled Steel Coils & Sheets No concessions on import duties or taxes under CPEC for any materials manufactured locally 7210 Coated-Rolled Steel Coils & Sheets Flat Steel 7211 Hot-Rolled & Cold-Rolled Steel Strips Facilitate steel units to invest in captive power generation and guarantee purchase of Products 7212 Coated Steel Strips any excess power at a pre-agreed tariff 7225 Flat-Rolled Alloy Steel Coils & Sheets Create a Special Economic Zone (SEZ) for the steel industry where large tracts of land 7226 Flat-Rolled Alloy Steel Strips can be provided at concessionary rates along with necessary infrastructure such as 7219 Flat-Rolled Stainless Steel Coils jetty, rail network, desalination plant, and energy 7220 Flat-Rolled Stainless Steel Strips Finished The GoP must lead the mining and exploration of raw materials such as iron ore and Products 7213 Bars & Rods, in Coils coal, which are basic ingredients for steelmaking. 7214 Bars & Rods 7215 Other Bars & Rods 7216 Angles, Shapes & Sections Long Steel Products 7217 Wire 7221 Stainless Steel Bars & Rods, in Coils 7222 Stainless Steel Bars & Rods; Angles, Shapes & Sections
7223 Stainless Steel Wire
7227 Alloy Steel Bars & Rods, in Coils 63 NATIONAL STEEL POLICY 64
Material Product HS Code Products Category Category Long Steel 7228 Alloy Steel Bars & Rods; Angles, Shapes & Products Sections 7229 Alloy Steel Wire 7304 Seamless Pipe Finished Tube & Pipe Products Products 7305 Spiral welded > 16" in Diameter 7306 Longitudinally Welded ≤ 16" in Diameter 7302 Rails or Track Construction Material Other Miscellaneous 7307 Tube & Pipe Fittings Products 7308 Iron or Steel Structures or Parts thereof
ANNEXURE III Product-wise imports, in Metric Tons (MT)
Material Product HS Code Products 2013-14 2014-15 2015-16 2016-17 2017-18 Category Category 7201 Pig Iron 12,255 15,386 22,967 32,266 32,966 7205 Pig Iron Granules 1,010 1,546 2,376 2,212 3,027 7204 Steel Scrap 2,000,735 3,028,057 4,007,102 4,248,446 5,283,114 Raw Steelmaking Materials Raw Materials 7203 Direct Reduced Iron (DRI), Hot Briquetted 5,266 13 - 6 1,359 Iron (HBI)
2601 Iron ore 98,390 197,522 9,500 - 78 7202 Ferro-Alloys 24,863 30,523 28,116 42,256 72,583 7206 Ingots 7 42 1 318 14
Intermediate Semi-Finished 7207 Billet, Bloom & Slabs 31,546 83,207 47,134 19,837 5,201 Products Steel Products 7218 Stainless Steel Ingots, Billets 2 36 154 76 59 7224 Alloy Steel Ingots, Billets 1,375 47,621 32,142 9,194 1,463 7208 Hot-Rolled Steel Coils & Sheets 671,950 319,007 626,809 803,606 829,661
Finished Flat Steel 7209 Cold-Rolled Steel Coils & Sheets 185,722 226,200 310,015 277,563 346,935 Products Products 7210 Coated-Rolled Steel Coils & Sheets 337,986 430,080 598,379 592,471 630,147
7211 Hot-Rolled & Cold-Rolled Steel Strips 11,017 14,441 16,929 144,770 286,938 65 NATIONAL STEEL POLICY 66
Material Product HS Code Products 2013-14 2014-15 2015-16 2016-17 2017-18 Category Category 7212 Coated Steel Strips 5,131 3,851 4,676 5,257 8,778 7225 Flat-Rolled Alloy Steel Coils & Sheets 218,841 661,653 705,584 565,481 624,413 Flat Steel 7226 Flat-Rolled Alloy Steel Strips 1,669 8,461 3,095 3,618 3,514 Products 7219 Flat-Rolled Stainless Steel Coils 75,568 98,714 96,537 116,684 134,291 7220 Flat-Rolled Stainless Steel Strips 6,363 7,003 5,368 5,131 6,529 7213 Bars & Rods, in Coils 36,091 61,971 47,536 38,010 44,133 7214 Bars & Rods 20,281 14,502 33,614 91,617 46,536 7215 Other Bars & Rods 1,864 1,531 1,880 1,900 1,407 7216 Angles, Shapes & Sections 10,206 32,945 34,576 21,882 35,049 7217 Wire 14,864 18,978 13,926 11,422 14,303 Long Steel 7221 Stainless Steel Bars & Rods, in Coils 40 83 30 12 79 Finished Products Products 7222 Stainless Steel Bars & Rods; Angles, Shapes 3,035 4,034 6,606 6,787 9,346 & Sections
7223 Stainless Steel Wire 1,418 1,071 1,548 2,057 2,987 7227 Alloy Steel Bars & Rods, in Coils 35,389 33,345 51,963 86,676 131,790 7228 Alloy Steel Bars & Rods; Angles, Shapes & 7,114 19,884 108,125 41,917 45,244 Sections
7229 Alloy Steel Wire 1,927 1,898 809 1,089 1,644 7304 Seamless Pipe 111,882 117,076 109,205 133,242 145,765 Tube & Pipe 7305 Spiral welded > 16" in Diameter 2,069 52,898 62,615 32,035 24,068 Products 7306 Longitudinally Welded ≤ 16" in Diameter 26,523 26,749 36,171 32,858 28,002
7302 Rails or Track Construction Material 806 9,107 7,447 59,623 23,072 Other Miscellaneous 7307 Tube & Pipe Fittings 105,090 110,737 104,160 121,363 139,695 Products 7308 Iron or Steel Structures or Parts thereof 84,660 131,687 191,371 300,769 258,478
4,152,955 5,811,859 7,328,466 7,852,451 9,222,668 67 NATIONAL STEEL POLICY 68
ANNEXURE IV ANNEXURE V
Roadmap for revival of PSM
Hot Rolled Coil (HRC) A technical audit by an international company be effected in order to ascertain health of existing technical equipment and determine minimum startup costs. To benefit from economies of scale, a feasibility to determine capacity enhancement in stages from 1.1 to 3.0 million MT per annum be conducted. Cold Rolled Coil Hot Dip Galvanized Steel Conversion of billet into the bar mill be considered in view of the CPEC projects. Leasing/ Disposal of around 600 acres of land in downstream industrial area in sector III and IV of PSM be considered whereas 930 acres of land (given to NIP) be allotted to genuine parties who wish to setup industries on priority basis to generate funds for PSM. Surplus land in plant area, township, Gulshan-e-Hadeed, Lahore SMC, Islamabad, and FTC be considered for lease or sale in order to generate funds. Quota of natural gas for revival of the mill and clearance of SSGC liabilities be taken up with the GOP. The issue of current and long term liabilities be settled in consultation with all stake holders. Man power related issues including introduction of VRF and hiring of technical man power and their training be worked out in consultation with management of PSM. Hiring of Russian /Chinese/Ukrainian experts may be considered to train work force and to ensure smooth operation of the plant. Non-core activities like transport, security, township, guest house should be out sourced. Out sourcing of CMD departments be considered. Color Coated Steel Medical facilities including 100 bed hospital be out sourced. MTC with the help of public private partnership can be converted into a university for MSC classes in the field of metallurgy, material sciences. The center can also be used for training manpower in different trades. Water / power distribution, sewerage system in Gulshan-e-Hadeed is being managed by PSM. Being a non-core activity it is a burden on PSM resources. These facilities may be transferred to KWSB (water), city government (civic functions) and K-Electric (electricity supply). Disposal of finished goods inventory including surplus inventory in stores. The Pakistan steel sector is poised to invest in the latest technology, which will allow steel that is made in Pakistan, to be more cost-effective as compared to traditional steel producing “countries.