PTI govt finalises PSM privatisation plan

Decides to privatise steel mill through wholly owned subsidiary

ISLAMABAD:

The board of Privatisation Commission (PC) on Wednesday approved the transaction structure for the privatisation of Pakistan Steel Mills (PSM) and sought to sell a majority stake by setting up a subsidiary of the country’s largest but closed industrial unit.

For the revival and expansion of PSM, the investor may also need to invest $1.4 billion over a period of three years, including $580 million for its revival, according to the assessment made by the financial adviser hired for the transaction.

Headed by Privatisation Minister Mohammad Mian Soomro, the PC board reviewed two options - whether to set up a wholly owned subsidiary of PSM under the Companies Act 2017 and then sell the majority stake of the subsidiary or give the unit on lease for 30 years.

The board decided to set up a wholly owned subsidiary of PSM to sell majority shares in the subsidiary to the private sector investor, PC officials told The Express Tribune after the meeting.

The investor could be offered 51% to 75% shares in the new subsidiary, said the officials. But the decision will be taken by the Cabinet Committee on Privatisation (CCOP).

The government wants to privatise state-owned enterprises but there is not a full-time privatisation secretary. The PC’s media outreach also remains very poor. It did not even release a statement after the board meeting. The spokesperson for the commission did not respond to repeated calls and messages.

After initially wasting a year, in June last year the government decided to revive PSM without full transfer of ownership. An idea had also been floated to give PSM on lease but the proposal was not found feasible. As per the approved proposal, the core operating assets will be transferred to the wholly owned subsidiary through the Scheme of Arrangement that will be approved by the Securities and Exchange Commission of Pakistan (SECP).

The core operating assets will be carved out, excluding the land. About 7% of the total land or 1,268 acres of core land will be leased out to the subsidiary for the use of PSM. The remaining land value of over Rs310 billion will remain with the PSM Corporation.

PSM will sign a land lease agreement with the new subsidiary for the sole purpose of steel manufacturing, according to the decision.

Exclusive rights to operate the jetty, owned by the Port Qasim Authority, and the Right of Way will be transferred to the new subsidiary.

The matter will now be placed before the CCOP for endorsement, said the officials. They added some of the recommendations of board members would also be placed before the CCOP aimed at securing the rights of the government.

The previous PML-N government had closed PSM in June 2015 and since then the federal government has paid Rs33 billion to its employees. As of June 2019, the PSM losses stood at Rs190 billion and its on-balance sheet liabilities were Rs228 billion. There was also off-balance sheet liabilities of Rs73.8 billion, which would take the total liabilities to Rs302 billion, according to the PC officials.

They said PSM’s bad assets would be retained and a plan for settling its liabilities would be presented to the Economic Coordination Committee (ECC) of the cabinet.

The Rs67.3 billion liabilities of banks, Rs61.7 billion liabilities of SSGC, employees’ liabilities of Rs53.6 billion, litigation and land issues will remain with PSM. There are also Rs33.5 billion worth of contingent liabilities.

The financial adviser, hired for the PSM transaction, has estimated the cost of revival and expansion at $1.4 billion, including $580.4 million in revival cost. To run PSM operations, the employees’ requirement is estimated at 7,200, which includes 3,431 employees for phase one of one million tons of production capacity.

The federal government has already begun the process of giving a golden handshake to the employees and last week it approved Rs11 billion for the purpose.

Officials said during recent meetings Industries Minister Hammad Azhar also backed the proposal of carving out good assets and sell those to the private investor through a wholly owned subsidiary.

The PC board also decided to hire a financial adviser for selling 10% stake in Pakistan Petroleum Limited (PPL). PC had proposed to hire a joint financial adviser for the public offering of 10% shares in PPL and 7% shares in Oil and Gas Development Company (OGDC).

However, the board was of the view that both transactions should be carried out with a significant gap. The PC board had also discussed the terms of reference for hiring a financial adviser for the privatisation of Roosevelt Hotel, New York. It did not approve the summary in its present form and sought to modify certain TORs, said the officials. The ECC on Wednesday approved the shutting down of Roosevelt Hotel by paying its debt and severance cost, totalling $142.1 million.

Published in The Express Tribune, September 3^rd, 2020.

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