ISLAMABAD: The prime minister has been asked a hundred-million-dollar question: either to liquidate Pakistan Steel Mills with Rs8.1 billion or approve a Rs9.3bn plan and let it run as a going concern until its privatisation by June next year.

If the prime minister opts for the first option, the country’s largest industrial complex would not be privatised, according to a summary sent to the prime minister on Tuesday and seen by Dawn. In both cases, the total debts and liabilities have gone beyond Rs350bn and would need to be taken care of by the government.

The prime minister has also been requested to sell, mortgage or lease tens of thousands of acres of PSM’s land to generate Rs8.2bn to meet employees-related liabilities such as pension, gratuity and medical.

The liquidation would, however, have larger and additional ramifications “entailing serious social, political and legal issues”. Around 17,000 employees are already without salaries for four months now, a situation which can explode at any time.

Also read: Pakistan Steel for sale again

In view of prolonged closure (since June 10 this year), lack of clear direction and government support, auditors are not ready to consider PSM as a going concern, which means a business that functions without the threat of liquidation for the foreseeable future, normally 12 months.

In order to move forward, “we are left with liquidation and going concern options”, reported the PSM to the prime minister.

The prime minister has been told that to make the company a going concern but running on a business-as-usual basis would need Rs8.08bn until June 2016 — the deadline for its privatisation. This would include Rs1.44bn for salaries for three months until now and Rs6.64bn for other expenditures including salaries from November 2015 to June 2016. In this case, however, blast furnaces would not be able to be revived and the unit would not remain a going concern.

The prime minister has been requested to approve a Rs9.3bn plan to operate the plant till June 2016. This would require immediate restoration of natural gas pressure by paying the bills in advance by the government amounting to Rs1bn and plant operation till privatisation by June 2016.

Besides gas bills, salaries from August 2015 to June 2016 would require Rs5.28bn and another Rs3bn to clear National Bank of Pakistan’s default to order raw material in the next month. This would enable the PSM to run on 40 per cent capacity utilisation and remain a going concern.

It has been reported that the plant achieved 65pc capacity utilisation in June this year when gas pressure was reduced due to non-payment of bills worth Rs18bn and late payment surcharge of another Rs18bn.

The company has also reported that auditors have raised the going-concern issue due to poor financial health of the corporation. To resolve the issue and make privatisation possible, it was imperative to inject Rs9.3bn to secure a “going concern certificate from the auditors”.

It said the talks, offers and counteroffers for restoration of gas pressure by the Sui Southern Gas Company Ltd (SSGC) was not going forward despite involvement of all the ministries concerned. It said the mill had achieved 95pc capacity utilisation between 1991 and 2008, when its staff peaked at 27,000. The number has now come down to around 15,000 as capacity utilisation has fallen below 65pc over the past eight years.

Interestingly, the handpicked but headless board of directors of Pakistan Steel is also meeting today to approve the business plan. Finance Minister Ishaq Dar had told the International Monetary Fund that PSM had incurred heavy losses due to global recession in 2008 as the government put a slow paddle on accountability process, leading to the mill’s downfall. The commitment for appointing a professional board has yet to materialise.

The current situation of the mill is that it suffers from losses and liabilities of around Rs350bn. The plant is virtually at a standstill since the last five months due to reduction in pressure of natural gas supply by SSGC. The employees have not been paid salary for the last three months. The retired employees have not been paid gratuity dues since April 2013 and provident fund dues since June this year.

Huge payments of suppliers and dealers are also held up. Urgent repairs are required to restore the technical state of the plant and equipment, which cannot be undertaken at present due to paucity of funds.

Since April 2014, when the Economic Coordination Committee approved a bailout package of Rs18.5bn, the PSM has suffered further losses to the tune of Rs40.2bn.

Informed sources, however, said there was no visible effort to check and control the avoidable expenditures. Employees were being paid operation allowance, hazard allowance, shift allowance, etc, when the plant is at a standstill since the last five months.

Some members of PSM’s trade union are getting outstation allowances while they are physically present in Karachi. These allowances are applicable only to those who are posted at Makli Limestone and Jhimpir Dolomite quarries.

Published in Dawn, November 18th, 2015



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