The stagnant machine tools industry
The domestic machine tools industry, predominantly in public sector, has been declining over years. Currently there is hardly any machine tool produced indigenously that is based on international advanced technology.
First Pakistan Engineering Co Ltd (PECO), Lahore discontinued production of its popular range of standard machine tools few years ago and now Pakistan Machine Tool Factory (Pvt) Ltd (PMTF), Karachi is being privatised. There is no other machine tools manufacturer in the organised sector, whereas the SME sector could not develop a single manufacturer of quality tools. It is recognised that production of machine tools being capital intensive is feasible only in the public sector.
Machine tools are a wide range of machinery employed for cutting, removing or forming the metal to produce components for assembly into a single machine. Termed as strategic sector for any country, it is essential for reproducing the technologies and adoptions of advanced state-of-the-art manufacturing processes. The industry serves as precursor to the process of industrialisation and self-reliance as machine tools are widely used in capital goods, automotive, consumer-durables, railways, aviation and aerospace, ship-building, defence, electronics, atomic energy and IT-related manufacturing sectors.
The significance of the industry is reflected in the fact that 29 countries produced machine tools in the year 2006 worth $65.30 billion. Japan with machine tools valuing $13.50 billion dollars ranked number one, followed by Germany, Italy and China, in the same order.
PMTF, a company of State Engineering Corporation operating under the ministry of industries, production and special initiatives, is the only industrial unit of its kind. Through this project, which was established by the Pakistan Industrial Development Corporation (PIDC) in 1968, a regional programme for development of machine tools was launched, under the aegis of the Regional Cooperation for Development (RCD), now known as the Economic Cooperation Organisation (ECO). Oerlikon Buhrle & Co (Switzerland) provided design, engineering and manufacturing of general-purpose machine tools, under technical collaboration and technology transfer agreements.The operations of PMTF ran into snags from its very early days. The objective of the project was to lay a base for indigenous manufacturing of machine tools and accessories, to cater to the needs of the RCD countries. Nonetheless, as soon as the factory was completed, in 1968, Iran started construction of its own machine tool factory---under the name and style of Machine Sazi Tabriz--- at Tehran, in collaboration with the then Czechoslovakia.
Likewise, Turkey decided to set up its own facilities for manufacturing of machine tools. These were difficult times for the local company which was not supported by other RCD members where demand for machine tools was high, and Pakistan market for its products had not developed, particularly that of quality tools.
Thus, regular commercial production commenced in PMTF in 1971, but without major orders in hand for machine tools. It was decided to give up manufacturing of machine tools temporarily and to start production of defence products, in the wake of 1971 Indo-Pak war, and other precision engineering products. This was a wrong decision lacking foresight that resulted in slowing down the growth of market for domestic machine tools.
Currently, the company produces and sells limited range of conventional machine tools, which comprises precision lathe, milling machine, engraving and special purpose machines etc. Since the dynamics of technological change in machine tool industry is very rapid, all the PMTF products lagged behind technologically over the years. For this reason, the company lost domestic market share and it could not make inroads in export market. The country continues to depend largely on imports to meet its demand of sophisticated, high precision, high speed and CNC (computerised numerically controlled) machine tools.
PMTF has integrated production facilities for forging, machining, pressure die casting, heat treatment, surface treatment, material testing, product designing, tool designing, tool-room shop, sheet metal and welding shop, CNC shop and machine rebuild shop. The diversified product range includes automotive transmission parts, die cast parts and armaments. In addition, PMTF produces digital fuel dispensing units, surgical instruments and ring spinning frames for textile industry. The company is capable of setting up technical training institutes and base overhaul workshops for maintenance of machinery, vehicles, etc. It is only recently that a number of products have been developed, or are in the advanced stage of development, at the PMTF including CNC milling machine, CNC lathe and CNC turning centre.
Fortunately, the company is not faced with any major problem---commercial, financial or administrative. Its production and sales during the year 2005-06 stood at Rs812 million and Rs928 million, respectively. Total assets of the company, as on June 30, 2006, stands at Rs3,206 million, whereas total liabilities were to the level of Rs1,133 million. The plant, spread over an area of 226 acres (914,589 square meters), was established at a cost of Rs2.43 billion.
The government has recently decided to initiate action for offering the Voluntary Separation Scheme (VSS)/ Golden Handshake Scheme (GHS) to the employees of the PMTF, to pave way for its privatisation that has been on cards. Apparently, PMTF is an attractive venture for an entrepreneur, but not for undertaking industrial production of modern machine tools, due to a variety of factors like high cost of technology, building up inventory of imported components, accessories and materials for longer time, and marketing impediments.
Taking a look at privatisation of the seven engineering units of the State Engineering Corporation, which was finalised and completed mainly during the period 1992-1995, it is observed that the objectives of privatisation could not be achieved – rather it proved to be detrimental to the national economy. In fact, the experience was a total failure as most of these units, such as Pakistan Switchgear Ltd, Lahore, Karachi Pipe Mills Ltd, Karachi and Textile Machinery Co Ltd, Karachi, were closed. The buyers were simply interested, in most cases, to purchase assets, particularly the real estate, and never intended to operate these units as an industry. Similar may be the case with the PMTF that has 226 acres prime industrial and commercial land at Landhi Karachi, estimated to be worth over one billion rupees.
Since the government has recently shelved its plans to privatise Karachi Shipyard & Engineering Works and Pakistan Steel Mills realising the strategic importance of engineering industry, one hopes that machine tools industry would be salvaged by not selling the PMTF out-rightly. Instead, it may be divested through establishing joint venture with a qualified foreign strategic partner already active in machine tools production.. It is imperative to extend conducive policy and infrastructure support to the engineering industry, which has stagnated over the last many years. Pakistan needs to industrialise rapidly on the back of a well-developed machine tools sector.
(The writer is former Chairman of Pakistan Machine Tool Factory and State Engineering Corporation of the Ministry of Industries, Production and Special Initiatives)