Pakistan’s Proposal for a New Steel Mill in Karachi.

The Pakistani government is considering a proposal to establish a new steel mill in Karachi with cooperation from Russia. Both countries have agreed to form working groups to advance the project.
This month, Deputy Minister of Industry and Trade of the Russian Federation, Aleksei Gruzdev, met with Pakistan’s Minister for Industries, Production, and National Food Security, Rana Tanveer Hussain, in Islamabad. The minister revealed that the government has earmarked 700 acres of land from Pakistan Steel Mills (PSM) for the new mill.
Despite possessing substantial iron ore reserves estimated at 1.887 billion tonnes, Pakistan imports approximately $2.7 billion worth of iron and steel each year. There is a consistent gap between domestic production and demand, estimated at 3.1 million tonnes last year. Pakistan’s per capita steel consumption is lower than that of many developing countries, indicating significant growth potential over the medium to long term. The minister noted that the efficiency of Pakistan’s steel industry is hampered by fragmentation, with 600 small units, and reliance on outdated technology.
The proposed site in Karachi is conveniently located near Port Qasim, which will help reduce transportation costs for raw materials. Experts from Pakistan’s industrial and agricultural sectors are scheduled to visit Russia, marking a significant step in strengthening bilateral ties.
The meeting included several officials: Denis Nevzorov, Deputy Trade Representative of the Russian Federation in Pakistan; Saif Anjum, Secretary for Industries and Production; Ali Tahir, Secretary for National Food Security and Research; Amir Mohyudin, Additional Secretary for National Food Security; Abdul Samad, Deputy Chief of Industries and Production; and Engr. Muhammad Shoaib, Executive Engineer at PSM.
Moreover, Federal Minister for Commerce Jam Kamal Khan welcomed Mr. Gruzdev for discussions aimed at enhancing trade relations. They focused on economic cooperation and exploring new trade opportunities. Jam Kamal highlighted the untapped potential in Pakistan-Russia trade, emphasizing that with active engagement, trade volume could significantly increase.
The upcoming 5th Joint Working Group (JWG) meeting, scheduled for September 26-27, 2024, in Islamabad, was also discussed. The agenda will include industrial cooperation, customs, investments, transport and logistics, and agricultural trade.
Mr. Gruzdev expressed satisfaction with current trade relations but acknowledged that there is significant room for improvement. He outlined areas for future cooperation, including the supply of mineral fertilizers, modernization of Pakistan’s fertilizer plants, export of agricultural machinery, railway machinery supply, collaboration in the pharmaceutical industry, and digital technologies.
He also expressed Russia’s willingness to provide expertise in modernizing Pakistan’s fertilizer plants and offer training programs for Pakistani farmers to enhance productivity. Both ministers recognized strong growth potential in agriculture, pharmaceuticals, livestock, and steel, expressing optimism for the future of Pakistan-Russia economic relations.
A Glance at Defunct Pakistan Steel Mills
The Pakistani government spent billions of rupees on Pakistan Steel Mills (PSM) to cover worker salaries through bailout packages. Initially expected to be a key driver of economic development, PSM became a wasted opportunity that could have strengthened the economy. The mill’s production eventually fell to zero. Outdated machinery failed to meet modern standards, and financial and administrative constraints prevented self-reliance.
Production at PSM halted in June 2015 when Sui Southern Gas Company stopped gas supply due to unpaid bills. By the end of FY 2008, the mill reported losses of PKR 16.9 billion, which ballooned to PKR 118.7 billion within five years and reached approximately PKR 200 billion in 2018, later touching around PKR 400 billion.
Experts say one of the main reasons for PSM’s failure was the interference of successive political governments, which prioritized political affiliations over merit when appointing CEOs and key personnel. This led to poor management over the years.
Another significant factor in PSM’s decline was its reliance on imported steel. Despite its potential, PSM failed to meet domestic demand and struggled to compete with countries like China, which produced high-quality steel using advanced technology and skilled labor. The China-Pakistan Economic Corridor (CPEC) further increased steel imports. The State Bank of Pakistan indicated that cheap imports from China and Ukraine harmed local production, which fell by 8.6% in the first half of FY16 compared to a growth of 31% in the same period of FY15.
Comparing PSM to steel industries in developed countries like Japan highlights the importance of a skilled workforce. Unfortunately, PSM lacked qualified labor. In developed nations, workers are selected based on expertise, ensuring efficiency. However, PSM was overstaffed; while 9,000 employees would have sufficed, 17,000 were hired, creating an additional financial burden. – ER Report