Setting up steel mill at Karachi: ministry allowed signing implementation agreement with Al-Tuwairqi

The Economic Coordination Committee (ECC) of the Cabinet has allowed the Industries Ministry to sign Implementation Agreement (IA) with Al-Tuwairqi Group of Companies for setting up steel mill at Karachi with production capacity of one million tonnes billets per annum, official sources told Business Recorder.
The agreement, first of its kind in Pakistan except with Independent Power Producers (IPPs), had been submitted to the ECC on receiving verbal orders from the Prime Minister secretariat after a summary for the prime minister had been returned by the Privatisation Commission (PC) with comments, they added.
Sources said the petroleum and water & power ministries had suggested some amendments to the IA regarding tariff for gas and electricity to be consumed by the Tuwairqi Steel Mills Limited (TSML).
Giving the background, the sources said that a memorandum of understanding (MoU) was signed between the Government of Pakistan (GoP) and the Al-Tuwairqi Group of Companies on May 28, 2004 for setting up steel mills at Karachi.
Sources said the TSML has requested that an IA be signed with it, wherein the GoP undertakes upon itself obligations towards the TSML on behalf and of its entities.
The issue was placed before the ECC on September 25, 2006, which considered the case in its meeting on September 27 and directed CBR, Planning Commission and Finance Ministry to give their comments to the Industries secretary to be presented in a meeting with the prime minister. It was also decided that the decision of the meeting would be conveyed by the Prime Minister Secretariat separately.
Pursuant to the directions, a meeting was held in the Industries Ministry in October, attended by representatives of CBR, finance and petroleum ministries, Privatisation Commission, and TSML.
Sources said when the views of the Planning Division were placed before the participants an agreement was reached on certain clauses of the proposed agreement, re-examination of following clauses was decided: It was decided that incentive/facilities listed out in schedule-2 of the proposed IA would be re-examined by CBR.
Proposal for gas subsidy demanded by the TSML would be examined by Petroleum Ministry and competent authority's approval obtained thereon. Sources said that government's viewpoint regarding deletion of privatisation clause was agreed by the TSML with the proviso that as the clause had been proposed by their mudarib, they would discuss government's viewpoint.
The issue was finalised in the light of comments received from CBR and Commerce Ministry and EPZA. Subsequently, the Prime Minister Secretariat convened a meeting on gas supply pricing for the TSML on January 17, 2007, for which a detailed working paper was submitted encompassing all outstanding issues.
During the meeting, only the gas price issue was discussed and it was decided that industrial rates would apply in the case of the TSML.
In the light of a meeting held in the Prime Minister Secretariat on January 17, a summary on the issue was submitted to the prime minister by the Industries Ministry proposing that the matter of executing an IA with the TSML be placed before the ECC.
In view of the verbal orders received from the Prime Minister Secretariat for submission of the case to the ECC, the summary for the prime minister has been returned by the Privatisation Commission with comments, the sources maintained.
Sources said the CBR supported consideration of the IA while the Petroleum Ministry also concurred with clauses 3.7, 3.8 and 3.9 of the draft IA with the modification in clause 3.8 that the words "as notified by Ogra from time to time" may be added before the full stop appearing at the end of this clause.
The Water and Power Ministry has proposed that para 11.2(viii) in the draft IA be deleted and instead, following sentence be added at the end of para 3.11 C:
"For the purpose of billing TSML, provision of Nepra, determination, as per Nepra Act will be followed." The Ports and Shipping Ministry also showed agreement with clause 5.2(a) and (b) of the draft Implementation Agreement. However, the Privatisation Commission cleared the draft IA subject to the condition that there is no clause in the Implementation Agreement relating to warranty by the Government of Pakistan in respect of the privatisation of Pakistan Steel and Sui Southern Gas Company and charges of services to be provided by Pakistan Steel to the TSML shall be reviewed on yearly basis.
The Industries Ministry was of the view that except for IPPs, there was no precedent available where the GoP has signed an IA with a foreign investor, the ministry had previously proposed a facilitation agreement (FA) with the TSML.
However, the Implementation Agreement was subsequently processed in the light of Law Division's views, expressed in the meetings held in that Division on August 16, 2006, ie that the GoP had given specific undertakings in the MoU dated May 28, 2004, signed with the TSML.
THE IMPLICATIONS FOR THE GOP WITH REFERENCE TO THE PROPOSED IA WHICH NEED TO BE KEPT IN MIND ARE AS FOLLOWS:
(i) There can be no rollback on incentives admissible to the TSML as an EPZ (Schedule-2 of proposed Implementation Agreement) for a period of 30 years from the Mill's commercial operation date.
(ii) Any violation, or dispute as to violation of the Implementation Agreement and various agreements between the TSML and other government entities, already signed or under negotiation, will have legal and financial implications for the Government of Pakistan.
In case of agreements, which are yet to be executed (Services Agreement with Pakistan Steel, Power Implementation Agreement, Power Supply Agreement with Water and Power Ministry and its entities concerned) the Government of Pakistan is taking on the obligation that these will be executed.
(iii) The agreements already executed between the TSML and various entities are valid for different terms. The term of proposed Implementation Agreement would also have to be decided.
Sources said these issues are submitted for deliberation of the ECC wherein it was proposed that the Industries Ministry may be allowed to modify the IA in the light of decisions taken by the ECC, get it vetted from the Law Ministry.
The ECC approved the proposal subject to and condition that it should be vetted by the Law Ministry.