Pakistan Steel Mills (PSM) Board of Directors (BoD) is scheduled to meet Tuesday (today) with Secretary Industries and Production, Shafqat Naghmi, in the chair to finalise future strategy for the ‘sinking’ entity. The strategy will be submitted to the federal government for final approval.
A three-member committee comprising Shah M Saad Hussain, Asad Ali Khan and Engineer Abdul Jabbar Memon will present its report to the Board on way forward for the PSM. Finance Minister Senator Ishaq Dar has already assured the IMF that the loss-making PSM will be privatised as the earliest. Three options, sources said, are expected to be considered by the Board – liquidation, revival or privatisation – with main focus on revival of the mills either through bailout package or through the private sector, which intends to extend material support to the mill.
The sources said work on liquidation can start immediately after appointment of a liquidator. While there are likely political and human fallouts of this option, it will nonetheless save the government from future liabilities. This will cost the government Rs 40 billion and if the government keeps the mill barely alive by following the status quo, it will cost Rs 57.25 billion in next 18 months.
Three private sector parties – M/s Stemcor, M/s Siddiq Sons and M/s Cargill – have already submitted their proposals for financing provision of basic raw materials. The three-member committee has considered private sector proposals, terming them feasible for revival of the mills. M/s Stemcor has presented the following proposals; (i) in case raw material (coking coal and iron ore) be arranged, the company will get clearance from PSM regarding origin of shipment and specifications of material. The material to be arranged for this mode will follow international index, ie, PLATTS and the price to be charged will be an average of one month from the Bill of Lading (BL).
The mark-up rate should be 7.5 percent. However, PSM is of the view that it should be libor + 2 percent. The pledged material will be issued for use by PSM and the payment will be effected in 75 days from the issue of material. Material to be supplied in 75 days, credit will be $25 million or half of the guarantee to be provided by the GoP/NBP.
M/s Siddiqsons also intends to finance supplies of both the raw materials keeping in stores, in transit and at shipment stages to the extent of Rs 2.5 billion for 45 days against bank guarantee to be established by NBP.
Siddiqsons Limited intends to purchase finished product from PSM as well, on prices agreed between both the parties. The agreement will remain valid for a period of one year, and encompasses the following contracts to be finalised between both the parties. Payment terms will be as follows: (i) Siddiqsons Limited will supply iron ore and coal to the extent of Rs 2.5 billion on credit for a period of 45 days starting from the receipt of material at Port Qasim, Karachi; (ii) further quantities shall be supplied upon receipt of payment in shape of cash or finished product to be agreed between both the parties; (iii) PSM shall pay for the supplied goods in 45 days from the date of receipt by PSM; (iv) PSM may ask Siddiqsons Limited to release iron ore and coal as and when required and shall credit equivalent amount for PSM and will release further material to PSM; (v) Siddiqsons will issue invoice for the value of such quantity to PSM on the following options for payment (i) to settle invoice in case within 15 days from receipt of invoice and; (ii) to supply finished product to Siddiqsons Limited as per contract signed by them.
After receipt of cash amount/finished product by Siddiqsons Limited, PSM will ensure lifting/consumption of material within 45 days from arrival and will make settlement in the form of cash or finished product. PSM will pay interest on the invoices value of each shipment @3 month kibor +2 from the arrival date/receipt at PSM. According to Siddiqsons, the proposed arrangement will ensure 70-80pc capacity utilisation of PSM, which will save PSM to incur further losses which are presently been accumulating to Rs 100 billion as per information available to media and will stop incurring future losses.
M/s Cargill International Trading Private Limited (CITPL) has proposed to sell iron ore (as an exclusive supplier) to PSM at a mutually agreed price which may be linked to an international index (s) for iron ore or a negotiated fixed price. In return, PSM will pay through finished products at a fixed price adding the price of its iron ore purchase. The steel produced will have to meet international quality standards and be made available or delivered at a port of delivery/destination to be agreed between PSM and CITPL.
According to the proposed agreement, PSM will post a bank guarantee for $50 million through a mutually acceptable bank. The bank guarantee will only be a “backstop” arrangement and CITPL will encash it only in the event of delay in production schedule or the product manufactured not meeting the requisite pre-agreed quality standards.
“In the event of Cargill taking delivery of steel, the title will be passed to CITPL and PSM’s iron ore purchase obligations to CITPL will stand discharged for an equivalent value,” the sources quoted the company as proposing in its letter. In case of an agreement between the PSM and Cargill, arrangement will be executed through 2-3 trail shipments before initiating a long-term contract. Sources in the Ministry of Industries and Production are of the view that it is unclear whether the Government of Pakistan (GoP) considers the recommendations of PSM Board or not, adding that both the mill’s management and the Board are equally responsible for destruction of the national asset.