“Now that the judgment of the Supreme Court has come, the financial advisor of the Planning commission would re-evaluate the reference price”.
The minister hoped that more investors would take part in the Pakistan Steel privatization. “The old bidders of the previous transaction are also expected to participate.”.
Hamid did not believe that with cancellation of the deal by the apex court, it would be difficult to lure local and foreign investors for a fresh bid.
Now that the detailed judgment of the Supreme Court annulling the privatisation of Pakistan Steel Mills (PSM) is out, a number of issues have emerged for the government to tackle. Will it seek a review of the judgment or go for the re-evaluation of the PSM’s assets?
But the differences over the privatisation of the mills between Minister for Industries, Production and Special Initiatives Jahangir Tarin and Chairman PSM Lt General (rtd) Abdul Qayyum have added to the government’s embarrassment.
Soon after the Supreme Court issued its short order on June 23, the PSM chairman had written a letter to the ministry of industries asking it to allow necessary revamping especially the replacement of Coke Owen Batteries. The concerned officials first denied that they have received any such request and a few days later admitted that they had.
Not only that, the officials even indicated that the ministry would allow the revamping with a view to avoid any major breakdown but Tarin has reportedly disagreed with the revamping plan, insisting that the privatisation plan must be stuck to. Insiders claim that the minister and the chairman could not resolve their differences over the issue of 19,000 acres of land, of which 4000 had been attached to the mills’ transaction.
While officials of the Privatisation Commission continue to maintain that Pakistan Steel land was not very expensive, many government officials concede that each kanal of land is worth Rs25-40 million and that this must be “thoroughly evaluated” before the PSM is put up for privatisation again.
One of the major issues involving the privatisation of the mills was whether it had been profitable in the past and whether it could be made financially viable after its necessary revamping. Many believe that there is a need for an investigation about the production capacity of the mills and its profitability. “There is a concealment of the fact which must be unearthed before a fresh bid is made to privatise the mills”, said a concerned official.
“We have told the higher authorities to first pinpoint the flaws, omissions and commissions and the violations of rules as observed by the Supreme Court, before the transaction is planned again”, he said.
He said that there was also a need to look into the viability and the potential of the mills and that this job should not be undertaken by the financial advisors who are foreigners and have their own vested interest to pursue in third world countries like Pakistan.
Pakistan Steel has also suffered because it was not allowed expand its capacity. A British consultant group, WS Atkin, which conducted a technical audit to determine the viability and potential of the mills in 1986-87 concluded that the mills capacity could be expanded from 1.1 million tons to 1.5 million tons in the first phase and later it could go up to three million tons annually. A number of officials visited foreign countries in pursuit of that prospect but nothing came out of their trips.
In January 1989, the mill management prepared a PC-1 to increase the production capacity to 1.5 million tons and in December 1990, it was approved. But nothing happened.
The British group was once again approached to re-assess the situation. It concluded that it would require Rs8 billion to increase the production capacity through ‘balancing, modernization and replacement’ (BMR) which unfortunately was not approved by the then government. And in 1988-89, for the first time, the mills reached to a break even point and showed some profit.
Later, political interference played havoc with the financial health and commercial discipline of the mills.
“But from 1992-93 to 1995-96, the mills showed a good profit”, another official said. After financial restructuring in May 2003, the excess manpower was paid off with Rs6 billion from the mills’ own resources. Also Rs11 billion loans of the banks were returned.
“ In December 31, 2004, the Cabinet Committee on Privatisation (CCOP)decided to offload 10 per cent shares of the mills under Initial Public Offering (IPO) through stock market. On February 1, 2005 the central development working committee (CDWP) of the Planning Commission gave a go ahead signal to the mills management for capacity enhancement up to 1.5 million tons by spending $160 million for which a MoU was signed with the Russians.
But on February 3, 2005, without assigning any reason, the board of directors of the mills was dissolved and a new one was reconstituted on February 7, 2005. Significantly, for the first time, the director finance was laid off the board, and prime minister Shaukat Aziz directed ‘fast track privatisation’ of the mills.
“It was a turning point and a sad chapter in the history of the mills”, he said adding that instead of implementing the decision of the CWDP for capacity enhancement, the mills was planned for the privatisation. But who proposed the privatization of the mills? This is a question to be probed”, he said.