Conclusion
WHILE recognizing that the vision to integrate the country’s steel production is still far from becoming a reality, the Department of Trade and Industry (DTI) is now taking steps to address the gaps and challenges in the iron and steel industry.
According to a DTI official who is working with the private sector, the agency is in talks with the Department of Science and Technology to conduct studies on the possibility of establishing upstream and downstream facilities for the steel industry.
“We’ve had meetings with the iron and steel industry on July 10 and 14. We’re at the beginning stages, but we need to do studies first to see the technical viability of such a project, since an ISM [integrated steel mill] facility will be very capital-intensive. After that, we determine if it’s economically viable,” said the DTI official, who asked not be named.
The ISM being pushed by the private sector, the source said, is a highly capital-intensive project, so it needs to be “thoroughly studied.”
But, the official said, there are still “no talks” on the suggestion of the iron and steel industry for National Development Corp. (NDC), the investment arm of the government, to reacquire shuttered flat-steel facilities.
The Philippine Iron and Steel Institute (Pisi), in its road map, floated the idea of acquiring the shuttered flat-steel facilities of Global Steel’s plant in Iligan through the NDC, an attached agency of the DTI. The NDC, according to the group, should spearhead projects that basic industries like iron and steel need.
Moreover, the industry is also pushing for the government—through the NDC—to begin feasibility studies on an ISM project, with the aim of using the country’s rich resource of iron ore that could be used for a specific type of steel-making technology.
“There have been several reports of big-volume extraction of iron sands in Region 1. This information has to be investigated further, particularly on the quantity or quality, specific source and size of remaining supply or reserve, because there is a distinct possibility that these materials are suitable,” according to the position paper of steel industry stakeholders submitted to the BOI.
“What we have to do now is to start the feasibility studies so we know what kind of technology to use, and determine the amount of investments we can attract for integration projects,” the Pisi said.
According to the stakeholders’ position paper, the ISM project should be done by the DTI and BOI, the NDC, the departments of Environment and Natural Resources, and Energy.
Pisi officials stressed that with the country’s apparent steel consumption estimated to reach 20 million metric tons (MMT) by 2030, and with the integration of the domestic steel industry far from reality, import dependence is sure to rise—from the present 80 percent to 100 percent.
“We are also looking at specific human-resource skills and competencies that would need to be developed for the industry. The association has provided a list of these skills, which we would discuss with Tesda [Technical Education and Skills Development Authority] and/or CHED [Commission on Higher Education] for possible development of technical skills regulations and consideration in tertiary education [even K to 12] curriculum setting,” said Evariste Cagatan, director for Manufacturing Industries Service at the BOI.
This is in response to a request by the industry, which stressed that if the Philippines were to meet the goal of 70-percent production share in the estimated steel demand of 20 MMT by 2020, studies should be conducted immediately. “We can only know the amount of investments needed and the proper incentives for the industry when these studies are done. The problems are interconnected in the industry,” said Rolando Narciso, former president of the National Steel Corp.
On the issue of incentives, however, Narciso said the present package offered by the BOI. through the Investment Priorities Plan, may not be enough to lure investors.
“The grant of incentives may need to be restructured [e.g., fixed amount, lump sum, front-end; with ‘blossom or perish’ condition] to ensure early and continuous efficiency improvements and avoid prolonged, unnecessary, yearly dole-outs that breed ‘forever’ infant industries,” Narciso said, echoing the position paper of iron and steel stakeholders.
Aside from streamlining incentives to what it considers as “deserving industries,” the iron and steel industry also backs the proposal to give perks to mergers and consolidations among steel firms, to achieve economies of scale and ensure the idle capacities in the industry are used.
With various reforms put forward by the industry, the low-hanging fruit, Narciso said, is working on the “horizontal issues” the iron and steel industry faces with other sectors.
“To get these capital-intensive projects started, we need foreign direct investments, we need foreign players to come in. But with so many hindrances, transportation, infrastructure and electricity costs, how will we entice them?” Narciso rhetorically said.
There is no better time for the government to create an enabling environment than now, stakeholders said, as the Philippines is seen to sustain its growth even as the country’s macroeconomic fundamentals solidify.
As mentioned by industry stakeholders in their position paper: “The steel industry has long understood why its capital-intensive nature has been a big disadvantage in the past several years in a heretofore capital-short country with a relatively small total demand and low steel-intensity…but the Philippines is no longer the sick man of Asia. Gross domestic product is expected to continue its uptrend and the government has a lot of fiscal space…the entire steel industry is now at a crucial crossroads, we must decide which way we turn for economic upliftment.”
Image credits: Nonie Reyes