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In a recent legal triumph, Pakistan successfully defended itself in an arbitration case initiated by Tuwairqi Steel at the Permanent Court of Arbitration in The Hague. The dispute, brought forth by prominent Saudi investors, Dr Hilal Hussain Al Tuwairqi and Al Ittefaq Steel Products Company Ltd, alleged breaches of the Organisation of Islamic Cooperation (OIC) investment agreement in connection to a substantial investment in a steel-production facility in Port Qasim, Karachi.

The tribunal’s decision, absolving Pakistan of breaching its obligations under the OIC investment agreement, stands as a notable victory in the courtroom. However, the complexities surrounding the Tuwairqi Steel Mills project reveal a more nuanced and costly narrative, extending beyond legal proceedings into the heart of economic repercussions.

The ambitious Tuwairqi Steel Mills project, a joint venture between Saudi Arabian and South Korean companies, had set out to establish Pakistan’s largest steel complex, boasting a staggering production capacity of 1.28 million tons per annum. The initial phase, involving a $340 million investment in the completion of the direct-reduced iron (DRI) plant, was completed. However, the subsequent phases, requiring an estimated investment ranging from $850 to $900 million, hinged upon the success of the DRI plant and availability of feedstock gas.

The economic potential of the project was significant. Beyond the substantial initial investment, Tuwairqi Steel Mills held the promise of being a major employment generator. The project aimed to employ 1,100 people directly and contribute significantly to the economy through both forward and backward linkages by a establishing a vertically integrated state of the art project. The project’s downfall originated from a dispute over gas pricing issues. The Saudi investors alleged that Pakistan failed to honour sovereign assurances, specifically the committed supply of natural gas at a predetermined tariff. This dispute led to a halt in operations, triggering a legal battle and subsequent arbitration.

Despite the legal victory, the economic fallout is palpable. The government’s failure to secure necessary approvals for a concessional gas tariff from the Economic Coordination Committee (ECC) not only halted the Tuwairqi Steel project but also initiated a series of adverse consequences. The project’s suspension led to a notice served by Al Tuwairqi Holding Company, demanding Rs1 billion in damages due to stalled operations at the steel mill. The subsequent escalation of the matter to the international court of arbitration further underscores the fragility of investor trust. The company, despite the halted project, continues to incur monthly expenses to maintain the plant and support its workforce.

The crux of the matter lies in the pricing of Pakistan’s natural gas and the policy of according priority to consumers irrespective of the economic utility of such allocation. In our merit order, we give top priority to domestic consumers at a very unrealistic and subsidized price. In recent years, we have been diverting highly expensive imported LNG to domestic consumers during winter months at the same old price. The delta was either partially picked up by the government through additional allocation by the Finance Ministry or the payments are still to be recovered, effectively becoming part of the gas sector circular debt.

It is imperative that Pakistan reevaluates its merit order for natural gas provision, giving due consideration to the industrial sector’s needs instead of continuing to use this valuable resource inefficiently in domestic kitchens.

In conclusion, while Pakistan may have secured a legal victory in The Hague, the economic toll and the erosion of investor confidence present a sobering reality. The Tuwairqi Steel case serves as a stark reminder of the imperative for a consistent and reliable approach to attract and retain foreign investments.

As legal triumphs unfold, the economic losses suffered by the nation underscore the importance of upholding commitments and fostering an environment conducive to sustainable and mutually beneficial investments. The need for a strategic reevaluation of natural resource allocation and pricing policies is paramount to ensuring long-term economic growth and investor trust.

Copyright Business Recorder, 2023

Sajid Mehmood Qazi

The writer is a civil servant with deep interest in the oil, gas and climate change issues

Comments

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TimetoMoVVeOn Dec 27, 2023 06:12am
Don't worry SIFC will make pakistan # 1 on the world map. For in competence
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Fatima Dec 27, 2023 07:37am
We should never have agreed to supply heap domestic gas,
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Usman Dec 27, 2023 12:07pm
Seems the author is paid by the steel compang.Please understand we are a nation of 250 million people and are a huge market.We should not do deals that will hurt us in future like how the chinese took benefit and got deals that no one would have given them.time to put pakistan first.
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KU Dec 27, 2023 02:26pm
There is always a monkey and a rat in these deals, the tragic affair is that our public servants involved in these deals are never questioned. Needless to say that our economic future is in the hands of the nefarious and given the trumpeted SIFC, everyone knows what to expect.
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wanker Dec 27, 2023 02:42pm
@Usman, 250 million poor people are not a huge market.
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HashBrown® Dec 27, 2023 06:04pm
@TimetoMoVVeOn, "Don't worry SIFC will make pakistan # 1 on the world map. For in competence" After the comedy show that took place in hindustan a few years ago, when you were exporting third rate vaccines to Africa (with Modi's little face plastered on the packaging) while simultaneously becoming the world's most deadly pandemic epicentre, I think that #1 position will remain yours for at least the next century.
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Mubashir Munir Dec 27, 2023 08:19pm
We should only allow overseas Pakistanis to invest with local Pakistani businesses only
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Mubashir Munir Dec 27, 2023 08:25pm
@wanker, we should terminate those bureaucrats who made such a bad contract our bureaucrats take money from investors they should be Put in jail's or hanged no investment be allowed and if allowed be carefully audited by international audit companies of repute
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Rebirth Dec 27, 2023 09:07pm
Apparently, they needed a $50 million annual gas subsidy but the N-league deprived our nation of crucial foreign investment to benefit their own steel mills. This was consistent with their other policies that are purely acts of sabotage to destroy our economy. Their benefactor Iftikhar Ch. cost us billions by cancelling the Reko Diq mining deal. Daronomic principles involving currency manipulation to increase imports, in order to collect more revenue through custom duties, destroyed our manufacturing base making us a permanent IMF client. Khaqan’s expensive LNG import deal further drained our ForEx reserves. Musadeq’s advice regarding rental power plants bankrupted our energy sector. The worst was removing Miftah Wonka only for trying to collect taxes from their constituents. Collective non-payment of dues is a crime against our sovereignty. A subsidized rate for gas would’ve employed thousands and provided us with affordable, locally manufactured steel for our construction projects.
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IMTIAZ CASSUM AGBOATWALA Dec 28, 2023 01:24pm
True . While we talk of attracting foreign Investments, the reality is we make it most unfriendly for business to operate.
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Ash Chak Dec 29, 2023 02:25am
@HashBrown®, The Chinese Vaccines Sinopharm and Sinovac had a efficacy rate of 50%. The Astra Zeneca VAccine manufactured in India had an efficacy rate of 76% and the mRNA vaccines had an efficacy rate of 90%. Pakistan did not have a vaccine at all. So what are you talking about?
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Shoaib Tirmazi Dec 29, 2023 09:56am
The most of the countries in the world give priority to domestic users for their natural resources than the industry uses.
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HashBrown® Dec 30, 2023 07:43am
@Ash Chak, This is what I love about you guys. The vaccines that you're bragging about were developed in OTHER COUNTRIES - your only job was to manufacture and export them, and you even managed to fail that. You were given $300m funding by the WHO for the job - money which suspiciously vanished - and in the meantime your incompetence led to hindustan becoming a global Covid epicentre. Millions of lives across the planet were lost thanks to your incompetence and dishonesty. AstraZeneca even took legal action against your serum institute when you failed to honour your export commitments. But wait - there's more! Your homegrown vaccine, Covaxin, was rejected by Brazil after it emerged that you had lied about its efficacy, and the World Health Organisation has gone on record asking developing nations to avoid it. Even in hindustan you resorted to using the Russian Sputnik, so when I referred to your vaccine as "third rate" I was actually being kind to avoid hurting your feelings.
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