PH steel sector a regional laggard

In 2003, the Ispat Group of India, which had set up a local unit called Global Steel Philippines Inc. (GSPI), took over National Steel Corp. but failed to complete the necessary payments following an upfront cash out of P1 billion. Creditors had then rightfully withheld the issuance of the title to the assets, prompting GSPI to seek international arbitration. The two parties continued to be in a legal gridlock, thus making plant operations a “near-term impossibility,” according to former NSC officials and industry experts who called themselves “Men of Steel.”

“The privatization of NSC was a good idea, but it was the wrong investor,” said former NSC head Rolando S. Narciso.

“The Iligan facility now looks like a jungle, whereas before it used to be a world-class factory, a state-of-the-art facility that is ready to compete globally. NSC was neglected. Despite the commitment of the private sector investors, the business plan was not continued,” he further said.

The Iligan facility has now been mothballed and abandoned, and faces a takeover from the city government of Iligan, which issued last week the first notice of real property tax delinquency for the said plant, amounting to P4.2 billion.

Orlando Maglinao, former Iligan City Administrator, explained that in a separate phone interview that after the issuance of the first notice, the city government will issue a notice of levy, wherein the affected parties must be able to make the necessary payments within a month. If left unaddressed, the Iligan city government can make a rightful claim on the physical assets of NSC as it has a senior claim over the creditor banks, he added.

Narciso, in a letter to the Department of Trade and Industry last June, urged the agency to address the issue of the Iligan facility being abandoned, noting that government intervention might be appropriate at this early stage. However, a takeover by the state-run National Development Co. (NDC), the parent firm of the NSC, “looks premature.”

Gov’t takeover

“[A takeover] could be misconstrued as a government bailout of underserving investors and creditors who in the first place mishandled the whole thing. Should this prospective takeover be deemed a bailout, then it can evolve into a possible anti-graft case,” the letter stated.

Narciso, however, stressed that the resumption of operations of the Iligan plant should only be part of the solution to an impending steel crisis. While it can jumpstart a segment of the steel sector and close a supply gap issue, it will not address the requirements of the Philippine market, especially amid the forthcoming integration of the regional economy.

In the region, the Philippines lagged in terms of the extent of integration and degree of self-sufficiency when it comes to steel production. In fact, the Philippines cannot claim to any degree of self-sufficiency, unlike Vietnam, which recorded the highest level at 83 percent, followed by Malaysia (57 percent), Indonesia (46 percent), and Thailand (37 percent).

According to industry experts, the steel industries in these four Asean member states have “prominent or dominant” companies leading the way. Malaysia has the Lion Group; Thailand, with the Sahaviriya Steel Industries; Indonesia’s PT Krakatau Steel; while Vietnam has Vietnam Steel Corp., and soon, Formosa Ha Tinh Steel. The same observation applies to other countries such as Korea’s POSCO; Taiwan’s China Steel Corp.; Australia’s Blue Scope; India’s Tata Steel Co. and Steel Authority of India Ltd.; and Japan’s Nippon Steel and JFE. This, however, should not be misconstrued as monopolies.

“This is where the significant presence and industry leadership of the former NSC will be missed badly especially since nobody has taken over that all important role after its decline in 1999 and its collapse in 2009. Since the 1980s and the 1990s, NSC has very effectively performed this role as one of the 11 major industrial projects under the NDC,” the group said in a comprehensive report on the situation of the steel industry.

“The impressive development of the steel industry in these countries took place with extensive government involvement in various ways—equity participation, funding from government financial institutions, infrastructure support, concessional land lease terms, buy local policy on infrastructure requirements,” said the experts who called themselves “Men of Steel.”

Although late in the game, the Philippines can still change its direction and move toward at least a 40-60 percent self-sufficiency in steel production, which according to Narciso, will put the country in a more comfortable position. The target, however, was to supply 70 percent of the local steel requirements by 2030. But getting to that level from practically zero in certain segments of steel production is fraught with so much difficulties and hurdles that resolving this will have to bring in the whole village, so to speak, to raise the industry.

“We should not dream of 100 percent self-sufficiency. The world will always have some excess because if there’s a small lack in supply, we could always make do with what we have. But it’s not good to have zero self-sufficiency,” he added. (To be continued)