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Bailout package for Pakistan Steel

May 30, 2013

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.