950821

Lahore smelters accuse

shipbreakers of short

declaration

RECORDER REPORT

KARACHI: The Central Board of Revenue may lose Rs. 2 billion in revenues in the form of central excise duty (CED) from the ship breaking industry because of incorrect statement given by them to the CBR regarding the availability of ship-plates from large vessels, according to Lahore Steel Melters Association (LSMA) CED at 5 percent on ship-plates is likely to yield the government only Rs. 120 million.

LSMA has accused ship-breakers of giving false statements to CBR which state that only 60 percent ship-plates come out as against the actual 90 percent, from very large vessels.

According to LSMA's findings the stocks on the ground have been mis-declared. Gadani customs have detailed tonnage of scrap vessels against which customs duties have been deferred. Also all the banks have registers on each yard at Gadani which gives the physical tonnage present on each yard and every ton of ship scrap/ship-plates is under pledge with the banks.

The present price of Pakistan Steel Billets is Rs. 15,600 per ton and the price of ship-plates, as admitted by shipbreakers is Rs.12,500 per ton (inclusive of Rs.500 as Excise Duty at 5 percent). Hence there is a difference of Rs.3,000 per ton between two similar raw materials namely Steel Billets and ship-plates, used to produce the same endproducts, i.e. Steel Bar (SARIA).

There is a compelling case for the Government to raise CED from 5 percent to 25 percent so that prices of Steel Billets and ship-plates are equalised. This way the government will be able to raise almost Rs.2 billion from CED from present ground stocks as well as from imports during 1995-96. Unless this is done, shipbreakers will make a windfall profit of over Rs.2 billion and will also force steel melters and billet/ingot re-rollers out of business and render thousands of workers jobless.

This windfall of Rs.2 billion will go directly into the pockets of shipbreakers and re-rollers based on ship-plates and at the same time render melters and re-rollers of ingots/billets unviable uneconomical and lead to closure of industry. Quite a few re-rollers based on Ingots/billets in Karachi will become "sick" units and shutdown causing massive unemployment and unrest in Karachi which is already burdened with problems. Experts in steel industry are of the opinion that the government should not take this matter very lightly and must take the matter to its logical conclusion i.e. equalising the price structure between billets/ingots and ship-plates, LSMA said.

The Government gains three folds:-

Firstly: Government will get additional revenues of Rs.2 billion in 1995-96, Secondly: With the equalisation of prices of billets with ship-plates, the survival of the ingots/billets based on re-rolling mills will be ensured and Thirdly: Government's action will give strong signals to the entrepreneurs that equal competition will be provided, and that survival of the fittest would be made possible.

The steel sector has not received the attention that it deserves. As a first step, experts argue, the Government should ensure that the prices of all the three raw materials from which the same finished product, namely Steel Bars (Saria) and using the same process are equalised. Duties, taxes, sales tax, CED should be structured in such a way that prices of ship-plates are raised by levy of CED whenever Pakistan Steel increases its prices. This will give the government revenues which are badly needed. This will also help to keep anomalies under control and ensure healthy and fair competition in the steel sector.

As a second step, the government should appoint a Steel Commission which would hold public meetings and identify the problems faced by the steel sector, and submit solutions to the government for implementation. The Commission should include experts from the Private Sector and Public Sector and have the authority to call foreign experts, if necessary.

LSMA said that mopping up of Rs.2 billion is essential to meet Governments' revenues as well as to ensure fair and equal competition for all the sectors of the steel industry.