The federal government approved on Friday a cash injection of Rs18.5 billion into Pakistan Steel Mills (PSM) in an effort to restructure the state-owned industrial giant before its privatisation next year, setting out the first comprehensive rehabilitation plan in years.
The Economic Coordination Committee (ECC) of the cabinet gave the go-ahead in a meeting held here while approving the plan prepared by the Privatisation Commission.
Headed by Finance Minister Ishaq Dar, the ECC also imposed 25% regulatory duty on potato export and waived all import duties aimed at bringing down its prices in the domestic market.
The Rs18.5 billion will be disbursed in three tranches in the next six months to help PSM procure raw material for running the mill and fetch a good price at the time of privatisation.
Of the total, Rs9 billion will be spent on purchase of raw material while the remaining will be used to pay off Rs3 billion loans of National Bank of Pakistan (NBP) besides picking up the cost of utilities.
The cash-flow plan would be framed next week in consultation with the Ministry of Finance, said Mohammad Zubair, Chairman of Privatisation Commission. The restructuring plan was extremely important from the financial and political standpoint and would help PSM resume operations, he said.
Zubair pointed out that the strategy applied over the last about one year was not the choice any more to steer the mill out of its present situation. At present, the PSM plant is running at only 3-6% of capacity as sufficient raw material is not available because of shortage of funds.
The government will immediately release the first tranche of Rs12.5 billion. Of this, Rs3 billion will be paid to NBP for letters of credit (LC) facility for raw material purchase aimed at achieving 30% of capacity by August this year.
The second tranche of Rs3 billion will be provided in mid-September but it will depend on achieving initial milestones. Of this amount, Rs1 billion will be for enhancing the LC facility, which will help PSM achieve 60% of capacity by November.
The third tranche of Rs3 billion will be released in mid-December following assessment of the results of the second tranche. Out of this, Rs2 billion will be for enhancing the LC facility.
This financial support is expected to enable PSM to achieve 77% of capacity and Rs230 million in profit from January to June 2015.
According to Zubair, from June 2015 onwards PSM will be able to bear non-salary expenses and the government will be in a position to start the privatisation process.
The ECC took notice of an artificial increase in potato prices, which was blamed on hoarding and profiteering. It was suggested that the price should be around Rs30 per kg while it was sold for more than Rs60 per kg.
The ECC slapped 25% regulatory duty on potato export with effect from May 5 following the end of a three-day deadline given to the hoarders.
It was also decided that there would be zero duty and levy on potato import from May 5 to July 31 this year – the step taken to bring prices at rational levels before and during Ramazan.
The ECC agreed on donating 26,000 tons of wheat worth Rs832 million to the World Food Programme for the displaced people of Fata and Khyber-Pakhtunkhwa. This will be a gift from the government to the displaced people that will be distributed through the WFP.
The ECC allowed, in principle, the Utility Stores Corporation (USC) to procure sugar directly from domestic mills without involvement of the Trading Corporation of Pakistan (TCP). The finance ministry will provide a credit line to the USC. The TCP was directed to keep its stocks up to 50,000 tons in future.
Published in The Express Tribune, April 26th, 2014.
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