PSM, once pride of Pakistan — now a white elephant!

By Ismat Sabir

The total losses of Pakistan Steel Mills (PSM) had reached Rs 26 billion by June 2009 and by the end of June 2010 the loss was reduced to Rs 13 billion. The loss was attributed to shortage and inconsistent supplies of raw materials, due to non-availability of sufficient funds that compelled the entity to bring down the production to 40 percent. PSM was using 25 percent capacity in March 2010. However, in spite of critical conditions officers have not given up lavish spending - using luxury vehicles - while over employment and reinstating sacked personnel are other losses. PSM has recently regularised around 5,000 daily wagers. Now, it has nearly 13,000 regular employees on payroll. The government also granted an amount of Rs 3 billion to increase the production capacity of the mill.

State Minister for Industries and Production Dr Ayatullah Durrani said the Privatisation Commission (PC) board comprises of private sector members and now private experts are being hired to run the affairs of PSM. It was also decided to invite fresh Expressions of Interest for selection of a panel of chartered accountants and to retain the existing panel for a period of three upcoming months. The CEO Imtiaz Ahmed Khan Lodhi said that there was no intention of the government to shut down PSM and termed it as the main asset of the country. Contrary to this, the government aims to revitalise the PSM in the first stage and then privatise it. The revitalisation process could also contain the outsourcing of management control of PSM. The government might privatise PSM on the pattern on which banks were sold-off to the private sector, or government may opt to sell its shares to the public through the stock market, officials said

However, some issues are still pending regarding the privatisation of PSM in the Supreme Court and its privatisation could not take place at this stage, the PC board was informed. The stakeholders demanded the PC board to shelf the privatisation plan of PSM, until the issues were settled in the SC.

It is to be mentioned here that the SC has taken a suo motu notice of the case pertaining to over Rs 22 billion corruption in PSM. The SC rejected a request by PSM through Fakhruddin G Ebrahim, counsel for PSM, to halt the investigation into Rs 22 billion embezzlements in the mills.

Ebrahim said the inquiries and registration of cases against PSM’s contractors are causing it a loss of Rs 1 billion per month while its production had been reduced to 40 percent. He further argued that the company was incurring huge losses on account of lack of 2.1 million tonnes raw material. The mill was receiving only 100,000 tonnes per month. He said that there was no corruption in its affairs, yet it continued to suffer losses and if the inquiries continued, the mills would be closed down forever. FIA director general said assets worth Rs 400 million had been seized in the case. PSM was incurring a loss of Rs 1 billion without any corruption. The chief justice viewed that the unit is bearing losses because of inefficient people are running its affairs.

If there is no corruption, Lodhi has admitted that mostly, private steel companies or importers misused the facility of duty and tax remission on exports (DTRE) granted by the Federal Board of Revenue. The forged export transactions in the name of Afghanistan Transit Trade (ATT) have created problems for PSM. Under zero duty facility, the imported steel was meant to be re-exported after value addition, but instead of value-addition, these importers sold their imported stocks in local market at comparatively low prices. This made it difficult for PSM to sell its products, especially when it pays 17 percent sales tax to the government. Lodhi demanded that the system of duty draw back should be applied on these steel importers. Under this arrangement, full customs duty is paid on imports of raw materials and the same is refunded on the exports. Some engineering units also misused the SROs, which allow import of steel at zero to five percent duty. These units sold the commodity directly in the local market instead of using it as raw material.

Ship-breaking industry is also a competitor of PSM, which pays 17 percent sales tax on its raw material while ship breakers pay less duty and sell the steel products at lower prices, which creates problem for PSM. He said in spite of all odds the losses had been cut by 50 percent, to Rs 13 billion in 2009-10, against Rs 26 billion in 2008-09. The worth of PSM’s assets, including its land, plants and machinery is about Rs 100 billion to Rs 125 billion.

Despite instructions of the SC for recovery of Rs 22 billion of PSM scam, the FIA or the management of PSM has not been able to recover a single rupee, in spite of lapsing four months. However, PSM refused to contact the dealership certificate holders by terming the move as victimisation.

He said that PSM’s management had hired foreign auditors for re-audit of the Rs 22 billion losses’ report. According to the PSM management, neither the previous management of the mill nor its dealers looted the money. The management said that the loss was due to some managerial and conceptual problems and global financial meltdown at that time. Presently, the PSM chairman is behind bar on charges of corruption, whereas an agreement has been signed with Transparency International Pakistan to ensure complete transparency and zero tolerance.

The FIA had arrested from outside Anti-Corruption Court, Karachi, on June 28, Muhammad Sabir owner of Gujrat Steels and the director Muhammad Imran. The court has rejected their plea for bail before arrest. Abdul Ghafoor Pathan, Deputy Manager Marketing, PSM was also arrested on June 29, 2010. The FIA said it has not closed its investigation and would soon present some useful information.

According to details, about 12 foreign companies, including China and Russia, are interested in Mills expansion to boost its production from the present 1.1 million tonnes to 1.5 million tonnes per annum. For expansion huge funds would be required for the mill. But expansion of the mill without planning for procurement of raw material on a long-term basis will be a useless exercise.

The management said indigenisation process is underway to reduce cost of production. Joint venture has been signed with Pakistan Petroleum Limited for mining of iron ores. However, PSM has revoked the lease agreement of Nokkundi iron ore in Balochistan that has reserves of 50 million tonnes, which could be a constant source of supply for many years. Present import bills of iron ore and coal amount to about Rs 800 million per annum. PSM was also approached by private firms registered in Brazil, Indonesia and others for supply of raw material. At present from three points of Balochistan iron ore and coal were provided to PSM. Private sector from Balochistan also provided some inputs to the mill. Efforts are going on to utilise iron ore from Mansehra and Kalabagh areas.