Islamabad: Pakistan Steel comes under axe again: Partial Privatization:
Government is all set to Partially Privatize the Pakistan Steel Mills by outsourcing its management along with floating 10 to 20 percent shares to Chinese and Russians.
This strategy is included in a plan prepared by the Privatization Commission and would be the second major effort after the previous government failed to sell Pakistan Steel because of intervention by the Supreme Court of Pakistan.
The Board of Privatization Commission will take up this important matter on Wednesday (22-12-2010) and is likely to approve the privatization of PSM, well-placed sources told this correspondent.
Details reveal that the Privatization Commission made a presentation of privatization of PSM in a meeting jointly chaired by the president of Pakistan and the prime minister on November 22, 2010 and it was approved that the management of PSM will be outsourced along with partial privatization.
A letter sent to Pakistan Steel by Ministry of Industries and Production bearing No 1(8)/98-Steel(vol-x) dated December 4, 2010 bearing subject: Privatization Plans, says, “In a recent meeting chaired jointly by president and prime minister of Pakistan the following has been deliberated upon the presentation given by the Privatization Commission: ‘Outsourcing the management of the Pakistan Steel along with the options of floating 10-20% shares to Chinese or Russian investors.’ The Ministry of Privatization to embark upon this proposal in collaboration with the relevant Ministries and Pakistan Steel Mills.”
Sources say that PSM remained a lucrative organization between the years 2000 to 2008 but all of a sudden its performance has been decreased because of political influence and incapacity of the management. “There are people who ran the PSM as profitable organization and even at present the plant was there to bear fruit but the management was incapable”, the sources held.
Sources maintained that at present the entire management of PSM was working on acting charge basis and if competent people were appointed then PSM could once again become a profitable organization. “There is a bad experience of outsourcing of management in Pakistan Telecommunication Company Limited and the government is once again going for the same option with privatization of 26 percent shares”, said the sources adding that PSM was situated near the port which makes it an important organization from defence point of view.
The PSM land measures 19,000 acres which was assessed at Rs10 million per acre in 2005 and it was feared that the assets of PSM would again be assessed at lower value for hidden motives.
Secretary Privatization Commission, Muhammad Ejaz Chaudhry, when contacted said that the presentation of Privatization Commission was solely based upon the principle of making Pakistan Steel a profitable institution. He said that outsourcing of management would minimize the political and other pressures and those who will invest will run the institution to generate profit. “Our proposal is simple and it includes unbundling of the core and non-core assets and raising of the capital against non-core assets”, said the secretary adding: “We will generate equity from the non-core assets and utilize them for core functions”. There was no plan of giving away the shares at once and first the management will be outsourced and some bench marks will be set and three years after the accomplishment of those bench marks government will offer them 26 percent shares, Ejaz Chaudhry maintained.
He also mentioned that the reason of outsourcing of the management was that the PSM should be run according to the rules of corporate governance. “When foreign investors will come they will minimize unnecessary expenditures to make the institution profitable so that they could also earn something out of their investment”, said the secretary Privatization Commission adding that the government will put this option to the Chinese and Russian investors.
He confirmed that Privatization Board will take up the matter on Wednesday adding that neither Pakistan Steel nor Ministry of Industries and Production has come up with any suggestion so far.
When asked if the Privatization Commission has studied the facts as to how PSM went in to Rs40 billion loss in 30 months with liability of over Rs50 billion, the secretary said that no study was made regarding these factors adding that Ministry of Industries and Production was in a better position to answer this question. It is worth mentioning here that the Supreme Court had turned down the privatization of PSM by Pervez Musharraf because the value of its assets was calculated very low for the benefit of an Indian billionaire.
According to the performance indicators of last ten years of PSM, it was a profit earning organization from July 2000 to June 2008 and accumulated profit was Rs10.4 billion. Sources say that the total equity of the Mills has been wiped out and the losses are more than Rs48 billion in a period of 30 months (July 2008 to December 2010 and currently debt liability is approximately Rs50 billion as compared with only Rs8 billion on 1-7-2008. the performance of the unit never dropped below 81% between 2000 to 2008 but since then first it dropped to 65% in 2008-09 and then to 40% in 2009-10 while at present the performance outcome is at 35%. “Today the Iron Ore Stocks approach 18,000 MT (fine ore 8,000 and lump ore 10,000) and the engineers are operating the plant on minimum survival plant. The consumption of the metallurgical coke has been increased due to low production keeping in view to maintain the temperature of the blast furnaces”, PSM sources confided to this correspondent.
Sources said that Moeen Aftab Shaikh was appointed as Chairman PSM on 26-5-2008 and was sacked on corruption charges by the prime minister on 18-8-2009 on the floor of the National Assembly. “When he took over charge the cash balance in the banks was Rs11 billion, finished goods stocks, work in process inventory was Rs10 billion and the liability was Rs6 billion while when he was sacked in August 2009, the liability was Rs25 billion, work in process and finished goods inventory was near zero”, the sources added.
The sources said that at present the Supreme Court is also hearing a corruption case in PSM in which billions were lost and a friend of President Zardari and his companies have been implicated.