PAKISTAN Steel Mills, the country’s largest industrial complex, has a much greater impact on national economy than Pakistan International Airlines, notwithstanding their financial positions.

Being an icon of the large-scale manufacturing, a functional PSM has the potential to trigger economic growth and impact positively a number of associated sectors from construction to infrastructure to small scale industries. Its absence or closure could expose the country to huge imports and foreign exchange loss.

PIA, on the other hand, serves less than one per cent of the population and local airlines could together fill the vacuum. It has, nevertheless, much greater political nuisance because of its presence in capital cities at home and compared with PSM’s presence in Karachi alone.

Both the organisations have some identical problems — overstaffed, mismanaged, corruption, weak financials, obsolete machinery and above all, varying degrees of institutional politicisation. Both ought to be symbols of national pride but have earned only embarrassment.

Notwithstanding mountains of debts and liabilities on both, the PSM could move towards revival with much ease — restoration of natural gas and injection of much lower capital than required for PIA. Yet, the government has given priority to restructuring and much difficult privatisation of PIA over PSM.

This was despite the fact that divestment of PIA involved a lot of legal and political complications. Having chosen a difficult transaction first, a retreat would not be an option from here onwards or else it would cause an irreparable loss not only to the reform and privatisation process but also to the standing of the government.

Being an icon of the large-scale manufacturing, a functional PSM has the potential to trigger economic growth

On the other hand, a cursory look at some of the communications on PSM prima facie suggest those in power are just passing time on a critical national issue that is causing a direct monthly loss of over Rs2bn to the exchequer besides dent to the nation in terms of imports. Interestingly, the gas supply to PSM was drastically reduced when the plant increased capacity utilisation to 65pc from less than 11pc and was almost on the verge of breakeven after Rs18.5bn injection and is on zero production-heat mode since June 7, 2015.

It was on Oct 2, 2015 that the Privatisation Commission and PSM financial advisers sought approval for the transaction structure but the Cabinet Committee on Privatisation (CCoP) decided against it and asked the Sindh government to take over the mill. It took another two weeks to formally write a four-para letter to the Sindh government.

In a letter to the Sindh chief minister, the federal government recalled that Council of Common Interest (CCI) had in May 1997 and August 2, 2006 had twice approved the PSM privatisation. The CCoP on Oct 3, 2015 again approved its privatisation.

The letter claimed that “since the GoS, in the past, has expressed interest to acquire the PSMC, the CCoP, therefore, decided that the GoS should be offered to PSMC with all its assets and liabilities”. It sought the GoS decision upon the offer of the federal government and revert back at the earliest.

It took another 80 days (January 3, 2016) for the GoS to respond. “We will like to clarify that the Government of Sindh has never approached the Government of Pakistan for acquiring this strategic asset”. It also reminded the centre of a 2006 decision of the Supreme Court of Pakistan that “it would be in order if the matter of privatisation of PSM is referred to the CCI for consideration”.

Therefore, it told the centre that it would like to know about the decision by the CCI on the subject of privatisation of PSM subsequent to the Supreme Court judgement. It nevertheless wanted the centre to provide five-year balance sheets along with financial statements, its asset details, transaction structure developed by the GOP and the government commitments to make it viable for buyer.

The provincial government also wanted to access the strategy paper that offered the GoP wanted to carry out to make the mill acceptable to buyer along with future tax policy and any plan for the revival of the mill.

The total liabilities and losses crossed Rs365bn in the meanwhile. The PSM management and federal ministers started blaming each other for the debacle, the Economic Coordination Committee of the Cabinet directed the PSM management to start curtailing expenditures including the downsizing of contractual workforce.

And with no revival in sight and no response from the prime minister for more financial injections, the PSM chief proceeded on ex-Pakistan leave. It appeared the two sides did not trust each other and nobody was serious in its revival or privatisation with a good price and future growth.

As it came on record that the petroleum minister did not restore gas supply saying the PSM people “were not telling the truth”, the PSM chief wrote to the prime minister that auditors were not completing audit for 2014-15 as a going concern since the plant was not in operation for months due to gas reduction and lack of government support.

He expressed surprise that PSM had attained 65pc capacity utilisation on March 2015 when gas stoppage reduced momentum and affected many plants. He said the gas was not enough to keep heated coke oven batteries, refractory kilns and hot blast stove whose refractory would collapse in few days if gas was not restored while critical blast furnace plants were either closed or were in dangerous condition.

Also with it is required oxygen for manual lancing to melt and cut cold material accumulated inside to bring blast furnaces into life. “These two actions will hopefully take 60 days to revive the cold blast furnace while more delay will require major capital repair of blast furnace, mills closure and no production for 2-3 years.

Published in Dawn, Business & Finance weekly, February 8th, 2016



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