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Bailout package for Pakistan Steel


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THIS refers to reports that a bailout package for Pakistan Steel is again under consideration. I am reminded of Einstein’s definition of insanity: “The act of doing something over and over again and expecting a different result.”

The common perception is that if the government appoints an honest management team and stops interfering, then this will turn things around. The problem with this proposition is that these two conditions are well-nigh impossible to meet in Pakistan. The previous 40 years have shown that many efforts to do precisely this have not been successful.

I had the privilege of starting my management career at Pakistan Steel when the mill was under construction and in its early operational years and have had the opportunity to work with some of the most dedicated and honest civil servants I have ever come across.

I think the problem is systemic and cannot be solved in the public sector -- in Pakistan at least. The problem is that the only criterion of success of a commercial enterprise -- the bottom line -- is never applied strictly.

Under one excuse or another, the government bails these enterprises out once they have run through the previous tranche of investment and have again run up huge losses. If there is a corrupt/inefficient management, then this cycle becomes shorter. In the private sector they would be closed down the first time around.

The Korean, Chinese and Singaporean political economies are very different and these examples do not apply to the Pakistan scene. Here I have not seen any of the many public sector corporations performing efficiently on a sustained basis. The result is that together they run up a huge annual deficit of Rs500 billion, which is a serious haemorrhage on our fiscal resources.

The argument that Pakistan Steel is a critical strategic investment that has to be in the public sector is not really valid. Steel is not a restricted commodity and trades openly on the world market. In fact, the price of steel available on this market is often less than that produced locally.

The last attempt to privatise the Pakistan Steel under Gen Musharraf was stopped by the judiciary.

This was a well-intentioned, though ill-advised move.

It is possible that the price being offered was below the true market value, but the investment made in the mill to cover the losses since then has more than met the difference.

I would advise the new government to look at the option to privatise very carefully. They are headed by a business team which has extensive experience in this sector.

I am sure they can design a privatisation package which safeguards our interests better and find a good buyer. I can tell you well in advance that if they try once again to bail out Pakistan Steel, then we will find ourselves in the same bind five years from now.


Comments (5) Closed

S. Tanwir Hasan May 30, 2013 01:12pm
As a senior metallurgical engineer graduated in 1968 I share the same views as the author of this letter. I have great hope that Nawaz Sharif's government should privatize Pakistan Steel immediately. There is no use of further wastage of government exchequer. This while elephant has already consumed billions of precious dollars of this poor country.
Ahmed May 31, 2013 01:20am
Ali Sahib, Thanks for some common sense. Public money which could be used to save a sick child or give him a better education, is being plundered in the name of reviving steel mills. Steel is a volume play and works on razor thin margins. Chinese output for steel is 800 million tonnes and most of the smaller players are loosing money. It is hard to see any benefit of pouring public money in a failed enterprise. Ahmed
TALI May 31, 2013 02:38am
I believe that CJ Iftikhar should be appointed as the CEO of Pak steel mills to turn it around and show the country as to what a great asset he saved from being privatized at the expense of the people of Pakistan. Maybe then it will dawn on him as to where the lines should be drawn on exercising ones power. No greater disservice could have been done to the people of Pakistan.
MOHAMMAD May 31, 2013 11:24am
P.MOHAMED FAHEEM May 31, 2013 03:35pm
fdi can transform pakistan's economy to achieve this goal it has to undergo major political reforms one of them can be the duration of government can be reduced from 5 years to 4 years this can help cool down the politcal temperature and improve foreign investor confidence nawaz sharif you can do it for the long term future of pakistan