China's Century Steel Group warns to dismantle plant, withdraw investment

• This will be our last notice to Govt of Pakistan, says Chunjian.
• PM has formed committee to address company's complaints.
• Taxes on steel industry adding insult to injury, says company.

ISLAMABAD: A Chinese steel giant, Century Steel Group has threatened to withdraw its investment and shut down operation in Pakistan, if its demands were not met.

The steel group relayed this in a letter to Prime Minister Shehbaz Sharif. 

In the letter, Century Steel Group CEO Li Chunjian stated the company had reached the decision to wrap up its business and withdraw investment from the country as the government departments, responsible for handling foreign direct investment (FDI) in the China Pakistan Economic Corridor (CPEC) Rashakai Special Economic Zone (RSEZ) in Khyber Pakhtunkhwa, failed to resolve multitude of their problems.

“This will be our last notice to the Government of Pakistan; if the problems are not resolved immediately, we will start dismantling the plant from the RSEZ,” the company said.

A senior government official, when approached by The News on Friday night, stated that the prime minister has constituted a committee under Federal Minister for Communications, Privatisation and Board of Investment Abdul Aleem Khan to address all of the company's complaints.

The committee consists of members from the KP and federal governments.

According to the steel group, they arrived in Pakistan with big goals and intended to build up the country's biggest steel mill in three stages in the first RSEZ of CPEC in KP.

Over $30 million out of the $82 million invested in the project's first phase was already underway, with an anticipated yearly production of 500,000 tonness of steel products.

Through the transfer of cutting-edge steel technology from China to Pakistan, the following two stages would also result in an investment of more than $200 million in Pakistan for the manufacturing of downstream steel products.

Within five years, the final capacity for steel products would be 1.5 million tonnes, the China's steel giant said.

“We aimed to contribute to the GDP of Pakistan and also to create thousands of jobs as well as build exports of steel products to the regional markets. However, due to the following unresolved issues for over five years, we have finally decided to exit from Pakistan and report this matter to the Chinese government/embassy and the international press as a last resort.

“We have been waiting for the last five years at RSEZ and maintenance of our staff and expenses has caused us big losses to the tune of $7.5 million,” it said in the letter.

Plot purchase agreement couldn’t be signed with KPEZMC despite our various exchanges and meetings and long time has passed.

Extremely high land prices at RSEZ are impacting our capital investment costs. Power supply, which is the most critical matter for any steel mill operation, couldn’t be arranged by the RSEZDOC due to their pending issues with Nepra for distribution license, the letter maintained.

The Century Steel Group said they required 100MW stable and cost-effective power which remained elusive despite long time has passed.

“We are now forced to look for arranging our own power from other means like investment into solar power plant nearby RSEZ increasing the overall capital investment away from our core steel business.

“The SEZ policy is extremely weak with no incentives for FDI despite several government and team changes in the bureaucracy. Continuous rise in the price of power has made the business un-viable and we foresee further increase in power prices.

“Taxes applied on steel industry are adding insult to injury, as two large scale steel mills in Pakistan have already shut down (Amreli Steels/ Agha Steels) after failing to sustain the steel industry taxation,” it said.

The letter said despite incentives and waiver on import duties/taxes given to the small steel mills at FATA/PATA, their sub­standard steel production is spoiling the market in Pakistan, leaving large scale mills out of business.

"There is no strict implementation of quality steel production in Pakistan and the responsible departments are not bothered about the sub-standard steel being sold across Pakistan.

"The management and security of CPEC RSEZ instead of helping has created a burden for us forcing us to bear the security personnel expenses and uncalled-for demands. Free movement of our personnel for day to day needs is not possible and even our sick employees cannot go and seek medical attention outside the RSEZ.

“Some of our in-house employees were put on the black list by the agencies for reasons unknown to us despite our requests for resolving this matter. Overall, the demand for steel has contracted in Pakistan due to several factors including high inflation, currency instability and economic downturn,” it added.

The government has no focus on the special economic zones success and nothing is being done to protect the already arrived foreign direct investors from China, the corporation complained.

The recent orders for security protocols have significantly increased the business costs and impacted the business, it maintained.

“Lastly, the local banks do not cooperate even on approved SBP Policy of FOC for plant and machinery imports and ask us to deposit large sums of money in their accounts.

“We are forced to bring all the above to your notice so that you are in knowledge of what really is happening to the Chinese foreign direct investment coming to Pakistan and take immediate corrective measures. We would request to meet you in person at your earliest convenience to discuss the above in detail,” it concluded.