This I Promise You?

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I was listening to the phenomenal love song by N’sync last night entitled: This I Promise You while percolating what to write for today’s blog. And it hit me! How about a review of Pramod Mittal’s dreams or promises to the Filipino people when it reopened National Steel Corporation in 2004? Had he delivered?

President Gloria Macapagal Arroyo was present during that momentous day and even supported the proposal to declare the newly reopened plant of the National Steel Corporation an economic zone and believed the resumption of the plant’s operations would revitalize the country’s steel industry and make Iligan the center of industrialization efforts in Mindanao. Such big dreams!

In reply, hereunder is a review of Pramod Mittal, chair of GIHL’s holding company Ispat Group, promises—or dreams—during that day, saying, “We are committed to do the job (operating NSC) efficiently. We are not here to go back.”

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70% of Production for Export

“At least 60 percent of NSC’s initial production would be exported to Asian markets,” (Philippine Daily Inquirer, 2004), most likely to China. … GIHL, however, would have to increase its exports to at least 70 percent of production to qualify for an economic zone status. An economic zone classification will entitle NSC to avail of benefits such as six-month income tax holiday and duty-free importation (Manila Standard, 2004).

In 2005, during the FGI’s ‘vilification campaign’ against GSPI, President and Chief Executive Officer Sushant Das announced that GSII “is a long-distance runner which is now 70 percent rehabilitated and producing high quality steel. … from an annual capacity of 1.2 million tons … and has exported over 40,000 metric tons of steel.” (The Philippine Star, 2005).

By 2006, GSPI Chief Operating Officer B.S. Mohnani said it was negotiating with US and European companies – Toyota Tyysuo, CMC (International), A.G. Sumitomo and Marcegagila for the exports of hot-rolled coils [HRC]. “We are in the process of concluding sales agreements,” Mohnani said in a statement (Manila Bulletin, 2006).

In January 2007, Lalit K. Sehgal, Global Steel managing director, announced that 9,000 metric tons of CRC and 7,000 metric tons of HRC were loaded on MV Sea Brilliance for immediate shipment to Brazil for the first time (Go, The Philippine Star, 2007). By March 2007, GSPI saw an 80% export growth compared to the same period the previous year after it claimed that it will export over 60,000 metric tons of HRC and CRC to Brazil, Korea, Thailand, Indonesia and India. Global Steel has pegged its full year target at 660,000 MT (Osorio, The Philippine Star, 2007)

Yet, according to Southeast Asia Iron and Steel Institute [SEAISI] (2008):

“Import of hot rolled coil has been on a downward trend for the last few years. However, the figure in the first nine months of 2007 remained high when compared to the same period of 2006. This was despite the commencement of domestic production by Global Steel Philippines since 2006. Import between January and September rose by 8% to 177,000 tons. Major sources of import were Taiwan, China and Japan. Import from Taiwan rose significantly by three-fold to reach 61,000 tons. Import from China and Japan remained high with an increase of 20% and 6% to 50,000 tons and 45,000 tons, respectively. Export shrank sharply by 85% to 18,000 tons. Major destinations were Vietnam, Italy and Turkey, which registered a zero record in 2007.
Cold rolled coil (carbon) import between January and September 2007 grew by 8% to 211,000 tons. Philippines imported CRC carbon from several countries in Asia; namely Taiwan, South Korea, China, Japan, India and Thailand. Export doubled in volume to 128,000 tons. Major destination was Vietnam. Philippines also exported CRC carbon to India, Indonesia, Singapore and China in 2007.”

Annotation : GSPI registered with Board of Investments on 07 December 2004 (PCIJ, 2006). Instead of pursuing for an economic zone status, a BoI registration offered GSPI a custom bonded warehouse. If it was exporting 70% of its production, with SEAISI only reported 18,000 tons HRC and 128,000 CRC exports for nine months, is it safe to assume that in 2007, GSPI produced at least a total of 208,000 tons of HRC and CRC for the nine months in 2007?

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Increase Annual Production Capacity

“GIHL said it planned to increase NSC’s annual production capacity from the current 1.5 million metric tons to 2 million metric tons.” (Philippine Daily Inquirer, 2004)

In 2003, Commodities Resources Unit [CRU] (2005) reported that National Steel Corporation has a 1.70-Million metric-ton-per-year [Mtpy] HRC capacity and 1.00-Mtpy CRC capacity. Thus, when GSHL took over NSC in February 2004, it had already a total capacity of 1.7 Mtpy for HRC. Yet, when it gave a presentation on 19 June 2006 to its bank creditors, it indicated that GSPI has a 3.0-Mtpy total capacity? Probably the rounding-off of hot-rolled and cold-rolled capacities, or the sum total of HRC plus CRC plus tinning capacity?

Annotation : This blog, The Grey Chronicles, considered the increased annual production capacity as The Expansion that Never Was!

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Invest on Working Capital and Rehabilitation

“GIHL would invest some 90 million dollars this year as working capital to start up the steel plant’s operation. An additional 700 million dollars will be poured in over the next few years to complete NSC’s rehabilitation.” (Philippine Daily Inquirer, 2004)

GIHL claimed to have spent US$20 million in 2004 even before the deed of sale was finalized, to rehabilitate the plant then promised to invest $15 million in 2005, and another $10 million in 2006 (Philippine Daily Inquirer, 13 September 2004).

Annotation : Conflicting news reports or press releases have indicated wherein the working capital and funds for rehabilitation of NSC ranged from as low as US$20M to as high as US$700M. This blog, The Grey Chronicles, already asked: So what happened to the $700 million? During the most recent JPEPA uproar, the same issue regarding GSPI’s plant investment cropped up again.

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Break Even on First Year, $850 Million Revenue on Second Year

“The company was optimistic it would break even within the year [i.e., 2004] and generate $850 million in revenue in 2005. … NSC [or appropriately, GSPI] could generate 750 million dollars in annual revenue and contribute about four billion pesos per year to the country’s gross domestic product.” (Philippine Daily Inquirer, 2004)

Annotation : It took four years for GSPI to break-even. As there are no published and audited financial statements coming from GSPI, your guess on its revenue is as good as mine. Only an inkling is given:

Global Steel Philippines Inc. is looking at posting profits for the first time since taking over the steel manufacturing complex of the defunct National Steel Corp. in Iligan City in 2004. … “We will be on the black. We will go positive this year,” said Lalit Kumar Sehgal, managing director of Global Steel, “Our parent company will be condoning the interest and penalties. It is considering to convert into equity all loans and advances extended to us,” (The Manila Standard, 2008). [Emphasis added.]

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In his speech delivered during the inauguration of the National Steel Corp. plant in Iligan City on Feb. 3, 2004, Pramod Mittal (2004) said:

“But to turn around NSC will require more than the will to do so. It needs continued and consistent governmental support and a level playing field. … For NSC to sail and successfully face the choppy waters of global competition. Each side has to commit in full sincerity, for it’s partnership in progress. … Our vision is not restricted just to get NSC operational. The real challenge lies in its growth, debottlenecking trapped capacities and challenging the limits of it’s mills up to two million tons per annum successfully, within the shortest schedule, unbundling the knowledge and latent talent of its employees. ” [Emphasis added.]

Annotation : So what is meant by governmental support? On 30 May 2005, Dennis D. Estopace And Niel V. Mugas, reporters for The Manila Times, exposed that government rules were bent for GSPI, even from the start. On February 2008, Environment and Natural Resources Secretary Joselito Atienza announced that GSPI is considering investing in iron, nickel mining, with initial an investment of possibly $1.6 billion. “Global Steel wants to mine for these minerals to locally supply raw materials to its planned integrated steel plant in the country,” Atienza said in an interview (The Philippine Daily Inquirer, 2008). This blog already addressed the issues on the proposed Blast Furnace and the enabling platform GSPI needed. A level playing field? Take a look at GSPI’s persistent requests on the restructuring of the tariff schedule!

I just hope, GSPI would not prove the cliche that promises are made to be broken!

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Notes:

CRU International Limited (2005). Steel Sheet Quarterly January 2005 Statistical Review. Place: CRU International Ltd, 2005. p. S114. back to text

Flores, Alena Mae S. (2004). Economic zone status eyed for NSC , Online. Manila: Manila Standard Today, 05 February 2004. back to text

Go, Marianne V. (2005). Global Steel accuses FGI of mounting ‘villification [sic] campaign’. Manila: The Philippine Star, 09 July 2005. back to text

Go, Marianne V. (2007). Global Steel to export to Brazil. Manila: The Philippine Star, 25 January 2007. back to text

Manila Bulletin (2006). BoI to validate Global Steel exports., Online. Manila: Manila Bulletin, 07 June, 2006. back to text

Mittal, Pramod (2004). Rebirth of National Steel Corp.a landmark event, Speech delivered by India’s Ispat Group chairman Pramod Mittal during the Inauguration of the National Steel Corp. plant in Iligan City on Feb. 3, 2004. Place: The Philippine Star, 08 February 2004. back to text

Osorio, Ma. Elisa P. (2007). Global Steel sees 80% export growth. Manila: The Philippine Star, 23 March 2007. back to text

Philippine Center for Investigative Journalism [PCIJ] (2006). 100 Biggest Projects Arroyo Administration. Manila: PCIJ, 13 August 2006. pp. 1 – 3. back to text

Philippine Daily Inquirer (2004). President backs ecozone bid for National Steel plant. Manila: Philippine Daily Inquirer. 05 February 2004. back to text

Ramos, Elaine Ruzul S. (2008). Global Steel set to book profits for the first time. Online. Manila: The Manila Standard Today, 13 August 2008. back to text

Remo, Amy R. (2008). Global Steel may go into iron, nickel mining, readies $1.6B. Manila: Philippine Daily Inquirer, 27 February 2008. back to text

Rimando, Lala (2004), A sleeping giant wakes up, Manila: Philippine Daily Inquirer, 13 September 2004. back to text

Southeast Asia Iron and Steel Institute [SEAISI] (2008). Update of Steel Import Export in ASEAN (Philippines) Jan-Sept 07. Jakarta: SEAISI, 2008. back to text

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