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Pakistan Steel sold at throwaway price

April 07, 2006


KARACHI, April 6: Within 22 years after its full commercial operations in 1984, Pakistan’s only integrated steel mill in the public sector, which has been operating on optimum capacity for at least last three years, was passed on to a consortium of foreign and local investors at a price that is being called “peanuts” and a “no price at all” by employees unions, stock brokers and independent economists.

Only a day before the bidding of Pakistan Steel, market analysts were putting the price of 75 per cent shares at $1 billion plus. The worth of real estate only (4,546 acres of land on which various units of Pakistan Steel are constructed) was estimated at Rs27 billion in March. One of the leading real estate dealers of Pakistan and a top stock broker was approached by the Pakistan Steel authorities to advise them on privatization modalities and valuation of the assets.

The developed land of steel mill was valuated at Rs5.5-6 million an acre and the undeveloped land at Rs3-3.5 million an acre. Way back in 1974, Pakistan Steel obtained 19,000 acres of land from the Sindh government at 74 paisa per square yard. But the infrastructure developed on this land from taxpayers’ money has enhanced the market worth of land at present to Rs20 million an acre. This is because there is now 110km metalled road, 70km railway track, a 165 megawatt electric power generation station, a water treatment plant and a jetty.

But on March 31, all these assets were given to an investors’ consortium for Rs21.68 billion ($362 million). Prior to this bidding, there were planted media reports on worn out machinery of the steel mills that now need replacement and revamping. But all credit goes to the management and employees who kept operating their mills at 100 per cent capacity for the last three consecutive years with no major mishap. In 2003, President Pervez Musharraf had announced a bonus for the staff in recognition of their hard work.

The Employees-Management Consortium is offering Rs24 billion and is demanding their first right of refusal in the transaction. It is not being heeded either by the Privatisation Commission or by the prime minister’s office.

A stock broker on Thursday offered an immediate payment of Rs30 billion for Pakistan Steel.

The consortium that won the bidding includes a Saudi group Tuwairqi, a Russian group M. Magnitogorsk Iron and Steel Works, Arif Habih and Siidique Sons. This consortium offered a bid of $362 million (Rs21.68 billion) at a rate of Rs16.80 a share. Awais Leghari took the charge as Privatization Minister recently after Dr Hafeez Sheikh quit. Pakistan Steel’s privatization was his first assignment and contrary to past practices he immediately issued the letter of acceptance to the successful bidder as he said that he was authorized by the cabinet committee.

The practice is that the successful bid is considered by the Cabinet Committee on Privatization chaired by the prime minister. The Privatization Commission issues letter of approval only after the CCoP has considered all aspects of the successful bid. It was not done in the case of Pakistan Steel.

The Privatization Commission did not disclose the reserved or reference price of Pakistan Steel. There is no report as to who was appointed as the financial consultant and who carried out the valuation of the assets.

What makes the deal more intriguing is stone-laying of a 300-million-dollar billet plant of the Tuwairqi group on a 220-acre plot at the Port Qasim. This group is reported to have given $10 million donation for the renovation of Qaudi-i-Azam mausoleum.

After the Port Qasim billet plant comes into production, with one million ton production line after two years or so, the Tuwairqi group will enjoy almost a monopoly status on a industry that is called “mother industry”. The steel industry is the basis of all other industries and if it comes under the control of a group that is alien, it is fraught with all consequences.

For long, Pakistan remained an importer of steel. The powerful lobby of steel importers made it sure to torpedo every effort to set up a steel mills project in Pakistan during the 1950s and 60s. Steel Mill was called a “white elephant” when set up with the Soviet assistance at a total cost of Rs25 billion in the 1970s.

There were many hurdles in the implementation of the project, and it was an irony of the events that the late Bhutto had laid the foundation of this project in 1974 and its commissioning was inaugurated in 1981 by the late General Zia.

From 1981 till this day, there were about 22 chairmen. In 1990, as many as six chairmen came and went in Pakistan Steel in a single year. Pakistan Steel’s annual procurement of raw material and sale of steel products were worth more than Rs30 billion and therefore all the powerful actors of state — bright stars of civil service and those in uniform — claimed their ounce of flesh from the project. Pakistan Steel is a classic example of inefficiency and corruption of Pakistan’s high and mighty but a model of hard work of engineers and workers. People in Pakistan Steel still remember Abid Hussain and H.N. Akhtar with regard and respect.