ECC green-lights termination of all PSM employees

Each of 9,350 employees to get Rs2.3 million on an average

Shahbaz Rana June 04, 2020

ISLAMABAD: The PTI led federal government on Wednesday decided  to terminate all 9,350 employees of the Pakistan Steel Mills (PSM), taking a giant but politically difficult step to stop years long hemorrhaging instead of reviving the country’s largest industrial unit.

The Economic Coordination Committee (ECC) of the Cabinet also approved to give the due monetary benefits along with one month salary that will cost the exchequer Rs18 billion to Rs19.7 billion. On an average, every sacked employee will receive Rs2.3 million.

“The ECC gave go-ahead to a ‘full and final’ human resource rationalization plan for the PSM employees in accordance with the judgements and observations of the Supreme Court of Pakistan and other courts hearing the cases involving the PSM,” announced Ministry of Finance on Wednesday.

The ECC also approved to pay Rs23 billion in idle capacity payments to power plants out of Prime Minister’s Economic Relief package.

Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh chaired the ECC meeting that also set up a body headed by Special Assistant to the Prime Minister on Petroleum Nadeem Babar to explore various call options for hedging prices for the petroleum products imported by Pakistan.

The process to take the PSM – the country’s largest industrial unit with 1.1 million metric tons production capacity – out of the public sector began in June 2015 when the then PML-N government decided to stop production.

Since then, the federal government has been paying salaries to the employees but the mill has remained closed. After coming into power, the PTI government decided to revive the PSM and struck its name off the privatization list. But it again added the PSM in the privatization programme last year.

Neither the PSM could be privatized nor the government tried to revive it.

The PSM's total expense on its employees in 2018-19 was recorded at Rs9.54 billion that is 75.7% of total production and operating expenses, according to Ministry of Industry and Production summary.

The industry ministry was of the view that due to poor financial condition of the PSM, the government has been paying net monthly salaries to its employees since 2013.

The PSM stopped its commercial operations in June, 2015 without formulating any human resource plan for its 14,753 employees. The number of PSM employees has declined to 9,350 in 2019.

Out of total, only 250 employees would be retained for a period of four months for the execution of the employees’ retrenchment plan and other necessary work. All other employees would be issued termination notices and the financial impact of the plan would be Rs19.657 billion, said the summary.

However, the secretary finance was of the view that the compensation cost should be capped at Rs18 billion instead of Rs19.7 billion.

The ECC members said this will be the final compensation cost and the government should formally terminate the employees once the plan was also endorsed by the courts aimed at avoiding any additional cost due to court judgements.

In addition to retirement related compensation, one month salary would be paid to the PSM employees from the approved supplementary grant on account of salaries of the PSM employees.

Thus, the average payment per employee comes to Rs2.3 million.

The monthly net salary bill of PSM employees is Rs350 million, adjusted as loan in the financial accounts of the PSM. Since 2013, an aggregate loan of Rs34 billion has been extended to the PSM by the government on account of net salary payments.

Oil hedging

The ECC took up the proposal prepared by the Ministry of Energy in consultation with various international institutions and local partners for hedging prices for petroleum products being imported and decided to set up a committee headed by SAPM for Petroleum Nadeem Babar.

The committee will have representation from the State Bank of Pakistan (SBP), the Pakistan State Oil (PSO), the Finance Division, the Petroleum Division, the Law Division and the Planning Division.

The committee will explore call option for 15m barrels of oil for one or two years divided in 12 equal monthly amounts for different stock price above current Brent as long as fee is within acceptable range.

Brent is the leading global price benchmark for Atlantic basin crude oils. It is used to set the price of two-thirds of the world's internationally traded crude oil supplies

Under the terms of reference (TOR) which can be readjusted by the committee in the light of future developments, the PSO will act as the counterparty while the Ministry of Finance shall give a guarantee of performance by the PSO.

The Oil and Gas Regulatory Authority (Ogra) would also be given the policy direction to include the monthly price of the option in the cost of the liquefied natural gas (LNG) or any other oil product chosen in announcing the monthly prices.

The ECC also discussed the reported shortage of petrol in some cities and asked the Ministry of Energy, the Competition Commission of Pakistan and Ogra to ensure the requisite stocks are maintained by the oil marketing companies (OMCs) and the supply to the fuel stations across the country is regular and intact throughout the month.

The ECC chairman while taking a stern view of the reported petrol shortage directed all the relevant government ministries and departments to immediately inform him if situation worsens any further.

On another proposal by the Ministry of Energy, the ECC considered and approved reimbursement of operational cost of single point mooring (SPM) installed by M/s Byco – an OMC.

Byco would submit actual audited operating cost of the Single Point Mooring (SPM) – excluding Wharfage/FOTCO charges/crude saving – to Ogra for inclusion in Inland Freight Equalisation Margin (IFEM) subject to a cap of Pak Arab Refinery (Parco) rate.

Ogra shall determine the actual impact for inclusion in the IFEM on the ongoing basis.

Consequently with the implementation of the above decision, Byco will withdraw its case from the Supreme Court of Pakistan and would also provide an undertaking that the ECC decision conclusively closes the pending matter of SPM’s costs.

On another proposal by the Ministry of Energy, the ECC asked the Finance Division to release an amount of Rs1 billion to meet the cost over and above the criteria for supply of gas to villages and localities falling within 5 kilometres radius of gas producing fields.

This is in accordance with instructions of the Supreme Court to implement an announcement made in September 2003 for supply of gas to villages and localities falling within 5 kilometres radius of gas producing fields.

The ECC also took up a proposal by the Ministry of Energy for payment of unrecovered fixed costs of Rs43.7 billion to the Independent Power Produce (IPPs) and asked the Finance Division to release Rs23 billion while the issue of remaining payments would be resolved by all the stakeholders within one week and would be taken up in the next ECC meeting.

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