International Industries Ltd

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	26753
Company name	International Industries Ltd
Country	Pakistan
Sector	Primary Metals
Environmental category	B
Department	Global Manufacturing & Services
Status	Pending Disbursement

Date SPI disclosed	April 22, 2008
Projected board date	May 29, 2008
Previous Events	Signed: June 27, 2008 Approved: June 16, 2008

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The downstream steel project comprises the installation and operation of an integrated 280,000 tons per annum (tpa) cold rolled mill and a 150,000 tpa galvanizing plant in Karachi, Pakistan. The project also includes a captive 18 MW gas fired power plant which is operational and providing power to the national grid. The project would source steel, mainly hot rolled coil, in the competitive world steel market and process it further to make cold rolled coils and galvanized sheets primarily for roofing material. The project cost is estimated at $162 million, including $34 million working capital.

- Purpose of Project:

The project would establish the first privately owned galvanizing sheet plant in Pakistan that would domestically manufacture and substitute 75% of the galvanized sheet that is currently imported. Pakistan imports 200,000 tpa annually or 80% of its requirements. The imports of galvanized sheet into Pakistan are primarily made by individual traders in small quantities which is inefficient and leads to high costs to domestic consumers. The project’s large and modern manufacturing equipment will lead to lower costs to consumers, allow better matching of the market needs through customized products and achieve significant proximity advantage against imports through shorter lead times.

Anticipated development impact of the project

The project will have a strong development impact by locally supplying galvanized sheets that are currently imported, savings over $35 million annually of foreign exchange. Many houses in the coastal regions of Pakistan still use asbestos sheets for roofing, which represents health issues for the society, and which the project plans to replace with galvanized sheets. The project will benefit from the management expertise of a strong sponsor, who has significant technological know-how both in investment and production. It will also create direct job opportunities, for about 500 employees, who will benefit training schemes. Given the limited number of listed companies in Pakistan, the successful IPO of the project will help strengthen the domestic capital market.

IFC's expected development contribution

IFC would be helping a successful company:

- meet the demand of low income groups for cheap roofing material;
- introduce modern technologies which would produce quality products at lower costs;
- invest in a capital program that meets World Bank Group and country standards through IFC’s participation and expertise
- benefit from IFC’s experience in investing in the same industry in other geographical areas as well as IFC’s contacts with successful players in the galvanized sheet roofing market.
- facilitate the successful funding of the project, including IPO given IFC’s presence in the project.

Environmental and social issues - Category B

The project involves development of a single integrated Cold Rolled Coil and Galvanized Sheet plant in a heavily modified peri-urban mixed use (light industrial and some residential) area of Karachi. Key environmental, health and safety and social aspects of the project include:

- management of environmental, health and safety performance at current and planned operations;
- social and environmental assessment of the impacts of the project;
- compliance with the national and local permitting requirements, ability to engage with local communities;
- fair, safe and healthy working conditions in the operation of sponsor’s facilities and construction of the project;
- use of water and energy;
- air emissions from the process and from the power plant, including greenhouse gas emissions, solid waste and by-products management, process wastewater management; and
- noise;
- possible impacts on ambient water and air quality, including noise;
- effects of traffic and labor influx generated by the project;
- impacts associated with land acquisition; and
- possible impacts of construction on cultural heritage.

The approximately 32.4 acre site was formerly state land. The sponsor purchased the entire landholding from a single owner in 2007, on a willing-buyer, willing seller basis. The seller was given the land by the Military Estate in exchange for their land used by the government through the 1940s and ’50s. The transaction did not result in any physical or economic resettlement. Given the current land use of the site and surrounding area, no adverse impacts on environmentally sensitive areas or indigenous peoples are expected to occur. The nature of the project’s operations is such that it will be possible to readily design and implement engineering and management measures to mitigate any adverse impacts that result from the project. Moreover, in light of the fact that mitigation measures can readily be designed, adverse impacts are not expected to be diverse or irreversible and will be limited to project site, and no physical or economic displacement of communities occurred, the project has been classified as a Category B. Full details may be found in the Environmental and Social Review Summary, which is also available on IFC’s website.

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