Gas tariff row: Government says goodbye to TSML to ''avoid'' Rs 17 billion loss

A resource-constrained government of Pakistan has decided to say goodbye to Tuwairqi Steel Mills Limited (TSML) instead of incurring an annual monetary loss of Rs 11-17 billion. TSML, a joint venture (JV) of POSCO of South Korea and Al-Tuwairqi Group of Saudi Arabia, has long been at odds with the federal government over what the company claims non-application of feedstock tariff of natural gas it was assured initially by the previous government in a bid to provide a level-playing field.
And now, Federal Finance Minister Ishaq Dar said, the company was rolling back its half-completed project from Pakistan. The federal minister talked about the controversy at length during his visit to the Recorder House here on Monday. "Tuwairqi Steel is going to fold," he told Business Recorder.
Dwelling on background of the dispute, the finance minister came up with many revealing facts about how the JV had been pressuring him on politico-bureaucratic fronts to get its demands met. The company, he recalled, had signed a Memorandum of Understating (MoU) in 2005 with the then government under which it was to get natural gas under a "complex formula" for its $340 million DRI plant for a five-year period at Rs 123 mmcfd.
When the next government came to power, the company converted the MoU into an Implementation Agreement (IA) that had no commitment of the price agreed in the Memorandum. "If it was, I am sure, they are smart enough to appear in a court of law long time back," Dar said adding "They know it is not their legal right."
He said while his government had been offering different practicable solutions to the TSML the latter had been insisting on the grant of Rs 123 mmcfd price.
This, the finance minister said, was not possible as the current market price for gas in the energy-scarce country stood at Rs 360 mmcfd for fertilizer sector and over Rs 500 mmcfd for general industries.
The latter price being a benchmark the country''s yearly losses on account of price differential amounted to Rs 17 billion, he said.
"Who would justify to future generations and the general public if I quote the demanded price," he maintained, saying Pakistan was not a gas-surplus country that could sell the Rs 500 fuel at Rs 123. "You are a gas shortage country and you are going to import it," he said.
Dar claimed that his government offered different solutions to the Steel Mill that ultimately fell on deaf ears in the TSML.
One such solution, he said, was to offer them the most competitive industrial price of Rs 365, which the government set for the local fertilizer sector. This, if accepted, would still have made a cash-strapped government incur a Rs 11 billion loss.
The Korean-Saudi joint venture, the finance minister said, claimed to be a par excellence good dividend company which planned to invest $850 million in Pakistan.
Another proposal to TSML was that it should give to the SSGC its shareholdings equivalent to the annual price difference of five years. "Otherwise, you would make the Sui Southern bankrupt by forcing it to sell gas at a far reduced price," he said.
The federal minister asked the foreign company to sign a Buyback Agreement with the SSGC providing that the utility would have the right to offload its stakes in the market in case the TSML goes public.
"Otherwise, after five years you [TSML] would be bound to buy the shares with X percentage of profit," Dar told the company.
"What more I can offer them," he wondered. Now, the TSML having rejected all his suggestions, the company was putting pressure on the finance minister through different channels.
"They first tried to pressure me using every quarter of the government and when I did not budge, they started mobilising political figures," the minister claimed.
He said political figures ranging from opposition leaders to chief ministers of the "non-Punjab" provinces were calling him time and again to convince him in favour of TSML.
"I wonder what a great lobby they have. I am seriously thinking of mobilising them in [our campaign for] next elections," he quipped.
The federal minister, however, said despite the country''s thirst for foreign investment it was impossible for his side to accept the demands of TSML.
"I told them I had no courage to make SSGC incur a Rs 11 billion loss, specially, when the demanded rate is no legal right of the company as the MoU-turned-IA suggests," Dar said. On the other hand, in the extraordinary general meeting (EOGM) of the company''s shareholders held on November 25-26 last year in Islamabad, a resolution had been adopted saying the JV would be exiting the country had the next ECC meeting failed to address the pending issue.
Later, in its January 27 meeting in Dammam, the board of Tuwairqi Steel, reportedly, decided to lay off 1000 of the company employees. The steel manufacturer''s DRI plant had been shutdown since September 2013 for commercial reasons.