The Economic Co-ordination Committee (ECC) of the Cabinet is set to extend GoP guarantee of Rs 2 billion to Pakistan Steel Mills (PSM) till January 4 next year, officials told Business Recorder on Saturday. PSM suffered heavy losses during 2008-09, resulting in a serious liquidity crunch, and requested GoP for a bailout package of Rs 20 billion in 2009: Rs 10 billion for capital injunction and Rs 10 billion as bank loan.
As per the letter of comfort of June 15, 2009, the government approved financing facility of Rs 10 billion ie, term loan of Rs 8 billion and Rs 2 billion running finance facility on yearly rollover basis. The National Bank of Pakistan (NBP) allowed both facilities which were availed by the PSM. The period of GoP guarantee, previously availed, was provided by the GoP but guarantee is required from January 5 this year till January 4, 2013.
According to PSM Chief Executive Officer (CEO), running finance facility is vital for the Mills and the amount of Rs 2 billion was utilised by January 4, 2012 for retirement of L/C documents. The facility will be discontinued by NBP in case the GoP guarantee is not received and PSM will be asked to repay Rs 2 billion to settle the issue, which is not possible for the Mills at this stage, the sources added.
The Management claims that PSM is already facing serious liquidity crunch and arguing that it is essential that the running finance facility is continued to keep the Mills running. In the light of Finance Division’s Office Memorandum (OM) of June 2009, the facility extended by the bank on yearly rollover basis. Previously GoP guarantee of Rs 2 billion for PSM was renewed by the ECC on November 11, 2011 with the blessings of Finance Division. The Ministry of Production has sent a summary to the ECC for renewal/ extension of GoP guarantee.