ISLAMABAD, Dec 30: The Privatization Commission (PC) has allowed the Employees Management Group (EMG) of Pakistan Steel Mills Corporation (PSMC) to take part in its privatization process for which the scheduled bidding on January 16, 2006 has been delayed for two weeks.

Official sources told Dawn that the PC has sent a fax message to the management of the PSMC on Friday, according to which now there would be a pre-qualification meeting on January 16, 2006 instead of the bidding in order to judge the worth of the EMG.

However, they said that bidding of Pakistan Steel will certainly take pace before January 31, 2006 as the process cannot be further delayed after the short-listing of six prominent companies interested to take over the PSMC.

The sub-committee of the PC, headed by Mr Iftikharul Haq and having Ch. Hafeez and Zahid Aziz as its members, has sympathetically considered the desire of the EMG to take part in the privatization, although date for pre-qualification had been expired.

Nevertheless, the sources said that the PC has asked the EMG to fulfil the pre-qualification criteria by showing a financial worth of $200 million. Also, the EMG will have to give in writing that 60 per cent of the employees have authorized it to bid for the PSMC on their behalf and could use their funds for the purpose of buying it.

The group will have to deposit $30 million to fulfil the eligibility criteria, the sources said, adding that the employees were earlier promised to acquire 10 per cent shares in the mills.

The sources also said that the PC has asked the management of the PSMC that the ongoing negotiations with EMG must bring to their logical conclusion as the government has decided to go ahead with the privatization of the mills at all cost.

The PC expressed hopes that the EMG would fully cooperate to help complete the transaction amicably and according to the timeframe set for it.

Earlier, the PC was told in writing that the employees unions were ready to take over the management control by getting 26 per cent strategic shares. The EMG assured that it could initially manage Rs10-12 billion through their gratuity funds but should be given five years’ period to make the full payment.

The sources said that all the unions of the PSMC have reposed full confidence in the chairmanship of Lt. Gen. (Retd) Abdul Qayyum to take part in the privatization. But the general believed that a package was needed to be finalized to be given to the PC to proceed further over the issue.

Responding to a question, a source said that worker unions cannot be denied the first right of refusal as per the rules and regulations, governing the state sector enterprises.

Previously, all the six pre-qualified bidders of PSMC had given an undertaking to the government to increase the organization’s annual capacity from 1.1 million tons to 3.0m tons and beyond after its privatization.

The new strategic buyer of the mills will expand the facilities 2 to 3 times as the present steel consumption stands around 5 million tons per annum. The buyer will also introduce new technologies that will improve competitiveness of the country’s premier steel mills.

The PC believed that PSMC is a small mill with sub-optimal capacity which requires minimum of Rs12 billion investment to ensure that it is able to operate to its designed capacity of 1.1 million tons annually.

Further, any expansion to 3.0 million tons per annum will require significant investment of about $1.2 billion, which PSMC cannot undertake on its own without additional equity/support from the government.

The PC’s appointed sub-committee, which had earlier held its meeting in Karachi on December 27, will again meet all the stockholders on January 4, 2006 with a view to convince them not to oppose the privatization of the mills.

The Privatization Commission has approved sale of 75 per cent of GoP’s shareholding in the PSMC to a pre-qualified investor. The PC pre-qualified nine investors who met the financial, technical and managerial criteria specified for the PSMC privatization process.

Recognizing that the PSMC has substantial land holdings and other assets that are not required for its core operations (i.e. steel making) and given the need to maximize value from sale of state-owned assets, the government has decided to un-bundle all such land/assets from PSMC that are considered non-core. Therefore, all non-core land/assets will revert to GoP as part of the privatization process. Therefore, PSMC will only own such land and assets that it requires for steel making.

Similarly, a decision has been taken to ensure that Hadded Welfare Trust (HWT) continues with its welfare and social activities in the future and it is hoped that HWT’s scope will be further broadened and its position further strengthened. In this regard, the GoP will nominate a new board of trustees to oversee HWT’s activities after PSMC’s privatization.

While Pakistan Steel has been suffering losses since its start in 1985, it came into profit as a result of financial and manpower restructuring first time in 2000-2001.