After years of indecision, political back-and-forth, and prolonged institutional paralysis, the fate of Pakistan Steel Mills (PSM) in Karachi is finally being reshaped, it seems. Pakistan and Russia signed a protocol on July 11, 2025, in Moscow to restore and modernise the PSM.
The agreement, aimed at rehabilitating the old plant and introducing advanced steelmaking technologies, was signed between Saif Anjum, Pakistan’s Secretary Industries and Production, and Vadim Velichko, General Director of Industrial Engineering LLC, Russia, a leading state enterprise dealing in export-import of plant machinery. This marks a significant step forward, both symbolically and strategically, in what could become a new era for Pakistan’s beleaguered industrial sector, if perused diligently.
This development comes at a time when the government has also begun the formal process of wrapping up the old PSM: services of 1,350 more employees were recently terminated, and the federal government has announced that liabilities amounting to Rs345 billion will be cleared through the liquidation of PSM assets. Once a flagship of national industrial ambition, the PSM was also a cornerstone of Pakistan’s development strategy.
Established in the 1970s with technical and financial support from the then-Soviet Union, the mill was designed to make Pakistan self-reliant in steel production, reduce imports, and create a strong base for domestic manufacturing. For a time, it fulfilled that promise. During its peak in the early 2000s, the plant reached nearly 94 percent of its production capacity and even turned a profit.
But this promise began to erode as governance failures deepened. Placed on the privatisation list in the early 2000s, the PSM became the subject of controversial and poorly executed divestment efforts. A key moment came in 2005–06 when a consortium of Saudi, Russian, and Pakistani investors offered $362 million to acquire the mill.
However, the Supreme Court intervened and blocked the sale, citing concerns about undervaluation and lack of transparency—an action widely seen as influenced by political pressures. Though made in good faith perhaps, the decision turned out to be a strategic blunder. From that point onward, the financial and operational decline of the PSM became irreversible. Its story stands as a cautionary tale of how mismanagement, politicised decision-making, and lack of institutional continuity can destroy even the most promising ventures.
By 2015, the mill had ceased operations entirely on inept grounds. But instead of decisively resolving its future, successive governments allowed it to linger in bureaucratic limbo.
Large administrative structures continued to exist despite enormous losses and a non-operational status. In July 2023, the government finally announced that the mill would be permanently dismantled. Still, clarity and direction were missing. By January 2025, the federal and Sindh governments were still mired in negotiations on whether to jointly revive the old structure or launch an entirely new project.
At one point, the federal government offered 700 acres of land to the Sindh government to lead the development. This proposal was soon overtaken by a federal decision to pursue the project directly in partnership with Russia.
The new plant will be based on advanced Russian steelmaking technology if the project materialises as planned. Over the past decade, Russia—traditionally reliant on blast furnace–basic oxygen furnace (BF-BOF) steelmaking—has been actively investing in cleaner technologies, such as electric arc furnace (EAF) steelmaking and hydrogen-based direct reduction methods. These are more environmentally sustainable and aligned with global green transition goals. This shift is consistent with Pakistan’s urgent need to modernise its industrial base.
The new venture presents a rare second chance to restore Pakistan’s domestic steel production capacity. The country currently faces a steel demand-supply gap of over three million tons and imports iron and steel worth more than $2.7 billion annually. With rising infrastructure needs and growing manufacturing demands, boosting domestic steel production is not just desirable but strategically essential.
Historically, the USSR/Russia has provided generous economic and technical support to Pakistan. Notable projects backed by Russia include the PSM in the 1970s, the 640-MW Guddu Thermal Power Station (commissioned in 1974), and the 630-MW Muzaffargarh Thermal Power Station (commissioned during 1993–95). These projects significantly contributed to Pakistan’s industrial and socioeconomic development. Although Russia later offered to upgrade and refurbish these facilities, Pakistan did not respond favourably, largely due to shifting domestic priorities and political uncertainty.
Given regional security dynamics and shifting global alliances, Pakistan should actively pursue stronger economic and trade ties with Russia. Collaboration in technology transfer and capital investment—particularly for the PSM—offers Pakistan a valuable opportunity to revive and modernise its largest steelmaking facility. Seemingly, there are delays on Pakistan’s side.
Technical experts, including Russian teams, are still evaluating whether existing PSM machinery is usable and to what extent. Reports suggest that if about 50 percent of the existing machinery can be salvaged, the government will proceed with restoration through Russian cooperation. Earlier, in January 2025, a Russian technical delegation carried out institutional steps such as evaluation of the old machinery, structural assessments, and technical inspections, but results remain undisclosed.
Since technical assessments are ongoing to determine how much of the old plant can be reused, and while Russian technical support has been agreed upon, the technical and financial model remains vague. Key details—such as investment shares, financing terms (loan, grant, or equity), and overall budget—have not been clearly disclosed.
Estimated figures indicate that restoration of the existing blast furnace would cost about US$400 million, whereas a new electric arc furnace would cost around US$2 billion. The restoration would likely utilise about 700 acres of PSM land. It is therefore still uncertain whether the project will involve refurbishment of the existing infrastructure or the establishment of a completely new facility.
Delays are likely to occur due to financial constraints, bureaucratic hurdles, complex negotiations over technical and legal details, and the need to ensure alignment between the government and Russian stakeholders. As of mid-October 2025, there appears to be no visible progress beyond the signing of the July 2025 protocol.
The Ministry of Industries and Production had told the National Assembly’s Standing Committee on August 26, 2025 that the Russian feasibility study for renovation would be completed by September 15, 2025, followed by further implementation talks by September 30, 2025. However, no official confirmation has been issued that the feasibility study was completed by the announced date.
The revival of the PSM is not merely a matter of resurrecting a dormant industrial asset; it is a strategic test of Pakistan’s ability to execute large-scale industrial revitalisation in partnership with a major global power. If managed wisely, the project can help bridge the steel gap, reduce import dependence, create thousands of jobs, and stimulate downstream industries.
However, if plagued by the same indecision, lack of transparency, and bureaucratic inertia that characterised the past, this initiative risks becoming yet another missed opportunity. The coming months will reveal whether this is a turning point for Pakistan’s industrial sector—or a repeat of history.
Copyright Business Recorder, 2025
The writer is retired Chairman of the State Engineering Corporation and former Chairman of the Institution of Engineers, Pakistan