28 July 2013

Steel industry on the verge of collapse:

Saturday, July 27, 2013 - Karachi—Pakistani steel manufacturing industry is already faced with unequal competition by local ship breaking industry and further power rates hike of Rs. 2.5 per unit would render Steel Industry absolutely uncompetitive and would lead to closure of formal steel manufacturing industry in Pakistan.

Formal steel manufacturing sector in Pakistan is already in a very dismal position due to unfair competition by the local ship breaking industry, which only pays sales tax on 70.5 percent of the total weight of the scrap ships, and the decision to further increasing the power tariff would make steel manufacturing sector further uncompetitive leaving no option for the domestic industry but to close down it business and render hundreds of thousands of skilled workers jobless.

Pakistan Steel Manufacturers Association (PSMA) demands that cost difference between ship-plates by ship breaking industry and steel billets by local manufacturers should not exceed Rs. 1200 per metric ton which is currently around Rs. 10,000 per metric tons making local steel manufacturers completely vulnerable and subject to unfair competition by the hand of ship breaking industry.

PSMA spokesman said that since ship breaking industry pays sales tax only on 70.5 percent of the total weight of the scrap ships which are brought for dismantling at the Gaddani Ship Breaking Yard and it neither pays 20 percent customs duty nor 17 percent sales tax on the remaining 29.5 percent part of the scrap ships since the past many years, the local steel manufacturing plants are facing unequal competition making them suffer huge losses. It may be noted that ship breaking is paying negligible custom duties and sales tax on a few tons compared to thousands of tons of weight of the vessel constituting 29.5 percent.

This practice of not charging sales tax on 29.5% of a scrap ship is going on for almost 5 years now and country has lost billions of rupees due to this criminal non-collection by FBR’s field formations.

He said that Rs. 2.5 increase in power sector would make us more uncompetitive compared to local ship plates hence the equal impact should be levied on ship breaking industry otherwise the difference between ship plates by ship breaking and steel billets by local manufacturer would increase to Rs. 13,000 per ton from current Rs. 10,000 per ton. The spokesman demanded FBR to impose additional taxes on local ship breaking industry by imposing additional custom duties to not only offset the increase in power cost but also to provide a level playing field and equal competition to steel manufacturing industry.

He said that due to multiple problems the closure of local steel industry would cause severe hit to our national exchequer as volume of cheaper and substandard imports will increase due to higher costs of domestic goods and country would have to drain hundreds of millions of dollars on steel products import every year.

Pakistani steel sector is already facing fierce competition by Chinese steel exporters where electricity rate is on average of $68/MWh compared to Pakistan where power cost is whooping $115/MWh almost double to what Chinese government offering to its industry.

Average power rate of 27 countries known for their steel production is about $103/MWh, while in Pakistan it is whooping $115/MWh which itself reveals that Pakistani steel industry is facing worst ever business climate in the country and still trying to compete with the giants at its borders. Domestic steel sector has already lost lot of business to cheap imports in the country and subsequently lost its production value which has severely affected its investment capacity.

We have seen lot of investment in the local steel sector of Pakistan in the recent years which is a foreseeable sign of promising growth in our economy that could also ensure thousands of new employment opportunities in our manufacturing and engineering sectors. However, the unequal competition will cause many projects to shutdown and render thousands of skilled workers jobless in the country. He was however confident that new government will protect steel industry of the country which is mother of all the industries and creates hundreds of thousands of direct and indirect employment opportunities in the country.

He urged the Government to take all the stakeholders into confidence before taking big economic decisions in order to ensure that local industries remain competitive to international competition and continue to play their role in national economic development. He demanded that government MUST take action to protect the local steel melters and rollers.

Source: Pak Observer. 27 July 2013

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