Chinese Steel Group threatens to exit Pakistan over unresolved issues

Pakistani media reported that in a significant setback for foreign investment in Pakistan, the Century Steel Group, a leading Chinese corporation, has announced its intention to cease operations and withdraw its investments. This decision highlights the challenges faced by foreign investors in the country.

The News reported on Saturday, November 23, that the Century Steel Group’s CEO, Li Chunjian, sent a letter to Prime Minister Shehbaz Sharif, highlighting unresolved issues that have persisted for years. These challenges have significantly impeded the company’s operations in the CPEC Rashakai Special Economic Zone (RSEZ) in Khyber Pakhtunkhwa (KP).

The letter explicitly stated that if immediate solutions were not provided, the company would begin dismantling its plant at RSEZ. This announcement underscores the growing frustration among foreign investors over unresolved systemic issues.

To address these grievances, the Prime Minister formed a committee led by Aleem Khan, comprising members from federal and provincial governments. The committee aims to resolve the Century Steel Group’s complaints and prevent the loss of this major investment.

The Century Steel Group entered Pakistan with ambitious plans to establish the country’s largest steel mill in three phases. The project’s first phase involved an $82 million investment, with $30 million already deployed for an annual production capacity of 500,000 tons of steel products.

The subsequent phases were projected to bring an additional $200 million investment, introducing advanced steel technology from China. The company anticipated reaching an annual production capacity of 1.5 million tons within five years.

The company had envisioned contributing significantly to Pakistan’s GDP, creating thousands of jobs, and boosting steel exports to regional markets. However, persistent challenges over the past five years have stalled progress and strained the company’s resources.

Key issues include the inability to finalize a plot purchase agreement with Khyber Pakhtunkhwa Economic Zones Management Company (KPEZMC) and exorbitant land prices in RSEZ, which have inflated investment costs.

The absence of a stable and cost-effective power supply remains a critical problem. Despite the company’s requirement of 100MW, delays in securing a distribution license from Nepra have forced the firm to explore alternative solutions, such as setting up a solar power plant, increasing capital expenditures.

The company also criticized Pakistan’s SEZ policy, citing weak incentives for foreign direct investment (FDI) and a lack of consistency in bureaucratic management. Rising power prices, high taxation, and an influx of substandard steel products have rendered the steel business unsustainable.

Security protocols and management at RSEZ have further strained the company, increasing costs and restricting personnel movement. The company’s staff faced blacklisting by agencies, and even sick employees struggled to access medical facilities outside the zone.

The group pointed out macroeconomic challenges, such as inflation, currency instability, and reduced demand for steel, exacerbating their difficulties. Local banks’ non-cooperation on approved State Bank of Pakistan policies has further hindered their operations.

The Century Steel Group warned that its withdrawal would be reported to the Chinese government, embassy, and international press as a final resort. It urged the Pakistani government to take immediate action to address these issues and protect foreign investments in the country.

This case serves as a wake-up call for Pakistan to revisit its policies and create an investor-friendly environment. Resolving these systemic issues is crucial to retaining foreign investments and ensuring the success of CPEC projects, which are vital for the country’s economic future.

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