PSM fails to get past 30% production capacity

ECC had set 77% capacity utilisation target for January this year.

ISLAMABAD: The injection of billions of rupees into Pakistan Steel Mills (PSM) has not so far brought about a marked difference in the financial health of the troubled company as inefficiency and bad governance continue to persist, which may hamper the government’s privatisation efforts.

PSM is stuck at the same position where it stood two years ago when the Pakistan Muslim League-Nawaz (PML-N) government came to power as the mill is still not able to pay salaries to its employees.

The Economic Coordination Committee (ECC) of the cabinet, in its meeting on April 25, 2014, approved a bailout package of Rs18.5 billion for PSM with the condition that the mill would touch 77% of production capacity by January 2015.

At that time, the mill was running at just 3% of its capacity because of losses and absence of finances to purchase raw material.

At the start of 2015, the mill, however, could not reach the target and its management promised that it would achieve the goal in April. Now, the PSM chief executive officer has come up with a new timeframe, saying efforts would be made to hit the 77% capacity mark by May this year.

In a shocking disclosure, an ECC meeting, held on April 23 this year, was told that in spite of the timely injection of Rs18.5 billion, at present PSM’s production stood at only 30% of capacity.

The production was to hit 60% by November 2014 and monthly sales were to be increased from Rs600 million to Rs4,485 million. PSM was also required to cut losses from Rs1,800 million to Rs500 million per month.

The government is in the process of hiring a financial adviser to privatise the sick unit. The Ministry of Industries, in the ECC meeting held on April 25 last year, said in the current situation, the possibility of finding a strategic partner for the steel mill looked remote.

It proposed that the government could agree to implement the first six-month restructuring plan until the adviser was appointed.

In the meeting held last month, officials told the ECC that a committee, headed by the chairman of Securities and Exchange Commission of Pakistan, had been constituted to look into the reasons that hampered the mill’s progress towards 77% production capacity.

The committee met in March and April this year and after deliberations recommended proposals for consideration of the ECC, they said.

It did not disclose the reasons behind the delay in meeting the desired targets, rather it recommended immediate release of four-month salaries for PSM employees covering the January-April period and amounting to around Rs2 billion. The ECC approved release of salaries for two months only.

Published in The Express Tribune, May 2^nd, 2015.

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