PSM privatisation: Cold shoulder to ailing steel mill

Govt extends deadline after failure to hire financial adviser.

ISLAMABAD:

Investment banks have given a cold shoulder to government’s efforts to hire a bank as financial adviser (FA) to sell the Pakistan Steel Mills (PSM), compelling the Privatisation Commission (PC) to extend the deadline for submission of bids for the third time.

Despite twice revising the deadline, the PC did not get bids from prospective parties interested to undertake the challenging job of becoming the FA to help sell out PSM, said an official of the commission.

The deadline for submitting Expression of Interest for advisory services has now been extended to January 12. The original date for submitting the bids was November 28, which was first extended to December 12 and then to December 29.



The lack of interest by investment banks would result in a breach of commitment that Pakistan has given to the International Monetary Fund (IMF). Through the Memorandum of Economic and Financial Policies (MEFP), Pakistan had assured the IMF that it would be able to hire the FA before end of December.

Due to the challenges faced in selling loss-making entities, the IMF has lowered its current financial year’s projections on account of privatisation proceeds. As against earlier estimates of $1.8 billion, the IMF has projected that the receipts would not be more than $1 billion. The PC has targeted to fetch $4.5 billion in this year alone, which is going to be missed by a wide margin.

The PSM is the country’s largest industrial unit and has a 1.1 million-ton annual production capacity. The entity employs as many as 15,274 employees, which is also one of the reasons behind continuous opposition to the PSM privatisation.

Pakistan has also offered Russia to become a strategic partner in the entity. Both sides have in the past negotiated a $1-billion loan for the PSM.

In April this year, the Economic Coordination Committee (ECC) of the Cabinet had also approved Rs18.5 billion cash injection in the PSM. The money was intended for a comprehensive restructuring plan that aimed at reviving the PSM by early next year. However, despite the injection, the PSM could not be fully revived. According to an official of a multilateral lending agency that is involved in the PSM restructuring process, no meaningful restructuring was going on as the cash injections were used for paying salaries, utility bills and procuring raw material. So far, no solution to retrench the surplus workforce has been found, he added.

But through the MEFP, the government assured the IMF that it has developed restructuring plans for the PSM. It further informed the IMF that a professional board and a new chief executive officer were being appointed for preparing a potential strategic private sector participation in the company.

PIA

Despite hiring the FA for PIA in July this year for offering minimum 26% stakes, the government is going to miss the October deadline for the airline company’s privatisation. The latest report of the IMF reveals that the government targets to privatise the PIA by December next year.

It was for the fifth time that the government has delayed privatising PIA despite clear deadlines set by IMF. The lender had originally set the target of December, 2014.

Published in The Express Tribune, December 30^th,  2014.

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