ECC approves gas supply for National Steel Complex revival

The Economic Coordination Committee (ECC) of the Cabinet has approved gas supply to National Steel Complex Limited on an availability basis, paving the way for efforts to restart the steel plant that has remained closed since September 2013, Business Recorder reported, citing sources in the Petroleum Division. 

The committee also directed the Petroleum Division to ensure that gas supplies follow the economic merit order and to review and update the Natural Gas Allocation and Management Policy 2005.

National Steel Complex Limited, formerly Tuwairqi Steel Mills Limited, was commissioned in January 2013 with an annual production capacity of 1.28 million tonnes. The project was co-financed by Saudi Arabia’s Al-Tuwairqi Holdings and South Korea’s POSCO.

The plant uses MIDREX direct reduced iron technology owned by Japan’s Kobe Steel and requires natural gas as feedstock.

The government allocated gas to Tuwairqi Steel Mills in September 2005. Sui Southern Gas Company Limited subsequently signed a Gas Sales Agreement with the company on August 15, 2006, for the supply of 45 million cubic feet per day.

Of the total allocation, 40 million cubic feet per day was meant for the production process and 5 million cubic feet per day for captive power generation. The gas was to be supplied at the applicable industrial tariff.

However, the plant operated only briefly after its commissioning before shutting down in September 2013. The company had sought gas at the fertiliser feedstock rate instead of the industrial tariff.

At the time, the industrial gas tariff was Rs488 per million British thermal units, compared with Rs123 per million British thermal units for fertiliser feedstock. Supplying gas at the lower tariff would have caused an estimated Rs5 billion in cross-subsidy or revenue losses to Sui Southern Gas Company Limited.

The Gas Sales Agreement expired in 2016 and was not extended for another 10 years, resulting in the lapse of the original gas allocation. The Petroleum Division told the ECC that subsequent attempts to revive the plant remained stalled over the applicable gas tariff.

Saudi sponsors initiated arbitration proceedings against Pakistan at the Permanent Court of Arbitration in The Hague in 2018, seeking $500 million in damages under the Organisation of Islamic Cooperation investment agreement.

The tribunal dismissed all claims against Pakistan in December 2023 and directed the claimants to bear the legal and administrative costs.

The Ciena Group of the United States took over management control of the plant as its principal shareholder in April 2022. The company was later renamed National Steel Complex Limited.

The plant’s revival has also been discussed at meetings of the Special Investment Facilitation Council. Participants maintained that gas could not be supplied to industrial consumers at subsidised rates, but supply at commercial tariffs could be considered.