PALSP says high energy tariffs brought steel sector to its knees

ISLAMABAD: Pakistan’s steel industry, the backbone of the country’s economy, is teetering on the edge of collapse due to discriminatory policies and an unbearable surge in electricity costs. Industry leaders warn that unless immediate corrective measures are implemented, the sector will shut down, triggering widespread unemployment, devastating downstream industries, and eroding investor confidence in country’s economic stability.

“Steel manufacturers are being forced to operate in an environment where injustice is at its peak. This is not just a crisis for the steel sector— it is a crisis for the entire economy,” said Wajid Bukhari, Secretary General of the Pakistan Association of Large Steel Producers (PALSP). “How can the government justify electricity costs of over PKR 65 per kilowatt-hour (kWh) for grid-connected steel mills, while select sugar mills are wheeling electricity to their plants for as little as PKR 18/kWh, without paying sales tax? This glaring disparity is killing the industry.”

The steel sector, which employs millions and fuels over 45 downstream industries, has been brought to its knees by energy tariffs that have skyrocketed by 267% in just four years. Energy costs for producing one ton of steel ballooned from PKR 14,500 in FY2021 to staggering over PKR 42,000 in FY2024. These unsustainable costs have pushed many steel mills to shut down or operate at less than 40% capacity. Thousands of workers have already been laid off, with more job losses are imminent if the situation persists.

Adding to the crisis is the government’s failure to implement the Competitive Trading Bilateral Contract Market (CTBCM) and affordable wheeling charges, despite promises spanning nearly a decade. Captive industries such as sugar mills continue to benefit from cheaper electricity wheeling facilities, while genuine steel manufacturers on the national grid are left to shoulder exorbitant costs with no option to wheel.

“The government has miserably failed to provide a level playing field for all industries,” Bukhari emphasized. “CTBCM and affordable wheeling charges have been in the pipeline for years, yet nothing has materialized. The energy policies in this country are neither affordable, nor reliable, nor sustainable. This favouritism and mismanagement are not just bad economics—they are economic sabotage.”

The repercussions of this crisis are far-reaching. Pakistan’s Public Sector Development Program (PSDP) spending, a key driver of demand for steel, has plummeted, bringing public construction projects to a near standstill. With public projects accounting for 60% of local steel demand, the sector has seen demand collapse, leading to a severe liquidity crunch and halted investments. A notable casualty is a major Chinese investor that recently threatened to withdraw operations from Pakistan, citing unaffordable energy costs, excessive taxation, prohibitive borrowing rates and above all, due to large scale production & sale of substandard steel in the country. In this situation, tax evaders and substandard producers of steel are thriving while the documented, quality steel producing mills are shutting down.

Pakistan currently has an installed power capacity of 45,000 megawatts (MW), yet only 11,000-12,000 MW is utilized for industrial purposes. The steel sector, with an annual demand of 4.8 billion units of electricity, could play a vital role in utilizing the idle capacity. The local industry is unable to compete internationally due to electricity costs that are nearly triple to those in the neighbouring countries. In Pakistan, industrial electricity costs stand at 23 cents per kWh, compared to 8 cents in China and India, and 12 cents in Ukraine.

PALSP has repeatedly called for urgent reforms, including a flat tariff of PKR 25/kWh for grid-connected industries, which would allow steel manufacturers to restore capacity utilization, plan exports, and reduce Pakistan’s trade deficit. “It is unacceptable that our industry is being driven into the ground while a select few mills continue to benefit from an unfair system,” said Bukhari. “This is not just a failure of governance—it is a failure to protect the future of Pakistan’s economy. We cannot wheel energy from efficient power producers and are at gunpoint to purchase the most expensive energy in the region from the grid. Today our factories are being held sabotaged by these unfair policies. Where is a level playing field?”

The crisis has also exposed inefficiencies in Pakistan’s energy sector, where exorbitant capacity charges are being imposed, further driving up electricity costs. PALSP warns that once steel mills shut down, restarting them will be a Herculean task, effectively eliminating one of Pakistan’s key economic drivers and worsening the already dire unemployment crisis.

“The steel industry’s survival is a matter of national importance,” Bukhari said. “The government must act immediately to implement fair and transparent policies, reduce energy costs, and enable the steel industry to thrive. Without urgent intervention, we will witness the collapse of one of Pakistan’s most vital sectors, with devastating consequences for millions of families and the country’s economic future.” This is not just a call for reform; it is an SOS from an industry fighting for survival. The government’s inaction is not just costing jobs and revenue—it is costing Pakistan its future.

Copyright Business Recorder, 2024