THE KARACHI STEEL MILL PROJECT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00826A000500010040-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 7
• Document Creation Date: December 20, 2016
• Document Release Date: August 27, 2007
• Sequence Number: 40
• Publication Date: April 2, 1966
• Content Type: IM

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This Document contains information affecting the Na-
tional Defense of the United States, within the mean-
ing of Title 18, Sections 793 and 794, of the U.S. Code, as
amended- Its transmission or revelation of its contents
to or receipt by an unauthorized person is prohibited
by law. The reproduction of this form is prohibited.
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svll~ A3i! UItli I *ado
OCI No. 1166/66
CENTRAL INTELLIGENCE AGENCY
Office of Current Intelligence
2 April 1966
The Karachi Steel :Mill Project
1. Pakistani Finance Minister Mohammad Shoaib
is coming to Washington, at his own suggestion, for
conversations with US officials between 18 and 27 April.
In recent talks with the US ambassador in Karachi, the
pro-Western finance minister has emphasized that the
number-one aim of his trip will be to seek final approval
of an application for a loan of about $85 million by the
Export-Import Bank for construction of a steel mill
project near Karachi. While here,. he also hopes to ob-
tain an additional commodity loan of $80 to $90 million
and to discuss Pakistan's urgent need for wheat and
vegetable oils under PL 480.
2. Plans for the steel mill project date back
to 1961. Over the years, the original concept has
been altered through repeated feasibility studies and
examinations and re-examinations of various aspects of
the plan. As originally conceived, the plant would have
produced some 350,000 tons of steel products per year
and would have cost $136.5 million, of which $67 mil-
lion was to come from an Export-Import Bank loan. By
January 1966, the planned capacity had increased to
450,000 tons per year, and the cost had been revised
upward to $260 million. The total US contribution
would be $120 million, of which $85 million would be in
the form of an Export-Import Bank loan.
3. Pakistani leaders from the beginning have
regarded US participation in the project as vital.
In the period since 1961, however, US-Pakistani re-
lations have deteriomated markedly and officials in
Karachi increasingly have accused the US of with-
holding assistance for the steel mill project on
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political, rather than economic, grounds. Shoaib
recently stated that he has been informed the project
is technically ready for approval and that only a
"political" decision by the US Government is required
for final authorization by the Export-Import Bank.
4. Shoaib timed his trip to the US to fall only
two weeks after Indian Prime Minister Gandhi's visit
to Washington and approximately one month before he
must prepare the Pakistani budget for fiscal year 1967
(beginning 1 July 1966). He apparently hopes that
after Mrs. Gandhi's visit, which followed one by Presi-
dent Ayub last December, the US will be in a position
to make important decisions on economic assistance
programs for South Asia. Decisions on new economic
aid pledges for India and Pakistan were suspended in-
definitely last autumn during the Indo-Pakistani hos-
tilities.
5. Shoaib hopes that upon his return from Wash-
ington he will be able to announce approval of the
steel mill loan. He claims such approval would have
a profound political effect on US-Pakistani relations.
The embassy in Karachi gives support'o his view,.-
term-ing authorization of the steel mill project of the
highest priority from the point of view of an impact
on the general public and key government members.
Shoaib complains that continuing delay is proving an
embarrassment to those in the Pakistani Government
endeavoring to preserve a pro-US orientation. He
warns that Karachi is committed to go through with
the project and will have to look elsewhere for fi-
nancing if the US cannot come through.
6. The AID director in Pakistan, in discussing
the upcoming trip with Shoaib, warned him that the
resumption of full-scale US economic assistance is
dependent on evidence that Pakistan's political ori-
entation is toward the West, not Communist China,
and that Pakistan must be prepared to assign highest
priority to its economic development program. US
officials have expressed concern to Shoaib and other
cabinet members over the proposed levels of defense
expenditures for next year, which can be attained
only through use of funds which would otherwise be
assigned to economic development. Pakistan's flirta-
tion with Peking has been given wide publicity recently
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by the red-carpet treatment accorded Communist China's
President Liu Shao-phi during his visit to West Paki-
stan. There is some evidence, however, that the
Chinese visit, apparently arranged last December, is
causing embarrassment and concern among Pakistani
leaders at a time when they are pushing for renewal
of US economic assistance.
25X1
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