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Tough decisions: Steel Mills’ future

August 24, 2013

PAKISTAN Steel Mills is close to being shut down unless the government injects a huge equity to keep it afloat. This is probably the only action the government can take to save the country’s largest industrial complex from death, whether it plans to sell or revive it. The options are few and the costs formidable for all stakeholders — the government, the economy and the employees. The complexities involved forced the Economic Coordination Committee to defer the decision on its future on Thursday. It gave three days to the finance ministry, industries and production ministry and the Steel Mills management to agree on one of the three solutions — liquidate the company, turn it around or sell it. The three solutions involve different sizes of equity injections. The company’s liquidation will cost a whopping Rs40bn. If it has to be saved, the finance ministry will be required to pump Rs28.5bn into it immediately. Its privatisation in the present circumstances is hardly an option unless the government wants to give up the ‘national asset’.

By the end of the last fiscal, the company had run up total losses of Rs86.3bn while its liabilities soared to Rs98.6bn, resulting in negative equity. Currently, it is operating at 11pc of its capacity — this despite the Rs50bn pumped in to keep it alive over the last 12 years. Many say the government and the Steel Mills would have been better off had the Supreme Court not revoked its sale in 2006. However, it is sheer waste of time to cry over milk that was spilled seven years ago. It’s time to take a decision, even if it is not liked by the opposition or the employees or someone in the government, and then stick to it. But before deciding, the ECC must also look into the merits and demerits of a Russian offer of financial and technical assistance of $1bn to rehabilitate and upgrade the Steel Mills. Maybe, it will prove to be a better option than the solutions considered so far.