The proposed capacity expansion of Pakistan Steel has been on the cards for the last many years.
In fact, the original plan of setting up Pakistan Steel envisaged its future expansion to an annual capacity of over 2 million tons.
The study, prepared by Soviet Design Institute Lengipromez, was later revised, in 1987, proposing expansion up-to 3 million tons.
The same year the World Bank consultants W.S. Atkins of the UK carried out a report on the steel sector in Pakistan, having projected a demand of over 3 million tons per annum.
Based on these studies the management obtained, in March 1989, the approval of the government for the expansion project.
This followed the submission of the requisite PC-1 by Pakistan Steel in March 1994.
Subsequently, Nippon Steel Corporation of Japan undertook an economic and technical feasibility study.
In 1997 the Government of Pakistan formed a high-level Task Force on Pakistan Steel to carry out detailed study with a view to make it a viable entity.
The Task Force in its report on Pakistan Steel (December '97) made various recommendations.
The main recommendation related to that of increasing the existing annual installed capacity to 3 million tons.
The scheme also covers diversification of its products, shifting the emphasis from its present production of long and flat products to high-grade products and additional products like the deep-drawing, tinplate and electrical steel sheets etc.
The Task Force proposed the following in this regard:
(a) Steps may expeditiously be taken to initiate the scheme of expanding Pakistan Steel capacity to 3 million tons per annum.
The expansion plan must be implemented in collaboration with a joint venture partner.
Negotiations may urgently be started with prospective investors in China and Europe who have already shown interest in establishing a relationship with Pakistan Steel.
b) A partner for joint venture, both in the existing as well as in the expansion plan, may be identified and selected.
Since the Chinese have responded positively to Pakistan's request, this proposal may be pursued expeditiously.
The report of the Task Force on Pakistan Steel was subsequently discussed in the meeting held on December 27, 1997 under the chairmanship of the then Finance Minister.
The Minister had directed that "ways and means be found out to implement the expansion programme of Pakistan Steel with Chinese and their participation in its equity."
As a result of these developments it was decided to sign a bilateral agreement related to Pakistan Steel during the Prime Minister's visit to China in February 1998.
The proposed agreement was titled "LOI/Framework Agreement for the modernisation and expansion of Pakistan Steel."
As a matter of fact the dialogues between Pakistan Steel and the Chinese on this subject were going on for quite sometime.
In March 1995, the Government of Pakistan had signed a protocol with the Chinese authorities on co-operation for the expansion of Pakistan Steel.
Later, the President of Pakistan during his state visit to China in April 1997 had also proposed to the Chinese President that the two sides should enter into a joint venture for the up-gradation, expansion and management of Pakistan Steel.
This was followed by exchange of letters between the Chinese Minister of Metallurgy Industry and Pakistan Minister for Commerce, responding positively towards the proposed joint venture agreement.
Pursuant to this decision all the technical and economic aspects of the expansion of Pakistan Steel were discussed between the selected Chinese corporation and Pakistan Steel.
The matter was further perused in an inter-ministerial meeting held on January 17, 1998 and modalities of agreeing on the joint text of the framework agreement were finalised in accordance with the parameters outlined by the government.
Consequently a high-level delegation, led by the Secretary, Ministry of Industries and Production, which consisted of a technical team of Pakistan Steel and a senior official of the Finance Division, visited the People's Republic of China during January 18-25, 1998.
The objective was to conclude draft agreement with the Chinese, which was to be signed during the visit of the Prime Minister to Beijing.
After extensive and prolonged discussions the delegation had with the Chinese Minister of Metallurgy Industry and Chairman/President of the Corporation the draft agreement was concluded.
The Chinese had finally agreed to offer the most attractive package, financial as well as technical, for executing the expansion plan, on the demand of the Pakistan side.
The above arrangement was worked out on the basis of indicative total cost of the expansion project estimated to be US$1,900 million.
The scope of supplies and price of equipment, materials and services to be provided by the Chinese was, however, spelt out and was subject to be finally determined by Pakistan Steel according to internationally competitive prices.
The total cost of machinery and equipment was agreed to be US$1,151 million, including the cost of a 300 mw capacity power plant.
Other salient features of this agreement were of great significance. The Chinese corporation had agreed to become joint venture partner in Pakistan Steel, with equity participation in the existing complex and also the expansion scheme.
Also, the Chinese were to arrange US$1.10 billion for the project, out of which US$1,000 million was loan and the balance US$100 million as equity.
The Chinese had agreed to favourably consider Pakistan Steel's request for a State Credit of US$300 million from the Chinese Government.
Furthermore, the Chinese had agreed to make its best efforts to arrange an additional equity of US$100 million from its Western partners who were to supply modern automation system and controls etc for the expansion project.
It may be noted that financing to be arranged by the Pakistan Steel was only to the extent of US$400 million (in Pak rupees).
The indigenous design and manufacturing facilities were to be utilised optimally, under technology transfer arrangement, for which the Chinese had signed a separate agreement with the State Engineering Corporation for manufacturing at Heavy Mechanical Complex. A large portion of mechanical and electrical/electronic equipment to be supplied would have been of Western-Japanese origin.
This agreement though scheduled for signing along with other agreements during the visit of the Prime Minister was not signed somehow.
No reason was given to the Chinese as to why this item on agenda, which was finalised and agreed to jointly by the two sides, was deleted by the Pakistan side at the last moment.
The last government took up the matter again with the Chinese. During the last session of the Joint Committee on Economic, Trade, Scientific and Technical Co-operation between Pakistan and China held in Beijing in May 2000 the subject was deliberated upon and it was agreed that the two sides shall co-operate on the expansion project.
But nothing happened since then. Meanwhile, the government had change of heart, and expansion was being negotiated with the Soviets, without calling international tenders.
It may be recalled that during the February 2003 visit of President Pervez Musharraf to Russia a Memorandum of Understanding was signed between the two governments for enhancing the annual capacity of steel mills from existing 1.1 million tons to 3 million tons, in two phases.
Pursuant to this decision a number of delegations and technical teams from Russia have had detailed meetings in Pakistan and made presentations to the Pakistan Steel and the Ministry of Industries and Production at different intervals. But the Pakistan side could take no concrete decision.
Finally, the Federal Minister for Industries and Production visited Russia, in September, to see for himself the advancement of the Russian technology in the field.
Knowledgeable sources claim that he was not satisfied with their capability, and, as a result the Minister went from Moscow to Vienna to witness the advanced Western technology.
In Austria, the Minister visited the design and engineering facilities, as well as its operational steel plants, of Voest Alpine, one of the world-renowned companies specialising in metallurgical plants that offer turn-key services.
The group has designed and completed 800 major steel mill projects in more than 80 countries that cover seventy percent steel production the world over, and has undertaken expansion of various iron and steel plants in many countries.
The company has references in Pakistan too, having supplied equipment to the Pakistan Steel and People's Steel Mill in the past.
The pioneer of the modern iron and steel technological processes such as COREX and Direct Reduction Process, Voest Alpine are the innovators of LD Converter technology that was subsequently adopted by the Russians and others.
On return from Austria, the Minister reportedly had asked the ministry officials to seriously consider the technical and financial proposal of the Western company, along with the Russian and the Chinese offers.
Thus the recommendations for award of contract for expansion of Pakistan Steel were to be based on the latest technology, taking into considerations all related aspects and the respective merits and demerits of each proposal.
Now that the Pakistan Steel delegation has visited China and negotiated with the Chinese again which leaves many questions unanswered.
As a matter of fact the nation lost an excellent opportunity in 1998 to restructure and rehabilitate Pakistan Steel, and to make it viable, financially and commercially.
The package negotiated with the Chinese was very attractive having met all the requirements of the Government of Pakistan, including equity participation and provision of soft-term credits.
If implemented then, the expansion project would have already been completed by August 2002. One wonders who is to be blamed for this delay if at all the Chinese source was to be selected finally.
Or, even this time there would be no final decision by the authorities concerned? It seems, no one who matters in Pakistan is ever serious to undertake the expansion project for reasons of vested interest.
Pakistan Steel Mill continues to face major technical, financial and management problems for the last many years, if not from its very inception.
Though the management would always make tall claims of having improved its conditions and profitability, yet with the change of the management these claims would always prove to be false, thus adding to the miseries of Pakistan Steel.
It is reported that Pakistan Steel has now overcome major problems of low productivity, excessive manpower and dilapidated condition of plant machinery as a result of implementation of structural reforms in the last two years or so.
Productivity has remarkably improved - from Rs 0.35 million of steel sold per employee in the year 1990-91 to Rs 0.99 million of steel sold per employee during 2001-2002.
Similarly, steel production per employee rose from 24 tons in 1989-90 to 62 tons in 2001-2002.
The liquidity position has improved as a result of financial restructuring and right-sizing, manpower having been brought down to 14,996 from 23,500.
Besides the capital repair work, Pakistan Steel authorities have also recently undertaken BMR programme, which includes modifications, additions and revamping of different sections of hot strip mills and cold rolling mills and adjustments at billet mill.
These plans will help in achieving increase in production and product diversification, increasing production capacity to 1.3 million tons, it is claimed. Pakistan Steel has thus already made significant investment in the project.
According to the latest plans, however, the production capacity is to be enhanced to 1.5 million tons in the first phase, and in the second from 1.5 million tons to 3 million tons per year.
The experts, nonetheless, are of the opinion that the proposal was not cost-effective, and particularly faces difficulties in assimilation of technology if different sources of machinery and technology were selected for implementing the two phases.
Thus, the only solution to Pakistan Steel problems is to go for its capacity expansion up-to 3 million tons in a single phase as envisaged earlier, which is considered essential to make the unit a viable commercial organisation.
The steel industry is termed as of strategic importance for the industrialisation of a country, and if Pakistan Steel has to survive it should go for capacity expansion along with production of high value-added products.
The implementation of the expansion plan of Pakistan Steel Mill, whether through the Chinese, the Soviets or the Austrians, is therefore, the only way to salvage this huge national project.
But it has to be done as envisaged by the experts, that is, the latest technology and equity participation from a foreign partner, incorporating the best commercial and financial deal.
This will also revive the national engineering industry, which at present in a shambles, to say the least, through actively engaging the industrial units in design, production and installation of machinery for Pakistan Steel expansion project. Time is essence however. The nation cannot afford another delay in its implementation.