PSM's financial health was discussed at a meeting in Karachi on May 28, 2009, at which a three-point financial package was approved, including a consortium loan of Rs 8 billion, a running finance facility of Rs 2 billion to be arranged through the NBP with GoP guarantee; Rs 2.2 billion receivables from sales tax department to be paid to PSM immediately; and in view of market fluctuations and a loss of Rs 19 billion sustained through procurement and sales price variation, spot procurement was recommended.
Incidentally, PSM had reportedly earned a profit of Rs 2.4 billion in 2007-08, but had sustained a loss of Rs 20 billion in 2008-09 - a claim, if correct, provides a measure of the mega-corruption and mismanagement in the PSM. It is said that Pakistan Steel is today faced with the prospect of closure under a debt of about Rs 30 billion, and a severe shortage of raw material that has caused a worrying drop in its production capacity.
The steep fall in PSM's financial and operational viability has been attributed to mega-corruption and mismanagement, one indication of which is said to have been the 39 percent decline in the steel sector's growth in large-scale manufacturing during July-September 2008.
The Steel Mills, which remains our largest and sole integrated steel manufacturing facility with an annual production capacity of 1.1 million tons of high quality steel, has seen many ups and downs, mostly downs. Incorporated as a private limited company, way back in 1968, this Soviet Union-built mill used to manufacture a wide range of high-quality products that enjoyed a competitive edge in the international market.
As the new owner of the PSM was expected to spend $1.3 billion over and above its actual price to replace the 25-year-old machinery that was not properly functioning, the government decided not to inject any more equity into the mills for machinery replacement, prior to its privatisation. Another issue that had to be resolved was how much of the huge complex's land would be given to the new buyer.
There are said to have been grave irregularities on this count that need a thorough investigation. At one point, there was a proposal to convert PSM into a private limited company, and float 20-25 percent of its shares in the open market through the stock exchange prior to its privatisation.
Meanwhile, there have been investigations at different levels to fix responsibility for PSM's poor financial health. After several weeks of investigation, the Federal Investigation Agency (FIA) has recently registered four cases of corruption against PSM high-ups.
According to these FIRs, the Pakistan Steel's top managers, in collaboration with some dealers-suppliers of the organisation, had allegedly caused a loss of about Rs 5 billion by manipulating the purchase of coal without tender; the purchase of metallurgical coke at exorbitant rates; the award of freight contract for delivery of raw material from foreign countries at exorbitant rates, and the manipulation of rates of billets - PSM's most important product.
Secondly, it is said that PSM's bureaucracy has wrongly ascribed Rs 20 billion loss in one year to "global economic recession" and other factors. There is much more to it than meets the eye. The National Steel Policy, announced by the government in September last year, had envisaged steel production of 15 million tons by 2020.
How can this ambitious target be achieved if the country's top steel manufacturing unit is in a pitiable state? Major planks of the steel policy had included technology upgradation and modernisation, ensuring availability of skilled manpower through establishment of skill development facilities, material-testing facilities, and product certification. Meanwhile, the supply of the steel industry inputs has also been a major problem, aside from machinations of different monopolies and pressure groups.
Experts maintain that Pakistan cannot sustain its long-term economic growth targets without substantially adding to its steel production capacity. The government must turn PSM into a profit-making organisation by uprooting corruption and mismanagement; it should seriously start work on the implementation of the National Steel Policy.
The country's infrastructure sector remains the weakest sector of the economy despite allocation of billions of rupees to it over the decades. Putting the PSM affairs on an even keel while at the same time setting up more steel manufacturing units in the country can go a long way towards achieving progress in all sectors of the economy.
Meanwhile, the government should conduct across-the-board accountability of those responsible for depriving Pakistan Steel of its financial viability and operational ability. Secondly, it should delay the grant of the bail-out package out of the national exchequer, and recover plundered national wealth from the corrupt PSM high-ups, as well as private sector beneficiaries.