Pakistan Steel losses pile up to Rs86 billion despite bailouts

Mill in a critical phase, cannot continue operations beyond September.

ISLAMABAD:

Pakistan Steel Mills has borne a massive loss of Rs86.27 billion during the rule of the previous government and the story does not end here as unchecked corruption and inefficiency may lead to the industrial giant’s closure by the close of September.

This picture was painted by the Ministry of Industries and Production in a report presented before the Economic Coordination Committee (ECC) of the cabinet in a meeting held on August 22, according to sources.

The report said four bailout packages worth Rs40.507 billion were offered to the state-owned steel mill from 2009 to 2012, but despite that its losses piled up to Rs86.27 billion by June 30, 2013 and liabilities rose to Rs98.57 billion, resulting in a negative equity position.

At present, the mill is operating at 11% of capacity and available working capital cannot support operations beyond September. If funds are not provided immediately, the mill will shut down by the end of September, entailing a cost of Rs56.55 billion.

As National Bank of Pakistan (NBP) has refused to provide more loans to the mill, the fate of privatisation will be determined by the decisions taken during the interlude until actual bid is received and finalised. An equity injection of Rs28.49 billion in a single tranche during August was suggested.

The report said the mill reached the present sorry state of affairs because of unchecked corruption, inefficiency, over-employment and government’s lukewarm interest in its revival.

The report also showed that 4,800 people working on daily wage were absorbed as permanent workers in the mill in 2010, adding Rs2 billion to the financial cost in the first year with recurring expenditure of Rs1 billion per annum.

The ministry also pointed out that the bailout packages, given by the government, were mere commercial loans at exorbitant rates and they were issued in such small tranches and at intervals so irregular that accumulating losses and accruing liabilities outpaced them.

It suggested three options to cope with the mill’s troubles. First, the mill can be liquidated through a liquidator which will save the government from all future liabilities at a cost of Rs39.855 billion.

Second, status quo can be maintained which will cost Rs57.25 billion in the next 15 months. Third, the mill can be privatised which will take 15 to 18 months.

During the interlude, there are other options available including a halt to operations until privatisation at a cost of Rs56.55 billion.

Turnaround was an option too. A serious effort should be made to turn the company around through injection of equity and partial repayment of financial cost. It will cost the government Rs28.49 billion. Privatisation under this scenario will fetch a better price than other options.

However, the ECC observed that the options proposed were either impractical or unsustainable and would not be able to address the issues faced by the mill. Instead, a more thorough review of the situation was required to arrive at a solution in the best public interest.

The ECC asked the Ministry of Industries and Production to revisit the matter in consultation with all stakeholders and bring a workable plan in the next meeting.

Published in The Express Tribune, August 29^th, 2013.

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