Unequal competition leaves steel manufacturing industry on the verge of collapse


Pakistan’s steel manufacturing industry was already facing variegated competition via the local ship breaking industry, but now additional power rate increases of Rs 2.5 per unit would make the industry absolutely uncompetitive and would lead to the closure of the formal steel manufacturing industry in Pakistan.
The formal steel manufacturing sector in Pakistan was already in a very murky position due to unfair competition by the local ship breaking industry which was paying sales tax on only 70.5 percent of the total weight of the scrap ships. The decision to further increase the power tariff would make steel manufacturing sector even more uncompetitive, leaving no option but closure for the domestic industry, which would render hundreds of thousands of skilled workers unemployed.
The Pakistan Steel Manufacturers Association (PSMA) demanded that the cost differential between ship-plates (by the ship breaking industry) and steel billets (by local manufacturers) should not exceed Rs 1,200 per metric ton while it currently stood at Rs 10,000 per metric ton.
A PSMA spokesman said that since the ship breaking industry paid its sales tax on only 70.5 percent of the total weight of the scrapped ships, it neither paid 20 percent in customs duty nor 17 percent in sales tax on the remaining 29.5 percent which had caused the local steel manufacturing plants to suffer huge losses. This practice of not charging the sales tax on 29.5 percent of the scrapped ships had persisted since almost 5 years and the country had lost billions of rupees due to this activity.
The spokesman demanded the FBR to impose additional taxes on the local ship breaking industry by imposing additional custom duties. This, he added, would not only offset the increase in power costs, but would also provide a level playing field for the steel manufacturing industry.
He said that the closure of local steel industry would cause a severe jolt to our national exchequer as the volume of cheaper and substandard imports would increase due to higher costs of domestic goods, and the country would have to drain hundreds of millions of dollars on steel product imports every year.
The Pakistani steel sector was already facing fierce competition by Chinese steel exporters where the electricity rate was $68/MWh compared to Pakistan’s whooping $115/MWh. The average power rate of 27 countries known for their steel production was about $103/MWh. Pakistan’s staggering $115/MWh revealed one of the biggest problems faced by the country’s steel sector.
He urged the government to take all the stakeholders into confidence before taking big economic decisions in order to ensure that local industries remained competitive on an international scale, and continued to play their role in national economic development.