ISLAMABAD: The government has decided to give Pakistan Steel Mills (PSM) on lease to foreign investors after failing to privatise or revive the industrial giant despite injecting over Rs26 billion over the past two and a half years.
"Based on some interest expressed by the Chinese and Iranians, we are exploring the option of giving PSM on lease," said Privatisation Commission (PC) Chairman Mohammad Zubair while giving a policy statement in a meeting of the Senate Standing Committee on Finance and Privatisation on Wednesday.
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PSM is the largest and the only integrated steel plant in the country with installed production capacity of 1.1 million tons per year. However, it has been closed for the last one and a half years due to government's mismanagement and lack of interest in resolving the issues.
The government has not paid salaries to PSM employees for five months, making it difficult for over 15,000 workers to make both ends meet.
Zubair said the commission was at final stage of offering the mill on lease and the plan would be taken for approval first to the PC board and then to the Cabinet Committee on Privatisation (CCOP) in the next two to three weeks.
"PSM is not running, bleeding heavily and liabilities are piling up with each passing day and something has to be done urgently," said Zubair.
Section 25(e) of the Privatisation Ordinance 2000 empowers the commission to enter into lease, management or concession contracts.
Cumulative losses of PSM swelled to Rs164 billion in June 2016 in addition to over Rs150 billion in liabilities.
"The mill will be offered on lease through a competitive process," said Zubair after the meeting. Among potential investors, he only disclosed the name of BaoSteel Group of China.
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Throwing some light on the expected lease contract, he told the committee that first of all PSM's balance sheet would be cleared of liabilities, as in its present shape no one would buy or take the mill on lease.
Of the liabilities of over Rs150 billion, Rs50 billion comprises National Bank of Pakistan loans, Rs10 billion in loans from other banks, over Rs40 billion in gratuity dues and Sui Southern Gas Company (SSGC)'s bills of Rs40 billion that led to the suspension of gas supplies in June 2015.
When the mill was operating at 40% to 60% capacity, SSGC suddenly cut off the supply of gas, which brought the unit to its knees, Zubair said. He said it was the responsibility of the petroleum ministry to get the supply restored.
He pointed out that the mill would require an immediate capital injection from the investor who would acquire it on lease.
"In its present shape, one cannot fetch a reasonable price and our main objective is to first reactivate the closed unit," he said in reply to a question from Senator Mohsin Aziz of the PTI.
He said the restructuring of the mill would require at least Rs50 billion and the government did not have the money. The government has already given a Rs18.5-billion bailout package, which could not work.
PSM has remained on the active privatisation list but it could not be sold as the federal government remained divided over the issue of privatisation of state assets.
In October last year, the federal government offered Sindh to acquire PSM. Zubair said the PC board had approved the PSM's sell-off structure but the CCOP did not endorse it and instead offered the mill to the Sindh government.
In response, Sindh placed certain conditions, of which, according to Zubair, some were reasonable like status of gas supplies and the outstanding debt. But the CCOP offered the mill on "as is basis".
The transaction structure that the PC board approved in October last year talked about retaining Rs142 billion in liabilities and the entire land area of about 14,400 acres, but transferring the operating assets and regular employees-related liabilities to the buyer. The board had approved the sale of a minimum 75% stake.
Published in The Express Tribune, November 10th, 2016.