KUALA LUMPUR (Dec 11): The Malaysian Iron and Steel Industry Federation (Misif) said today that Megasteel Sdn Bhd's proposal to set up a special purpose vehicle (SPV) for the importation of steel was preposterous.

In a statement today, Misif president Datuk Soh Thian Lai said the proposal is neither feasible nor implementable and would cause irreparable damage to the whole iron and steel industry.

"The proposal should be nipped in the bud and objected outright," he added.

He said this in response to The Edge Financial Daily's cover story today, which quoted an industry source saying that Megasteel was scheduled to meet with senior government officials early next week to propose the SPV.

Citing the source, the report said that there will be three models offered by Megasteel, one of which will involve the government having a 60% equity interest in the SPV and Megasteel the remaining 40% stake.

Another proposal involves imports for the entire steel industry — be it hot rolled coils (HRC), cold rolled coils (CRC), galvanised iron or other types of steel — by the SPV, while there is little clarity on the third option.

Soh said the establishment of SPV is an infringement of the Malaysian Competition Act 2010, especially on abuse of dominant position as Megasteel has associated companies that are also competing with companies down the value chain, which are users of the imported products.

Further, he said the confidentiality of users' information is at risk as the SPV company will know who is the foreign producer and the pricing, creating an unfair advantage for Megasteel over the other product manufacturers.

"There are just too many grades and specifications involving the downstream steel products making the proposal untenable or not implementable," Soh said.

He also highlighted that the SPV may not be able to make a timely delivery to hundreds of industry players from different backgrounds located all over the country.

"This will definitely disrupt the whole industry's production and manufacturing activities.

"The whole iron and steel industry will be in jeopardy, which in turn will have adverse and ripple effect on other linkage industries, such as automotive, oil and gas, electrical and electronic, construction, fabrication, pipes and tubes, boiler and pressure vessels and transportation industries," he added.

Soh also pointed out that fees to be charged by Megasteel or the SPV will cause input cost to be higher, thus affecting the overall competitiveness of the whole iron and steel value chain.

He stressed that the Megasteel's proposal may contravene numerous bilateral, regional and multilateral trade agreements and partnerships, including the pending Trans-Pacific Partnership Agreement and Regional Comprehensive Economic Partnership.

Soh said SPV is usually used as a vehicle for implementing a number of trade policy measures, which might not be consistent with World Trade Organization provisions.

"The most common is a violation of market access obligations," he said.