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PSM sell-off moves a step closer




  • The Econo-mic Co-ordination Committee (ECC) of the Cabinet has rejected the revival/restructuring plan of Pakistan Steel Mills (PSM) to prepare it for privatisation, after the Secretary Industries and Production, Shafqat Naghmi, who is also Chairman of PSM BoD, backed by other ECC and Board members did not extend support to the ”Option No 5” of the summary. 

    In the ”Option No 5”, the MoI&P had recommended restructuring/ revival followed by privatisation of PSM within 12 months. The cost of ” Option No 5” was Rs 113.539 billion, of which Rs 19.1 billion was proposed as a cash injection, Rs 11.167 billion for VSS, Rs 11 billion as a non-cash facility, Rs 62.712 billion for parked loans and Rs 6.56 to pay SSGC”s LPS. The management had estimated Rs 12 billion loss during one year starting from January 1, 2014. This option aimed at utilising the time between now and the final phase of privatisation to revive its activities. The sources said the presentation was made by the Secretary MOI&P who at the very outset said the problems in PSM are high mismanagement including more than 1400 officers employed in violation of the sanctioned strength. 

    He said the management has also unionised lower staff at the behest of CBA, which is a main problem in PSM. He also briefed the ECC that there are more than 2500 officers who are just matriculate and highly unqualified for being officers. Naghmi pointed out that such a gigantic engineering project has only 300 engineers. He added that there is no succession plan and very soon 1500 experienced people will superannuate; productivity and production is at the lowest level and surprisingly cost of staff and officers is almost the same as take home salary.

    He suggested that for any way forward 4,000 employees need be taken out of PSM immediately before privatisation, which is the only solution to the problems of PSM. The present capacity utilisation is almost nil and reported as 1 1/2 %. He further told the ECC that the plant is more than 30 years old and cannot sustain a high production level without a massive investment which is required for capital repairs. Similar arguments were also advanced by Saad Hussain, a BoD member. 

    Secretary Industries, who reportedly prepared the summary himself further said that the inefficiency of the plant has peaked and converting cost of steel is Rs 4000 per ton while steel conversion by other manufacturers in our market is Rs 1000 per ton. He said that in such a situation, Steel Mills cannot sell its product in a competitive market. 

    He further informed the ECC that PSM used to be in the billet market and nowadays it has no presence in this market. Sustainability of PSM is highly questionable with an accumulated liability of Rs 106 billion. PSM management has used the provident fund and gratuity fund of employees which is about Rs 30 billion. At this finance minister and other ministers intervened and termed it “criminal” on the part of management that should be charge-sheeted. 

    “We cannot run this mill and privatisation is the only way out, which was also supported by one member of BoD from PARCO Refinery who is the Director of PSM Board and General Manager in PARCO,” the sources claimed. According to sources, arguments of BoD members convinced all the ECC members that PSM should be sold as early as possible. 

    “After the arguments of Saad, Finance Minister asked the ECC members for further comments, but no one spoke against immediate privatisation of PSM,” the sources maintained. Secretary Finance, sources said, suggested that PSM should be treated like PIA, adding that the government should go for privatisation as PSM as is included in the list of 32 companies. 

    He said that restructuring should be undertaken before privatisation only on the working of Financial Advisers (FAs) appointed by the Privatisation Commission. “We should ask PC to proceed with privatisation of PSM,” the sources quoted Secretary Finance as saying. 

    The representative of State Bank said that PSM is a risk for all the banks and no bank will lend any money to PSM. Muhammad Zubair, Privatisation Minister stated that the government should not waste any time and initiate the privatisation process within 15 days for the appointment of FA. He, however, suggested that monthly salaries should be paid. 

    Shahid Khaqan Abbasi, Minister for Petroleum and Natural Resources, said that PSM is no more a strategic asset and no further money should be poured in it. The Finance Minister suggested to form a committee comprising Privatisation Minister Muhamamd Zubair and Secretary Industries to work out suggestions and recommendations for the next ECC meeting and the Cabinet as demands are very high in all the five options. 

    “Saad Hussain”s opinion was that any investment consideration for PSM is full of risks, and Secretary MOI&P concluded the same and has called it non-going concern supporting privatisation as the Ministry cannot run the PSM fairly,” the sources further added. Minister for Industries and Production Ghulam Murtaza Jatoi informed the meeting that any closure or restart has a cost of Rs 50 billion which should also be kept in mind. He further revealed that tenders are being floated inviting private sector to provide raw materials in exchange for finished products or some in-between transaction. 

    Copyright Business Recorder, 2014

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