Sri Lanka relaxes opposition to foreign steel production investments

Sri Lanka could relax its restrictions on foreign investment in the steel industry as construction projects to build 35,000 hotel rooms across the country by 2016 get under way.

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The Sri Lankan government announced last June that it would curtail steel-related foreign investments to encourage local manufacturers to create locally-owned steelmaking capacity, but the hotel-fuelled construction boom is generating demand that local producers could struggle to meet.

While the government’s decision still stands, there is no blanket veto on foreign investment in the country’s steel sector, government spokesman and mass media and information Minister Keheliya Rambukwella said.

“We arrived at the decision to curtail steel-related foreign investments after obtaining expert advice. At the moment the industry is very healthy but we are also very mindful that there can be times when the industry could see a dip,” he said.

“We are aware of changing times and requirements, and so we are taking every proposal and offer on a case-by-case basis without rejecting foreign-funded projects outright,” he added. “That being said, we won’t allow anyone and everyone to put up steel manufacturing plants in the country.”

Rambukwella’s comments come as Izhar Steel, one of Pakistan’s largest re-fabricated steel building and structural steel companies, has expressed interest in a joint venture with a Sri Lankan partner.

Meanwhile, a former minister of commerce, Ravi Karunanayake, expressed concerns over the government’s hard line on foreign investment, which he said could be detrimental to the industry and anti-competitive.

While emphasising that local production should be encouraged and promoted, Karunanayake said that healthy competition was essential and that the country should not isolate itself from the rest of the world when attempting to boost local production.

“Such haphazard moves mean we are going back beyond the Stone Age,” he added.

But industry expert Pramuk Dediwela, director of Alumex Group, said that he supported the government’s decision to curtail foreign investment in the country’s steel sector, but that not all foreign investment should be excluded.

Sri Lanka does not possess sufficient expertise to develop a comprehensive steel sector without overseas help, Dediwela said, and foreign investments should be allowed for export-oriented projects aimed at supporting and developing local industry, but not for production that would create competition.

In the last two years, several local companies have expanded operations to try and meet the growing steel demand.

Sri Lanka’s leading steel producer, Ceylon Steel, invested $7 million in a specialised manufacturing mill in Athurugiriya, 20km from capital Colombo, to produce galvanized iron pipes.

The company produces over 11,000 tpm of steel which results in Sri Lanka saving at least $40,000 in foreign exchange, according to a spokesman.

SR Steel invested $3 million last year to install a new plant in Bopitiya, about 26km from Colombo, which is expected to produce 30,000 tpy of TOR steel bars and thermo-mechanically treated steel bars using steel scrap as a feedstock.

Meanwhile, a new heavy industry zone in the eastern province of Sri Lanka is opening the way for fresh steel investments.

Dilip Samarasinghe, director of media and publicity of the government’s board of investment (BOI), said that pipeline steel is becoming an important requirement in the country’s infrastructure projects and that the new project would include steel-related foreign investments.

“The BOI-approved Gateway Project in Sampur will house a significant number of privately operated plants including steel plants,” he said.

At a cost of $4 billion, the zone will include a deep water jetty and a stockpile yard, as well as an iron ore production plant. The project will also see a shipbuilding and repair facility, a machinery manufacturing plant, an automobile assembly plant and several smaller support industries, which will be constructed over three phases on more than 800 acres of land.