Economic Co-ordination Committee (ECC) of the Cabinet which is scheduled to meet on Tuesday (tomorrow) is likely to endorse the long due bailout package of Rs 14.6 billion for the loss making Pakistan Steel Mills (PSM). The package includes commercial funding of Rs 8.5 billion, Rs 5 billion already approved by the ECC and linked with the appointment of new CEO and Rs 1 billion as an interest free loan as a special case to clear SSGC liabilities, sources close to Minister for Production told Business Recorder.
Of the total package Rs 3 billion will be utilised to purchase raw material, Rs 8.5 billion for immediate liabilities creditors accrued and other liabilities, Rs 2.1 billion to pay mark up of one year on loans of Rs 17.5 billion and old liabilities of SSGC Rs 1 billion. PSM which is operating on Rs 1.5 billion per month loss due to non availability of required financing for the last several months is now being headed by a retired Major General with no relevant qualifications or experience. NAB has issued notices to dealers and PSM continued to bleed. Finance Ministry is also being accused of destroying this national asset by blocking approved funds, said one of the insiders on condition of anonymity. Pakistan Steel Mills earned profit from 2000 to 2008 amounting to Rs 19 billion. In the said eight years the average capacity utilisation was 88 percent and earned an average profit of more than t
wo billion per annum. In 2003 and 2008, PSM paid principal amount of loan of Rs 11.35 billion and Rs 3.5 billion respectively from its own resources. PSM suffered losses to the tune of Rs 26.5 billion during 2008-09 followed by a loss of Rs 11.5 billion in 2009-10 and Rs 12.4 billion in 2010-11 and its capacity utilisation on average was 40 per cent and 36 per cent respectively. The Business Plan for revival of the mills was approved by the ECC on December 1, 2011 which shows the projected loss for the year ended June 30, 2012, amounting to Rs 10 billion on the assumption that the funds of Rs 11 billion will be disbursed in one go. But in reality only Rs 6 billion were disbursed during a period of four months which resulted in a loss of Rs 21.399 billion. During the current year, due to financial crises, it continues to suffer losses because of non availability of required funds for purchase of raw materials and its capacity utilisation reached the lowest level ever of 15 per cent during May and June 2012. The sources said the Federal Cabinet on April 25, 2012 had directed the Minister for Production Anwar Ali Cheema and Finance Minister, Dr Abdul Hafeez Shaikh to sit together, along with newly appointed CEO of Pakistan Steel Mills and chalk out modalities as to the implementation of the proposals.
The main features of the summary considered by the Cabinet on April 25, 2012 were as follows:
(i) Finance Division be instructed to release immediately balance amount of finance facility of Rs 11 billion as per conditions mentioned in the Business Plan;
(ii) an additional Rs 4 billion loss should be covered by way of injection of GoP equity and Finance Division be instructed for urgent disbursement of this amount;
(iii) SSGC may be instructed to allow PSM for payment of its outstanding bills amounting to Rs 5 billion in instalments of 110 million per month from October 2012 and waiving off surcharge thereon amounting to Rs 1.5 billion;
(iv) FBR may be instructed to resolve the tax issues with PSM as contained in the approved Business Plan to provide level playing field for all stake holders;
(v) PSM to receive enhanced credit ceiling of Rs 3 billion for L/Cs as required by NBP( for recurring purchases of raw material for production of mills). No loan/ GoP guarantee is required- payment of mark up on fresh financing ( Rs 6 billion plus 5 billion ) to be borne by GoP for initial 3 year- tentative amount for which budgetary allocation is required to be made by the Finance Division on yearly basis. In a meeting of Cabinet Committee on Restructuring in its meeting on June 28, 2012, PSM submitted a Business Plan based on 63 per cent capacity utilisation for 2012-13. During the discussion, it was agreed to achieve average capacity utilisation of 50 per cent to 55 per cent for 2012-13, following a more flatter trajectory for revival.
The following funding requirements of PSM to achieve capacity utilisation of 50 per cent during 2012 were discussed in detail:
(i) raw material Rs 3 billion;
(ii) immediate liabilities creditors accrued and other liabilities Rs 8.5 billion;
(iii) mark up for one year on loans of Rs 17.5 billion- Rs 2.1 billion and old liabilities of SSGC Rs 1 billion, totalling Rs 14.6 billion. According to sources, CCoR agreed to provide Rs 1 billion to PSM as an interest free loan as a special case to clear SSGC old liabilities. CCoR also agreed to commercial funding of Rs 5 billion already approved by the ECC as part of early bail out package and MoP will now solicit approval of ECC for commercial funding of Rs 8.6 billion including mark up for 2012-13.
Quarterly release of funds will be as follows:
(i) Rs 2.5 billion will be paid in October 2012 for L/C default;
(ii) to pay bills, KESC, water, PQA- Rs 750 million in July and Rs 150 million in October;
(iii) salaries and wages- Rs 900 million in July and Rs 700 million in October ;
(iv) payables to provident fund trust Rs 450 million in January 2013;
(v) gratuity payables ( February-12 to June 12) Rs 300 million in July;
(vi) mark up on loans Rs 450 in October, Rs 2.150 billion in January and Rs 2.150 billion in April 2013;
(vii) working capital for raw material Rs 1.850 billion in July, Rs 1.250 billion in October.
The total funding requirement is Rs 13.6 billion which will be arranged by commercial banks. SSGC old liabilities by MoF Rs 1 billion ie Rs 300 in July, Rs 300 in October 2012 and Rs 400 million in January 2013.
Copyright Business Recorder, 2012