Steel Asia to invest $1 B for backward Integration scheme

SteelAsia Manufacturing Corp., the country’s largest steel manufacturer, is investing $1 billion, approximately P51 billion, for its own backward integration as it plans to put up its own electric furnace and three mini mills for the production of specialized steel products after it dropped plans to acquire the mothballed National Steel Corp. complex in Iligan.

Roberto Cola, vice-president of SteelAsia, told reporters they have narrowed down their choices to either Batangas or Subic for the new industrial project, which could add another 2 million metric tons to its existing rebars capacity.

He said the company will conduct ocular inspection of the potential sites next week and is expected to make official announcement next month. He, however, said that all mills can be located in the same area. The company has an existing 500,000 ton capacity mini mill plant in Batangas.

According to Cola, the upstream steel integration plant will be using metal scrap as base for their electrical furnace. With the electrical furnace, SteelAsia will produce not just rebars, but sections such as plates, slabs, billets, blooms and plates.

SteelAsia has also Japanese and Italian partners for two mini mills for sections and plates but the rebars will all be company-owned.

Cola also confirmed the company’s decision to drop its plan to acquire NSC in Iligan because of the complicated legal issues hounding the idle and dilapidated steel complex.

“There are just too many parties involved and we have the impression that the local government of Iligan wants all negotiations to go through them,” he said. Their negotiation has gone up to the level of the LGU, NSC receiver Danny Concepcion, and Iligan Mayor Celso Regencia.

Parties involved in the NSC include the creditor banks, lligan LGU, Global Steel Philippines, suppliers, back taxes, and power bills from the National Power Corp.

Back taxes owed to the local LGU have been estimated at R4 billion while the power bills have amounted to R800 million.

All that SteelAsia wanted in NSC was the existing infrastructure particularly the pier and the fact that it is already an industrial zone, but Cola said the convoluted claims against the company have made it impossible for them to pursue the plan.

In addition, he said, the local LGU was asking for “too much.” Considering the legal hurdles and all parties concerned, Cola said negotiations cannot be concluded in 10 years.

SteelAsia wanted to implement the usual terms they used whenever they takeover a plant. They initially planned a lease term depending on the price valuation but they don’t have plans to acquire the facilities which are already in its advanced stage of decay.

“Our plan was to pay for the land and whatever valuation for infrastructure and the reasonable taxes but not the interest that have already piled up over the years,” he said.

They were also willing to pay the back taxes via a settlement agreement as long as they are not that inflated.

“But the LGU was bargaining for something unreasonable, the LGU wanted to be part owner,” he said.

NSC’s facilities went through a privatization process that started in 1995 before it landed in the hands of Global Steel Philippines (SPV-AMC), Inc. and Global Ispat Holdings (SPVAMC) in 2004 for a total price of R13.25 billion, including upfront cash of R1 billion. The remainder was supposed to be paid over an 8-year period.

The sale, however, had gone sour for the Indian owners and the creditors, resulting in law suits.