Pakistan Steel Mills (PSM) management has accused the federal government of extending commercial loans at ”exorbitant rates” under the guise of bailout packages in violation of SBP rules, sources close to acting CEO, PSM told Business Recorder. The sources said PSM from the financial year 2000-01 to 2007-08 was earning sustained profits. However, in 2008-09 steel products” prices in international market fell sharply, but PSM could not respond appropriately/timely to market dynamics.
PSM management, sources said, deliberately kept the corruption of Rs 26 billion of previous management in connivance with the private sector including dealers” network from the public. Both the National Accountability Bureau (NAB) and Federal Investigation Agency (FIA) investigated the scam but no tangible results were achieved.
The sources further stated that due to subsequent liquidity crunch, PSM could not procure sufficient raw materials to continue the required production capacity.
“The GoP helped PSM but due to increasing liabilities and delay in the release of finance facilities the raw materials chain could not be restored,” the sources continued.
According to sources, various bailout packages totalling Rs 40.507 billion against a demand of Rs. 83.873 billion were commercial loans at exorbitant interest rates, and could not restore the chain of raw materials and failed to revive the mills operations due to the following reasons: (i) amount of bailout sanctioned was much lower than the amount worked-out/demanded for revival of mills operations; (ii) interest against loans was clubbed into a new loan against prudential and SBP regulations; (iii) only limited amount was available in every bailout for procurement of raw materials which was insufficient to streamline the mills production capacity; (v) increasing losses and liabilities due to heavy fixed costs and operations at low capacity; and (vi) timely procurements could not be made due to liquidity crisis.
The sources said, Ministry of Industries and Production initially submitted a summary for consideration of ECC on 26th August, 2013, for providing financial assistance to PSM amounting to Rs 28.49 billion in one go. ECC, however, advised MOI&P to rework the requirements in consultation with stakeholders taking a holistic view and to present a revised plan before ECC.
In light of ECC”s directives, MOI&P and the Finance Division finally drafted a relief package of Rs 3.327 billion for PSM covering salaries (Rs 2.740 billion) and working capital (Rs 587 million) for a three month period from September to November 2013.
The business plan submitted to ECC on 7th September, 2013 was based on the assumption that financial arrangement for procurement of raw materials would be made through local and international agencies within three months. However, ECC approved a package amounting to Rs 2.9 billion for payment of salaries to employees, clearance of critical liabilities and working capital.
ECC, in its meeting on January 16, 2014, presided over by Finance Minister Ishaq Dar, rejected the revival package for the PSM and just approved a package consisting of salaries of 45 days for the employees from October 15, 2013.
The committee also decided that pending privatisation of the PSM, its restructuring exercise should continue in the transaction period for which PSM should prepare the plan and share with the Privatisation Commission (PC) and Ministry of Industries and Production.
PSM, however, has been allowed to mobilise loans with a GoP guarantee to continue with its operations to the extent possible.
