Assistance required: Finance ministry may resist new bailout package

PSM seeks another Rs12.6b to pay salaries and repair plants

ISLAMABAD:

The Ministry of Industries may face resistance from the finance ministry in getting approval of a fresh bailout package amounting to Rs12.6 billion for the Pakistan Steel Mills (PSM).

The Economic Coordination Committee (ECC), in its meeting held on April 25, 2014, had approved a cash injection of Rs18.5 billion into PSM in a bid to bring its production level to 77% in January 2015 but the company failed to achieve it due to the plant shutdown.

The industries ministry assured the economic managers that with the approval of a six-month plan, PSM will achieve 60% capacity utilisation by November 2014. They also guaranteed increase in per-month sales from Rs600 million to Rs4.48 billion and reduction in losses from Rs1.8 billion to Rs500 million per month.

But the plant was shut down in November and its production level stood at 28%.

In a new package, PSM wants Rs4.5 billion for paying the salaries of employees for six months. For the last three months, PSM employees have not received their full salary.

According to officials, the company’s management wants to clear all the salaries pending for the last three months and also for the months of January to March 2015.

In addition to the salaries, PSM wants approximately Rs8.13 billion for the capital repair of old plants. A government official said that PSM is likely to receive a few billion rupees for repairing its units but it may not get approval of the entire proposed package.

“The final decision would be taken by the economic decision-making body,” said an official, adding that the finance ministry was critical of the new bailout package sought by the PSM management.

It is of the view that PSM had already received Rs18.5 billion but it failed to bring the production level to 77%. Now, PSM says that it would achieve the production level in April this year.

According to the officials, the entity had 16,000 employees and half of them were surplus. Out of the bunch, 2,000 employees would retire next year.

The officials added that the Ministry of Industries had moved a summary to the ECC seeking approval of the new package, but it is believed that it will face stiff resistance from the economic managers.

The government wants to privatise the sick unit of PSM but delay in bringing its production level to 77% may hamper the plan.

Earlier, the auditors had conveyed to the government that they were not in a position to give any opinion on the accounts of the corporation due to its poor performance.

The industries ministry conveyed to the ECC that in the current situation, the chances of finding a strategic partner for PSM were extremely remote. It proposed that the government might agree to implement the first six-month restructuring plan until a financial adviser was appointed for the sell-off.

The ECC, after detailed discussions, agreed to the ministry’s recommendation and approved a cash injection of Rs18.5 billion into the PSM so that its production level could be brought to 77% and to turn around the PSM as a profitable entity before offering its shares.

Published in The Express Tribune, February 15^th, 2015.

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