New plant will cut Perwaja's reliance on imported pellets

KEMAMAN: Perwaja Holdings Bhd's upstream investment in an iron ore pelletisation plant will help save at least 15 per cent in production cost in the medium-term, said executive chairman Tan Sri Abu Sahid Mohamed.


He said the new plant will improve Perwaja's operational efficiency and reduce its dependency on imported iron ore pellets.

"Every year, we import two million tonnes of iron ore pellets from Brazil, Chile, Bahrain, Mexico and Sweden," Abu Sahid told visiting reporters after Terengganu Menteri Besar Datuk Seri Ahmad Said officiated at the pellet plant groundbreaking ceremony here, recently.

Also present at the briefing were Perwaja managing director Tan Sri Pheng Yin Huah and chief executive officer Datuk Henry Pheng Chin Guan.

Perwaja is borrowing RM200 million from RHB Bank, Standard Chartered and OCBC Bank to fund the RM400 million pelletisation plant in Kemaman.

The plant construction will be carried out in two phases. The plant will eventually be able to process 2.4 million tonnes of iron ore pellets annually.

In the first phase, the plant, which is scheduled to start operation by mid-2012, will have an annual capacity of 1.2 million tonnes. The second phase should be completed by the end of 2013.

Asked on the energy tariff hikes, Henry Pheng said Perwaja is paying the new rates.

"We're prepared for it. With the new pellet plant coming on stream a year from now, we should be able to bring down production costs," he added.

The government had, since June this year, raised electricity tariffs for industrial, commercial and domestic consumers by an average of 7.12 per cent. There is also a 20 per cent price hike for natural gas across industries.

Heavy gas users like some steel millers, who consume more than two mmscfd (million standard cu ft per day), now pay RM18.35 per mmBtu (million metric British thermal unit) instead of RM15.35/mmBtu previously.

Two years ago, Petroliam Nasional Bhd filed a court case against Perwaja for unpaid gas bills amounting to RM85.7 million plus interests. Perwaja, in its defence, said it had made full payment to Petronas based on international market natural gas price less the discount accorded by the government.

"While the court case is still pending judgement, we cannot speculate or comment on the old gas bills. Meanwhile, we continue to pay our electricity and gas bills at the new tariffs announced by the government," Henry Pheng said.

Perwaja Holdings is 37 per cent owned by Kinsteel Bhd. Kinsteel controls 51 per cent of Gurun factories via Perfect Channel Sdn Bhd.

On whether Kinsteel has any plans to relocate the bulk of its steel milling operations in Kedah to Terengganu to cut transportation costs, Yin Huah, who is also managing director of Kinsteel said, "Two years ago, I was asked this question and the answer is there's no plant closure. We continue to operate as usual."

Henry Pheng, who is also Kinsteel chief executive officer, explained that the Gurun plant in Kedah, which employs 500 local skilled workers, halts production from time to time for safety maintenance, due to the government requirements.