LCs: Large steel sector seeks govt’s help

ISLAMABAD: Pakistan Association of Large Steel Producers has urged the State Bank of Pakistan (SBP) and Minister for Finance to help the troubled steel industry by ensuring timely opening of the letters of credit (LCs).

In this regard, the steel sector has made a presentation to the Finance Ministry and SBP.

According to the industry’s presentation, the steel industry is moving towards closure, as the non-issuance of letters of credit (LCs) is paralyzing the production activities of the industry. The industry is facing acute difficulties in import of raw material due to delay in opening up of the LCs.

The banks are blatantly refusing to open LCs for citing reasons that the government has instructed to open up LCs only for the essential items. If this situation persists it will result in shortage of steel in the country that will lead to further escalation in prices of steel.

The steel industry heavily relies on imported raw material, so, the curbs on the opening of LCs have badly affected the production activities. Due to non-release of import documents and consequent non-availability of raw material, many steel mills are on the verge of closure. Many steel units already shut down and others are facing disruptions in production.

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Wajid Bukhari, Secretary General of PALSP, stated that the import bill per month of the large steel industry is only 150m US$ per month. If the LCs are not opened just to save this small amount, this could lead to a much bigger loss to national economy due to possible closure of the steel sector.

This will naturally lead to a shutdown of cement factories, tile and cable manufacturers if there is no steel available. It is pertinent to note that during the COVID-19 crises, the steel and cement industries were termed as essential industries critical to the economy that were allowed to operate.

The steel industry’s crisis has been compounded due to ongoing economic turmoil and uncertainty in the country. Factors like continuous rupee depreciation, colossal increase in cost of inputs (raw material, energy, petrol and logistics), sky rising interest rates, tremendous inflationary pressure is making running of the industry unviable especially the steel industry which produces steel for the construction industry.

In such a situation, delay in opening of LCs will cause further dent in industrial growth. The situation will cause shortage of construction steel in the country which will badly affect all kind of construction activity in the country.

To great detriment of the industry, the SBP has issued an EPD Circular (Letter No. 20 of 2022) – Import of Goods on Dec 27, 2022. According to the circular SBP has instructed banks to prioritize/ facilitate imports of various categories especially essential goods but surprisingly they have totally ignored the raw material of steel. While the imports by industries that heavily rely on imported raw material, due to non-availability of raw material locally, must not be stopped at any cost.

PALSP feared that if the issue of delay in LCs is not addressed forthwith, it will result is unbearable consequences for the industry. This will not only make the steel sector to suffer but other linked industries especially Construction industry, will also suffer. The closure of the industry could lead to increase in NPLs of the banking sector. The steel industry fears that the closure of steel industry could result in closure of 45 allied construction related industries causing massive lay-offs & joblessness.

The situation is not only hitting the industry but it will result in major dent in revenue of the government. A sharp decline of 40.58% in Pakistan’s scrap imports has been witnessed during the first 4 months (July 22 to Oct 22) of the current fiscal year. Steel industry is one of major revenue contributing sector in country’s economy.

The steel industry only in FY 2021 contributed Rs255 billion to the national exchequer of which long steel sector contribution was of Rs157 billion that is 2.5% of Pakistan’s total tax collection. Bukhari stated that the import bill of the steel industry is almost equivalent to the tax revenue generated to the national kitty. The government must recognize the steel manufacturing industries raw materials as essential for our nation’s economic survival, he added.

Copyright Business Recorder, 2023