How a giant steel unit was brought to its knees

One of the largest state-owned entities ends with billions in debt

KARACHI:

Nearly five decades after it triggered Pakistan's entry into the elite club of iron and steel producing nations, the Pakistan Steel Mills, one of the largest state-owned enterprises, is finally bowing out. And corruption, mismanagement and employment beyond its capacity appear to be the primary causes for its demise.

“The taxpayers have bailed the project out for decades, even while it has been shut for five years. It is no longer feasible to do so,” said Hammad Azhar, Federal Minister of Industries and Production.

The state-owned enterprise, which has been bleeding financially, Azhar said, was marred by corruption, mismanagement and employment beyond its needs.

“At one point more than 30,000 employees were hired to run the PSM that only required 1,300 workers,” the minister explained.

The taxpayers have bailed the project out for decades, even while it has been shut for five years - Hammad Azhar, Federal Minister of Industries and Production

The project that was once treated as an investment trophy by two global powers -- the Soviet Union and the United States, has so far incurred a whopping loss of more than Rs. 200 billion. The burgeoning losses have finally forced the government to pull the plug on the PSM. Its decision to lay off 4,500 workers on Saturday not only brought the PSM back on the political radar, but also drew the ire of its main opponent, the Pakistan People Party (PPP).

“The heartless government sacked 4500 workers of Pakistan Steel mills. We will not let the PTI get away with this economic murder. Sack Imran not workers, said the PPP Chairman Bilawal Bhutto in a charged post on Twitter.

“PPP will return each and every one back to work. The land of this historical industrial asset belongs to the people of Sindh,” the PPP leader vowed in his post on Saturday afternoon.

The foundation stone of this mammoth production plant was laid on former prime minister Zulfikar Bhutto’s watch. Since then, his successors at PPP’s helm have used the state-owned enterprise to fulfil promises of employment to their voters.

Overstaffed

30,000 is the number of employees that were hired to run the PSM at one point.

The unit only required 1,300 workers

For much of its existence, the federal minister said, the PSM has been a financial liability, that previous governments have shied away from addressing. “The decision to privatize the Pakistan Steel Mills should have been taken by previous administrations.”

Situated on the far-east side of Karachi’s coast, the unit that sprawls over 19,000 acres of land, is now costing more than Rs.15-20 billion annually, and that too while it has been shut since 2015. According to details available with the Express Tribune, the government has paid over Rs. 55billion to current and former employees since its closure five years ago. Even while it was operational, it never grew beyond its 1 million metric ton per annum output. Whereas similar units in the region, that were established around the same time have thrived. “The Korean Steel Industry that started in 1973 now produces 70 million metric tons,” said one expert, who believes the PSM has been a victim of unchecked political influence.

In a no-holds barred interview, Federal Minister Hammad Azhar said blame for bringing down the PSM rests squarely on Pakistan Peoples Party’s shoulders.

According to Azhar, the PSM had Rs.8billion when the PPP took over. When the party left in 2013, the minister said, the organization’s coffers were empty. “The PTI government inherited a debt of more than Rs. 200 billion,” the minister claimed.

The PPP, he said, continued to offer employment at PSM to shore up political support. The minister said more than 4,500 employees were made permanent under ambiguous conditions during the PPP’s rule that ended in 2013.

The PPP will return each and every one back to work. The land of this historical industrial asset belongs to the people of Sindh - Bilawal Bhutto, Chairman Pakistan People’s Party

The PSM that once triggered an investment race between the Americans and Soviets, debuted with a report in the New York Times on January 31, 1958. From being a desired project to an unwanted entity, PSM’s fall from grace has been quick. In a downward spiral since 1997, several administrations have talked about its privatization – and more intensely during its final days when the unit was barely producing. One estimate suggests the production had dropped to its lowest in 2014, a year before the unit was shuttered.

Dismissals during a pandemic

The government’s decision to layoff PSM workers comes at a time when the coronavirus pandemic is raging. Saturday’s decision to remove more than 4,500 employees has triggered a heated debate about their fate. When asked about the timing of the government’s decision, Federal Minister Hammad Azhar said: “The government has paid all employee dues that were piled up by previous administrations. And even as we lay off workers, we are paying Rs.2-3million to each one of them.” The amount, he said, equals to two years of pay for every PSM employee.

The PTI government inherited a debt of more than Rs. 200 billion - Hammad Azhar, Federal Minister of Industries and Production

Taking a potshot at previous administrations, Azhar said: “Past administrations continued to bankroll the PSM even while it was draining the exchequer.”

Pakistan, the minister said, has pressing needs that must be addressed. “There are valuable projects that are being neglected due to lack of resources. While we are ignoring them, we continue to spend billions on a non-operational unit that is incurring huge losses every year,” said Azhar.

“We need to reconfigure our spending and focus on projects that need our attention. That is common sense,” he added.

Fate of PSM

Once a marvel of technology and architecture, the PSM now waits for the final verdict on its fate. During the interview, the federal minister revealed that the bidding process is expected to begin next year after the privatization commission sets the target. “It will be an open and transparent process,” he said. Without divulging details about foreign investors, Azhar said, some companies from China and Russia have shown interest.

But with a burgeoning debt of Rs. 230 billion and over 671 cases that are pending in courts, the minister warned that no one would like to invest in the PSM at this point. The government, he said, has no option, but to resolve the myriad of employee issues, legal cases, contractual obligations and other liabilities before the privatization process begins.

Once the issues are resolved, Azhar said, the privatization commission will create a plan to reach out to prospective buyers.