Aurangzeb says PSM has 0% chance of resuscitation

Warns of dire fiscal consequences, urges swift privatisation of SOEs for economic stability

KARACHI:

Finance Minister Muhammad Aurangzeb, during his address at the launch of the Economic Survey 2023-24 in Islamabad on Tuesday, expressed a grim outlook regarding the revival prospects of the Pakistan Steel Mills (PSM), the largest industrial complex in the country. With an air of certainty, he asserted that there exists a bleak zero percent probability for the resuscitation of this once-thriving entity. Highlighting his point, Aurangzeb boldly proclaimed that the only foreseeable fate for PSM is to be relegated to the realm of scrap. These statements harkened back to a time when the notion of selling PSM for a mere Re1 gained considerable traction as a means to divest the government of its burdensome asset.

In a scathing critique, Aurangzeb lambasted the prevailing policies governing the supply of natural gas to the now-defunct Pakistan Steel Mills, deeming them utterly inadequate. He also castigated the maintenance of staff at the mills, denouncing it as an unsustainable drain on the nation’s resources. With a sense of fiscal responsibility, he highlighted the inability of Pakistan to sustain a budget deficit of Rs1 trillion solely to prop up state-owned entities, thus underscoring the imperative for the government to initiate the privatisation process for entities like Pakistan International Airlines (PIA).

Reiterating his stance on the privatisation of state-owned enterprises (SOEs), Aurangzeb categorically stated that there are no sacred cows among these entities. According to him, it is not within the purview of the government to engage in commercial enterprises, and thus, every public sector company is slated for privatisation. He went further to assert that even the power distribution companies would not be spared from this privatisation drive. To facilitate this transition, he hinted at the possibility of adopting the public-private partnership (PPP) model in the future.

Aurangzeb underscored the colossal financial toll exacted by power theft, pegging the annual losses to the national exchequer at a staggering Rs500 billion. In his estimation, the solution to this grave crisis lies in the privatisation of power companies, a move that he views as indispensable for stemming the haemorrhage of public funds.

Reflecting on the heyday of Pakistan Steel Mills, Aurangzeb recalled a time when the state-owned enterprise was a beacon of profitability, enjoying eight consecutive years of prosperity from 2000 to 2008. However, since its closure in 2015, after amassing staggering losses amounting to Rs260 billion, the once-mighty steel complex has languished in disuse. Formerly boasting an installed capacity to churn out 1.1 million tonnes of steel annually, with ambitious plans for expansion, PSM now stands as a monument to industrial decline, its workforce of 15,500 left in limbo.

Time and again, the final trade union at PSM’s helm reiterated that during its operational zenith, the steel complex contributed a substantial Rs100 billion in taxes. This union consistently attributed the mills’ downfall to misguided policies, citing them as the primary catalysts for the devastation witnessed within the industry.

The saga of Pakistan Steel Mills’ descent into oblivion is punctuated by intermittent attempts at privatisation, with expressions of interest from Chinese and Russian companies during the tenure of General (R) Pervez Musharraf. However, these efforts were stymied by legal challenges, culminating in the cessation of privatisation proceedings due to violations of mandatory laws.

Turning his attention to the ongoing privatisation efforts concerning Pakistan International Airlines (PIA), Aurangzeb revealed that six pre-qualified bidders are currently engaged in due diligence, a process slated for completion by July-August 2024. He underscored the significance of PIA’s privatisation, citing it as a condition stipulated by the International Monetary Fund (IMF) for any future bailout package.

The dismal performance of power distribution companies has been a persistent thorn in the side of Pakistan’s energy sector, precipitating frequent power outages and protracted load shedding, particularly in rural areas. The resultant losses incurred by these companies, stemming from poor recovery rates and mounting circular debt, further exacerbate the nation’s energy woes.

A comprehensive study conducted by the Finance Division of the Government of Pakistan in March 2021, titled ‘State-Owned Enterprises Triage: Reforms & Way Forward’, shed light on the dire state of SOEs in the country. From a peak net profit of Rs204 billion in 2013-14, these entities plummeted into a collective loss of Rs237 billion by FY16, exerting a substantial burden on the government’s fiscal position. “Since the fiscal year 2015-16, SOEs have consistently incurred substantial losses, placing a considerable strain on the fiscal position of the government of Pakistan.”

The study further underscored the significant market presence of SOEs in Pakistan, particularly within critical service sectors such as power generation and distribution, energy, aviation, and railways.

In the fiscal year 2018-19, the cumulative revenues generated by all SOEs amounted to approximately Rs4 trillion, while the book value of their assets stood at a staggering Rs19 trillion. These revenues represented roughly 10% of the nominal GDP for the same fiscal period. Additionally, SOEs played a pivotal role in employment generation, providing livelihoods to over 450,000 individuals, constituting approximately 0.8% of the total workforce.