A money-making mill
Jointly, they have systematically imperilled the PSM’s function, prevented it from operating at optimum capacity
The writer heads the independent Centre for Research and Security Studies, Islamabad and is the author of Pakistan: Pivot of Hizbu Tahrir’s Global Caliphate
Is there another financial fraud in the making around the Pakistan Steel Mills (PSM)? This question flows straight from the recommendations of the financial advisers appointed by the government on the transaction structure for the PSM sale. The advisers say that an initial investment of $289 million, uninterrupted power supply and a new management could turn around the PSM’s fortunes and it could become a profitable enterprise before its eventual privatisation. The advisers have proposed a mouth-watering three-phase development and expansion plan, with a capital investment of $885 million in three phases, a fantastically construed plan that palpably aims at minting money from a company that is currently reeling under losses and liabilities running into billions.
“The way for the PSM to achieve three-phased transformation and revitalisation is through privatisation, formation of a new management team and overall optimisation of the supply chain,” said the advisers. Interestingly, back in August 2013, the Economic Coordination Committee (ECC) was informed that the PSM could be turned around with Rs28.5 billion to fetch a better price for its privatisation or else it would “close by the end of September”. At the time it was running at 11 per cent capacity. Ever since then, the steel mill has not run beyond 20 per cent of its actual 2.2 million tonnes/year capacity. Today, its entire working capital stock is gone, with no hope of revival. Reportedly, as of July 31, 2015, the cumulative losses and debt liabilities have reached a staggering Rs325 billion. Successive chairmen, their cronies, contractors and suppliers have all prospered, but the PSM itself has continued to bleed.
Strangely, the latest recommendations by the advisers run contrary to a recent summary from the ECC. “The present state of PSM was due to unchecked corruption, inefficiency, over-employment and government’s lukewarm attitude towards its revival,” the summary had said. A black, bottomless pit indeed.
Despite having received a bailout package of Rs40.5 billion in 2009, the company has suffered a cumulative loss of Rs86.3 billion as of June 30 this year, while its liabilities piled up to Rs98.6 billion, resulting in negative equity. That is why its chairman was sacked on corruption charges in August 2009, followed by the prime minister’s direction to the FIA to investigate the matter. Even the Supreme Court took suo-motu notice of this and later termed the Rs22 billion worth of corruption in the year 2008-09 a robbery. Keeping this tragic history in mind, one wonders what is the point of injecting public money into the PSM is. The clandestine objective here seems to be to bury the past plunder — and pave the way for another round of personal enrichment of a few before the mill is sold off. Where on earth would you find another example of spending billions of dollars to revive a company before selling it off for peanuts?
It is quite funny that these recommendations followed on the heels of the news that PIA’s debt has risen to Rs226 billion. The company, in fact, shared this information with the Standing Committee on Cabinet Division affairs on September 3. Also, look at the staggering costs of the airport being constructed in Islamabad. Construction began nearly 10 years ago with a projected cost of Rs37 billion, but it would have gobbled up roughly Rs90 billion — a staggering 150 per cent cost escalation — if it becomes operational by October 2016. The state of the Pakistan Railways is not any different. Its cumulative losses, according to the 2013-14 Auditor General of Pakistan report, stood at over Rs20 billion due to bad management, negligence and irregularities by the employees of the department.
Experts agree that professional management can turn the PSM into a real profit-making entity but who will bell the cat and do we have people of character who can really rise above personal motives to restore the capacity production of the steel mill? The private steel mill owners’ mafia, most probably, will not let this happen. The collusion among the corrupt management, bureaucrats and contactors will never allow this to happen. Jointly, they have systematically imperilled the PSM’s function, prevented it from operating at optimum capacity and thus enforced the current unprecedented financial bleeding.
Published in The Express Tribune, September 9th, 2015.
“The way for the PSM to achieve three-phased transformation and revitalisation is through privatisation, formation of a new management team and overall optimisation of the supply chain,” said the advisers. Interestingly, back in August 2013, the Economic Coordination Committee (ECC) was informed that the PSM could be turned around with Rs28.5 billion to fetch a better price for its privatisation or else it would “close by the end of September”. At the time it was running at 11 per cent capacity. Ever since then, the steel mill has not run beyond 20 per cent of its actual 2.2 million tonnes/year capacity. Today, its entire working capital stock is gone, with no hope of revival. Reportedly, as of July 31, 2015, the cumulative losses and debt liabilities have reached a staggering Rs325 billion. Successive chairmen, their cronies, contractors and suppliers have all prospered, but the PSM itself has continued to bleed.
Strangely, the latest recommendations by the advisers run contrary to a recent summary from the ECC. “The present state of PSM was due to unchecked corruption, inefficiency, over-employment and government’s lukewarm attitude towards its revival,” the summary had said. A black, bottomless pit indeed.
Despite having received a bailout package of Rs40.5 billion in 2009, the company has suffered a cumulative loss of Rs86.3 billion as of June 30 this year, while its liabilities piled up to Rs98.6 billion, resulting in negative equity. That is why its chairman was sacked on corruption charges in August 2009, followed by the prime minister’s direction to the FIA to investigate the matter. Even the Supreme Court took suo-motu notice of this and later termed the Rs22 billion worth of corruption in the year 2008-09 a robbery. Keeping this tragic history in mind, one wonders what is the point of injecting public money into the PSM is. The clandestine objective here seems to be to bury the past plunder — and pave the way for another round of personal enrichment of a few before the mill is sold off. Where on earth would you find another example of spending billions of dollars to revive a company before selling it off for peanuts?
It is quite funny that these recommendations followed on the heels of the news that PIA’s debt has risen to Rs226 billion. The company, in fact, shared this information with the Standing Committee on Cabinet Division affairs on September 3. Also, look at the staggering costs of the airport being constructed in Islamabad. Construction began nearly 10 years ago with a projected cost of Rs37 billion, but it would have gobbled up roughly Rs90 billion — a staggering 150 per cent cost escalation — if it becomes operational by October 2016. The state of the Pakistan Railways is not any different. Its cumulative losses, according to the 2013-14 Auditor General of Pakistan report, stood at over Rs20 billion due to bad management, negligence and irregularities by the employees of the department.
Experts agree that professional management can turn the PSM into a real profit-making entity but who will bell the cat and do we have people of character who can really rise above personal motives to restore the capacity production of the steel mill? The private steel mill owners’ mafia, most probably, will not let this happen. The collusion among the corrupt management, bureaucrats and contactors will never allow this to happen. Jointly, they have systematically imperilled the PSM’s function, prevented it from operating at optimum capacity and thus enforced the current unprecedented financial bleeding.
Published in The Express Tribune, September 9th, 2015.