Survival mode: Pakistan Steel Mills gets Rs8.6b bailout package

Injection will not help the state-owned enterprise switch to a profit regime.

ISLAMABAD:

The government on Tuesday approved another bailout package of Rs8.6 billion to stop Pakistan Steel Mills from a complete collapse after the entity suffered fresh losses of Rs21.4 billion during the last twelve months mainly because of delay in release of funds by the finance ministry. 

The decision was taken by the Economic Coordination Committee of the Cabinet, headed by Finance Minister Dr Abdul Hafeez Shaikh. The top economic-decision making body approved the financial package after Ministry of Production revealed that due to delay in release of funds by the finance ministry, the PSM suffered Rs21.4 billion losses during the fiscal year 2011-12, ended on June 30, the second highest in the last four years.

Due to delay in release of funds, production capacity dropped to an all-time low of 15% in May to June 2012 after staying around 20% during the year.

With Rs21.4 billion fresh losses, the accumulative losses incurred by the PSM during the last four years have reached Rs71.4 billion. In 2009, the entity suffered Rs26.5 billion losses, Rs11.5 billion in 2010 and Rs12.4 billion in 2011. The PSM was a profitable entity before the PPP-led government came into power.

The Production Ministry, in its summary, told the ECC that had the finance ministry timely released Rs11 billion funds, the losses would have been Rs10 billion, as envisaged in the Business Plan, which had been duly approved by the ECC.

“On December 1, 2011, the ECC had approved Rs11 billion, to be released in one go, but the finance ministry released only Rs6 billion that too in four months, which resulted into Rs21.4 billion losses till June,” according to Production Ministry summary to the ECC.

The officials of the production ministry further told the ECC that the PSM continues to suffer losses due to non-availability of funds for purchase of raw material and took its capacity utilisation to a new record low.

The ECC has approved the funds for meeting immediate liabilities of the creditors including Rs2.1 billion for servicing the debt. However, despite approval of the financial package, the PSM will not be turned into a profit entity, as the finance ministry has again turned down a request to provide requisite funds to enhance the capacity utilisation to 63%. With the fresh funds, the PSM management will only be able to enhance the capacity to 50%, according to the officials.

This is not the first instance in which the finance ministry has been held responsible for deteriorating the already complex situation. The management of Pakistan Railways also held responsible the finance ministry for the same reasons. The ECC is also coming under criticism for constituting committees after committees instead of taking on the spot decisions.

In another issue, the ECC constituted a committee to investigate the causes of delay in submission of case for disposal of surplus stocks of 1.4 million tons wheat held by Pakistan Agriculture Storage and Supply Corporation. The ECC observed that the case was not processed at appropriate time which resulted in substantial loss to the public exchequer. The committee would work further on the matter and to formulate a mechanism in order to avoid any future loss to national exchequer.

The ECC also pended a summary of the Commerce Ministry, suggesting recovering at source Rs3.8 billion from provinces and Ministry of Defense on account of storage charges of wheat. The ministry had complained that the federating units, the army and navy were reluctant to pay the amount.

In yet another case, the ECC constituted a committee to decide on the matter of waiving sales tax on import of buses by Swede Bus Pakistan Private Limited. The FBR had requested for the exemption arguing without the waiver the company will neither be able to sell the buses.

Published in The Express Tribune, July 25^th, 2012.