Steel plant staying closed for past two months

Management to raise issues of gas supply cutoff, fresh bailout with ECC

ISLAMABAD:

The management at Pakistan Steel Mills (PSM) has decided to approach the Economic Coordination Committee (ECC) to raise the matter of disconnection of gas supply and to seek another bailout package to resume operations at the closed plant.

Production of the mill dropped to zero on June 10 this year in the wake of reduced gas pressure from the utility Sui Southern Gas Company and since then the management has failed to resume work.

“PSM has inventory worth Rs9 billion and it will also seek ECC’s permission for selling it in the open market in order to generate the revenues required to resuscitate the closed unit,” a senior government official told The Express Tribune.

“If the ECC declines a fresh bailout package, the PSM management may mortgage its land to seek credit lines from banks.” The board of directors of the mill has already considered this proposal.

According to the official, PSM requires an immediate injection of Rs2.2 billion to restore the letters of credit opened for raw material import as it has already defaulted on these payments. Another Rs2 billion will be needed to pay salaries to the employees for four months until September 2015.



The mill will present a plan before the ECC, suggesting that it will pay the next four-month salaries from October 2015 to January 2016 if the bailout package is given the nod.

The official said SSGC had reduced the pressure of gas supplied to the steel mill because of mounting outstanding bills, adding “we have to keep the plant at a certain heat level and the reduced pressure may cause its collapse leading to a loss of around Rs12 billion.” If collapsed, repair work on the plant will take three to four years.

He said the restoration of required gas pressure and the sale of mill’s inventory in the open market would help keep the plant functional and bring down overall losses.

“This support is the same as payment of salaries for eight months to a closed unit and one year of efforts of the government will not go to waste,” the official said. This way, the steel production in the country will also save over Rs30 billion in imports and foreign exchange.

The steel mill was operating at 6% capacity when the current PML-N government came to power, but average capacity utilisation went up to 20% later.

“We have run the plant at 77% of the capacity,” the official remarked, arguing that SSGC was discriminating against the mill.

He said SSGC stopped gas supply on March 10 when capacity utilisation had reached 50% and it cut supply again when the plant was running at 65% capacity.

The supply was cut off though an agreement was reached to clear the current gas bills in a meeting with Petroleum and Natural Resources Minister Shahid Khaqan Abbasi on July 1. The ECC also put a freeze on payment of old liabilities for two years.

PSM had to pay Rs18 billion in gas bills and Rs17 billion in late payment surcharge to SSGC, totalling Rs35 billion. Last month, Sindh Chief Minister Syed Qaim Ali Shah also phoned the SSGC managing director asking him to resume the provision of gas to the steel mill.

PSM received a battering when its sales started plunging in February this year following dumping of steel products by China. According to the official, over 100,000 tons of alloy steel landed in the market at zero duty each month, pushing PSM sales to levels insufficient to pay monthly gas and electricity bills and bear other running expenses.

Published in The Express Tribune, August 11^th,  2015.

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