THE future of Pakistan Steel Mills (PSM) remains uncertain, reminiscent of its position in 2015. Unfortunately, the caretaker government has declared PSM a non-viable asset, leading to the suspension of the privatisation process. Instead, the Ministry of Industries and Production has been tasked with the challenging responsibility of reviving the non-operational state enterprise that has remained inactive for more than eight years.
The proposal to revive PSM through comprehensive restructuring appears technically and economically unfeasible. There has been serious damage to critical equipment, including blast furnace, converter, and coke ovens, as the plant was shut down abruptly in an unplanned manner in June 2015.
Therefore, major plant machinery and equipment, which were commi-ssioned in the 1960s, have to be scrapped anyway. The required funds, approximately $100 million, for necessary repairs and working capital make this option impractical. Moreover, lack of technical expertise in Pakistan to undertake these repairs suggests that a modern technology-based approach is imperative.
Turning the pages of history, the PSM was sold out in 2006 to a consortium of Saudi-Russian-Pakistani companies at a throwaway price of $362 million in a non-transparent manner. The Supreme Court annulled the privatisation process. PSM was making profit until 2007-08, but turned into a loss-making enterprise from 2008-09 onwards, and it has never quite recovered since.
PSM has been marred by factors like poor governance, weak and corrupt management, overemployment, and political interference in its operational matters. These issues weakened its institutional, technical and operational capabilities. The government, therefore, decided to once again initiate the process for privatisation.
Subsequently, Russian and Chinese groups had shown interest in the acquisition of PSM, including Sinosteel Corp of China that had offered an investment of $778 million in PSM. The privatisation process, which was to be concluded by December 2015, could not materialise. The renewed efforts for PSM privatisation were made by the Privatisation Commission in October 2021.
The given reasons for the withdrawals, citing a decline in steel demand and poor economic conditions in Pakistan and globally, do not accurately represent the actual situation.
The total global production of crude steel in 2022 was 1,885 million tonnes, registering a nominal growth over the preceding year.
In reality, PSM, with an annual installed capacity of over one million tonnes, caters only to domestic demand, which is considerably lower than the current demand for iron and steel products at 8 million tonnes per annum, expected to increase to 10 million tonnes annually in future.
To bridge the wide supply-demand gap, Pakistan imported iron and steel products worth $1.89 billion in 2022-23. Recent statistics from the World Steel Association reveal that Pakistan, for the first time in decades, produced 6 million tonnes of steel in 2022, which was the highest level ever attained, and ranked Pakistan 27th among the top 50 steel-producing countries.
On the other hand, the Pakistan Investment Roadshow that was organised by the Special Investment Facilitation Council (SIFC) in Dubai from Nov 5-7 attracted a substantial number of global investors, indicating a positive investment climate in Pakistan.
The caretaker government’s decision to annul the privatisation process raises questions about missed opportunities for PSM’s revival with foreign investment. The failure to privatise PSM exposes the Privatisation Commission’s inadequacies in capacity, capability and performance to efficiently process the transaction transparently and with due diligence, raising concerns about potential vested interests.
Until a few months ago, the nation was told that the privatisation process of PSM was to be concluded shortly. Despite previous assurances that the privatisation process was advancing, the Privatisation Commission did not adhere to its own timeline for achieving various milestones. Was it all an eyewash, and was the delay in the privatisation process deliberate?
To avoid further delays in the revival of PSM and recurring huge losses, it makes sense to hand over the entire operational management of PSM to the Chinese for its immediate revival and transformation into a modern and efficient entity as a project under the China-Pakistan Economic Corridor (CPEC).
Hussain Ahmad Siddiqui
Published in Dawn, December 10th, 2023