Money shortage: Lack of fund allocation for PSM restructuring

Govt earmarks Rs5b instead of the required Rs12b for mill’s revival.


Shahbaz Rana June 26, 2014

ISLAMABAD:


The restructuring plan of the ailing Pakistan Steel Mills (PSM) has largely remained underfunded, as the government has allocated only Rs5 billion in the new budget against the requirement of Rs12 billion, leading to doubt over its commitment to revive the sick unit before privatisation.


The Ministry of Finance has not fully funded the restructuring plan despite giving firm assurances to the Privatisation Commission (PC) in a meeting of the Economic Coordination Committee (ECC) of the cabinet, held in April this year, according to officials.



The ECC had approved a cash injection of Rs18.5 billion into PSM, without which the PC said the rehabilitation of the country’s largest industrial unit was impossible.

In the outgoing fiscal year, the Ministry of Finance approved a supplementary grant of Rs7 billion for PSM, of which it released Rs6.5 billion in two installments, showed budget documents.

The amount did not include payments for salary and utility bills, which were paid over and above the package.

Budget documents showed that the Ministry of Finance earmarked only Rs5 billion against the requirement of Rs12 billion for fiscal year 2014-15.

Sources said if the government was still committed to the restructuring plan, then it was understating the budget by not fully disclosing the PSM package. As the PSM has defaulted on its payments, the entity is not eligible for commercial borrowing, putting entire responsibly on the exchequer.

According to sources, the partial funding will not serve the purpose and the money will sink like over Rs50 billion given in previous years.

The Ministry of Finance did not respond to request for comments despite a long wait of more than 10 days about the reason behind not fully funding the restructuring plan despite the ECC’s decision. The ECC is headed by Finance Minister Ishaq Dar.

“The restructuring does not only depend on allocating required funds, but also their timely release,” said Mohammad Zubair, Chairman of Privatisation Commission, while talking to The Express Tribune.

He said the PSM management had ordered raw material after receiving the funds and shipments would soon start reaching the country. However, he added, the full revival of the mill would hinge on continuous supply of raw material.

According to the ECC’s plan, Rs18.5 billion will be disbursed in three tranches over six months for the purchase of raw material by the mill, which is virtually at a standstill. It will help revive activity at the mill in a bid to give a boost to its price before it goes under the hammer.

Under the plan, Rs12.5 billion was to be released immediately in April – a commitment that the Ministry of Finance did not honour as it released only Rs6.5 billion.

Of Rs12.5 billion, Rs9 billion was supposed to be used for buying raw material, while Rs3 billion was to be paid to National Bank of Pakistan for an additional letter of credit facility to purchase raw material. The objective was to achieve production capacity of 30% by August this year.

The second tranche of Rs3 billion was planned to be released in mid-September, provided PSM achieved its initial goals. Of this, Rs1 billion will be for enhancing the LC facility to help the mill achieve 60% production capacity by November.

In mid-December, after a second performance evaluation, the third tranche of Rs3 billion was required to be released. Of this, Rs2 billion will be used for increasing the LC facility.

At the end of the restructuring, PSM should be able to achieve 77% production capacity and turn in a profit of Rs230 million from January to June 2015, according to the approved plan.

Zubair had said in April that from June 2015 onwards, PSM would be able to bear its non-salary expenses and by that time the government would be in a position to start its privatisation process.

Published in The Express Tribune, June 27th, 2014.

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COMMENTS (5)

Adnan | 9 years ago | Reply

The other Rs 7 Billion had to be allocated to the family business (Itefaq Founderies).

Parvez | 9 years ago | Reply

Sell this for RS 1/- and the country would still benefit.........but the corrupt Pak Steel employees and the corrupt government officials will NEVER let this happen.

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