Management confident of investing $200-250m: PS modernisation
By Sabihuddin Ghausi
KARACHI, June 27: With a hefty cash balance of Rs10 billion, an expected profit of Rs1.3 billion this fiscal year and a big fund source available in the form of land capital, the managers of Pakistan Steel are confident of investing $200-250 million from own source in revamping, modernisation and balancing and also maximising production capacity to 1.5 million tons from the existing 1.1 million tons over the next two years.
“We are looking to Islamabad for guidance and advice,” Pakistan Steel Chairman Lt-Gen (retd) Abdul Qayum informed Dawn on Tuesday when asked about future plans after the Supreme Court annulled the privatisation of Pakistan Steel last Friday. “It is for the government and the cabinet headed by Shaukat Aziz to decide future course,” he said but added that the plant was now in a `pathetic state’ and needed immediate attention.
With virtually no maintenance, no major repair or any significant replacement in the last 25 years, the managers and engineers want a quick revamping, as wear and tear has already started telling on the plant.
The PS chairman refused to be dragged into controversy on valuation of Pakistan Steel or the procedure adopted in the privatisation but agreed to respond to questions on `financial health’ and disclosed that in the current fiscal year ending June, Pakistan Steel was expected to show a profit of over Rs1.3 billion. After tax net profit, he said, would be around Rs720 million.
“We operated on an average of 62 per cent production capacity because of the problems in coke oven battery. Its repair was due in 1997 which was not taken up. Again the repairs were given up in 2005 because of the privatisation plan,” he said. At one time the plant operated on 36 per cent capacity but picked up gradually to average out at about 62 per cent.
Pakistan Steel has been consistently showing a profit for the last more than four years. In 2004-05, total profit was Rs10.19 billion while after tax profit was Rs6.7 billion. In 2003-04, the profit was Rs7 billion and after tax profit was Rs4.85 billion, and it was Rs1.23 billion in the year 2002-03.
“Pakistan Steel’s turnaround is historic and a landmark event in Pakistan,” Mr Qayum said, attributing it to the financial restructuring taken up in 1999-2000 by the Mushsrraf-Shaukat government. “We have paid the outstanding principal amount of Rs11 billion and the government agreed to pick up Rs7 billion interest,” he recalled while pointing out that Pakistan Steel will start servicing interest payment from 2013 to 2020. “We have wiped off our all losses and now look tomorrow with hope and confidence because of cash balance, profitability, favorable international environment and above all a caring government,” he said.
As for those who sought golden handshake after the March 31 privatisation, the PS chief said they should now forget it because “we all have to work together”.
He indicated a rise in prices of steel products in the next few days because international prices are rising and market manipulators are taking undue advantage of this difference. Pakistan Steel on Monday increased price on a product and intends to raise prices of a few more products in next few days. He said prices of input were also on the rise and quoted that the price of coke imported from China went up from $160 a ton to $190.
“Softening international prices and lower capacity utilization have resulted in operating loss of Rs1.4 billion in the first half of 2006,” federal minister Awais Ahmad Leghari informed the legislators on April 8 to justify the disinvestment of Pakistan Steel. Mr Leghari took over the privatisation ministry after Dr Hafeez Sheikh quit the ministry. But in the same draft, the minister says Pakistan Steel earned a profit of Rs140 million on sales of Rs7.35 billion in the first half of the fiscal year 2005-06 when it operated on less than 50 per cent capacity.
Mr Leghari did concede “Pakistan Steel’s improved financial performance over the last few years” which he said was driven by the “unprecedented increase in international steel prices and margins, as the steel industry has globally hit a historic peak”. He referred to PC-1 of Pakistan Steel in October 2004 needing an investment of $200 million to address operational issues and also to increase capacity to 1.5 million tons.
According to financial profile, Pakistan Steel’s operating profit increased from Rs4 million in 2002 to Rs2.27 billion in 2003, Rs6.66 billion in 2004, Rs9.76 billion in 2005 and indicated loss of Rs1.38 billion in the first half of 2006. But the equity base of Pakistan Steel has expanded from Rs8.54 billion to Rs21.29 billion in 2006. Total assets were valued at Rs30.15 billion in 2002 which went up to Rs35.92 billion in 2006.
