PAKISTAN Steel Mills, the country’s largest integrated industrial complex, is in a continuous tailspin, and is now struggling for a new bailout package of over Rs11 billion from the national exchequer to remain afloat.

With its annual capacity utilisation at a low of around 14 per cent, the company has not been able to pay salaries to its huge workforce for two months (May and June 2013) ahead of Ramazan.

Over the last few months, the common practice prevalent has been to procure raw material shipments through spot purchase tenders at higher costs, and finished products are then sold at prices lower than the production cost. Despite poor financial results, the company has not been able to control its non-productive expenditures either.

The Pakistan Steel Mills (PSM)’s management has been telling the federal government in recent weeks that unless it was immediately provided Rs11 billion, the Mills may have to be shut down somewhere in August because of its inability to buy raw materials like coal and iron ore. The company has

the inventory to survive the current month only.

However, blaming the PSM alone for its current failures may not be fair. The corporation, no-doubt, has been a victim of ad-hoc-ism, incompetence, mismanagement and corrupt practices. And the PSM’s board of directors, appointed by the previous government, is still enjoying perks and privileges, and the entire management structure is being run on an acting charge basis.

Maj Gen (retd) Muhammad Javed (former chairman of PSM in 2006) was re-appointed as PSM’s Chief Executive Officer in violation of the Memorandum and Articles of Association clauses 87 and 89. His appointment was also against the Supreme Court’s decision pertaining to rehiring of retired personnel on contracts.

Until the prevailing practice of appointing top personnel of this industrial mega organisation merely on political links, without giving any consideration to the academic, technical, corporate and professional expertise of the appointees is done away with, PSM could not be expected to show positive results.

This will require fixing priorities, immaculate planning and putting a competent technocrat management in place, with the injection of minimal cash resources and without any political interference. But the key requirement will be an effective management that has the requisite knowledge, experience and farsightedness to head a large industrial complex of the size of Pakistan Steel Mills.

And despite its poor financial and technical results, the PSM still has the potential to be turned around to a level where it could be given on a performance management contract, or partially privatised if outright privatisation is not a policy option.

It is also worthwhile to look at how things got so bad for the Pakistan Steel Mills.

After earning profits consecutively between financial years 2000-01 to 2008, PSM has suffered a cumulative loss of over Rs95 billion, while its debt payable liabilities have increased to about Rs105 billion in the five years, up to June 2013.

A comparative assessment indicates that PSM’s average annual capacity utilisation, which stood at 82 per cent in 2007-08, has been on a continuous decline since then. It came down to 64 per cent in 2008-09, followed by 40 per cent in 2009-10, and 35 per cent in 2010-11. In financial year 2011-12, capacity utilisation dropped further to 18 per cent, and averaged 14 per cent in 2012-13.

The last fiscal year has been particularly humbling for the industrial giant. Its capacity utilisation touched its lowest ebb at seven and six per cent in September and November 2012 respectively, before rising to 25 per cent in March 2013, but again sliding to 15 per cent in June.

A comparison of its sale revenue reveals nothing different. With a peak of Rs42 billion sales achieved in 2007-08, revenues followed a decreasing trend and touched Rs16 billion in 2011-12, and further dropped to Rs10.6 billion during the last financial year.

When PSM last earned a profit (of Rs2.37 billion in 2007-08), its total payable liabilities stood at Rs7 billion. A year later, the company suffered a loss of Rs26.5 billion and its payable liabilities reached Rs23 billion as of June 2009. In 2009-10, the company suffered another annual loss of Rs11.56 billion, as its liabilities increased to Rs38 billion.

During financial year 2010-11, the steel mills suffered another loss of Rs12.4 billion and its liabilities touched Rs53 billion. Fiscal year 2011-12 was no different, as PSM suffered a loss of Rs21.4 billion with total liabilities increasing to Rs75 billion. And in the last fiscal year, the company faced another loss of Rs23 billion as liabilities surged to Rs105 billion as of June 30, 2013.

And despite the government’s grant of over Rs14.6 billion in a bailout package last year, on the same pretext of shortage of raw material, and an additional grant of Rs2 billion for employees, the company has not come up with any positive results.

PSM’s inventory of saleable products of hot rolled and cold rolled products have piled up to approximately 18,000 metric tonnes, and its management has failed to sell these value-added products.

A total of six cases registered by the Federal Investigation Agency have also reached no conclusion.