Steel mills using employees’ money to survive

Rs7.5b withdrawn out of employees’ fund to run bankrupt mills’ affairs.

ISLAMABAD: On the rocks financially, the Pakistan Steel Mills (PSM) management is said to have secretly used Rs7.5 billion from its employees’ fund to meet its rising operational expenditures after commercial banks refused to offer loans to the bankrupt organisation.

Given that the mill is incurring heavy financial losses on a daily basis, the government has now been warned that the employees’ hard-earned money is at a huge risk.

Official documents obtained by The Express Tribune, which have been tabled before the Public Accounts Committee, reveal that a sum of Rs3.6 billion was taken out from the gratuity fund, which is paid to employees at time of retirement.

One official source in the ministry of industries and production claimed that, keeping the financial bankruptcy of PSM in view, there was little hope that this money, meant for its employees, would ever be returned to employees fund  along with the promised 14 per cent mark up.

He said that the PSM had been hit hard by political appointments and the ensuing corruption over the years, including during the tenure of the incumbents.

The documents tabled in the PAC reveal that PSM had utilised a sum of Rs7.514 billion from the employees fund at a markup of 14 per cent during first six months of financial year 2008-2009 as a loan. The withdrawal of money continued for four months despite the board of directors’ directives on November 26, 2008, to immediately re-deposit the already withdrawn amount.

The withdrawal surfaced when an audit team began going through the accounts of PSM, said sources privy to the development, adding that the matter was immediately brought into the notice of PSM management and ministry of production.

However, these authorities defended the move, saying that an investment was made under clause 15 and section 102 of the fund regulations and companies ordinance 1984 respectively. The management added that money was taken out under point ‘c’ of the Deed of Trust, which states that investment could be made to provide benefit under the rules of the fund.

The PSM was said to have also taken the position that Rs7.5 billion were withdrawn from the fund due to “abnormal circumstances and liquidity crunch” with the objective to ensure the organisation’s survival. In fact, sources said, the PSM told the audit team that the mills had offered more markup to the employees’ money than commercial banks. The PSM has also informed the audit team that it had returned Rs1.2billion to the fund along with a markup of Rs19 million.

The PSM has also promised that the rest of the money would be returned at the earliest. But, sources said, the audit team was not convinced by the replies, and observed that the relevant laws did not allow the withdrawal of such a huge amount from the employees’ fund.

The audit report stressed that borrowing from trust money was not covered under the rules and added that the earning of profit could not be justified when the risk of losing the principal amount was a greater possibility (alluding to the dire financial position of PSM).

“The weak financial position is evident from the fact that no commercial bank is ready to finance the organisation,” the audit observed in its report to PAC, which will be taken up shortly.

Published in The Express Tribune, February 16^th, 2011.