Even by the miserable standards of state-owned companies in the country, the Pakistan Steel Mills (PSM) is a badly run industrial giant that operates far below its potential. Yet, it seems that the PSM appears ready to outdo itself in plunging through the depths of financial destitution: the mill is currently running at three per cent capacity, the worst number since 1982. The urgency of resolving the PSM’s fate could not be more serious than it is now.
The cost of a badly managed PSM is far more than simply the cost of having to bail it out every year, though that amount in itself is considerable. Over the past four years, the government has spent Rs40 billion injecting capital into the moribund company, only to see that money goes to waste. No, the real damage caused by the PSM’s dysfunction is that it pushes up the cost of steel production in Pakistan by forcing downstream industrial companies to import steel from more advanced economies.
More expensive steel has several negative consequences for the economy. It is partially the reason why cars in Pakistan are expensive to produce. The lack of action on the PSM, in short, results in a lack of growth elsewhere in the economy.
In the past, we have supported a well-crafted privatisation plan and we remain partial to that idea even now. The critics of privatisation refer to job losses as though the excess workers at state-owned companies like the PSM will be thrown onto the streets penniless. Nothing could be further from the truth. They receive generous severance packages, equal to several months’ or even years’ salaries. And the cutting of jobs at the steel mill will result in the addition of jobs at carmakers as well as a whole host of other industries that will be rendered more competitive through cheaper steel.
In short, it is time for the government to stop dithering and make the decision to let go of the PSM. The economy will be better off in the long run.
Published in The Express Tribune, November 13th, 2013.
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