ISLAMABAD, Sept 1: The government appears to be in no mood to revive or privatise the Pakistan Steel Mills (PSM) as a going concern in the short-term but has decided to clear three months’ outstanding salary of its more than 16,000 employees.
A senior government official told Dawn on Sunday that in line with a decision of Finance Minister Ishaq Dar following a recent meeting with a delegation of the PSM Workers’ Union, the government would “ensure sustenance of workers” for the time being.
The PSM employees, including officers, workers and daily wagers, have not been given salary for three months — June, July and August.
The decision, however, did not cover a long-term employment bill of Rs26 billion — involving gratuity, provident fund, leave encashment, etc.
A comparison of two summaries moved within two weeks indicates that there is a lack of seriousness about resolving the PSM crisis.
The first summary taken up by the Economic Coordination Committee of the cabinet on Aug 22 sought to liquidate, shut down, privatise or turn around the company.
The ministry of industries was of the opinion that PSM could be turned around with Rs28.5 billion to fetch better price for its privatisation or else it would “close by the end of September” and then Rs56.55bn would be needed to settle its liabilities.
Despite having received a bailout package of Rs40.5bn in 2009, the company had suffered a cumulative loss of Rs86.3bn as of June 30 this year, while its liabilities piled up to Rs98.6bn, resulting in negative equity. It is currently running at 11 per cent of capacity and available working capital cannot support its operations beyond September.
“The present state of the PSM is due to unchecked corruption, inefficiency, over-employment and government’s lukewarm attitude towards its revival,” the summary said.
The situation continues as the company has suffered Rs7bn loss since the present government came into power.
The ministry of industries said the current financial situation had turned a national asset into a national liability. Therefore, it said, it had offered immediate appointment of a liquidator to save future liabilities, but even liquidation would cost the government Rs39.85bn.
“If we keep the mills barely alive by following the status quo, it will cost Rs57.25bn over the next 15 months,” the ministry warned.
The third option was to privatise the PSM which would take 15-18 months but with the closure of operations during the interlude and a potential cost of Rs56.55bn. It was also pointed out that further borrowing was out of question as even the National Bank had refused to provide more funds. The official said an ECC meeting later this week would consider a summary to meet the government’s commitment and hold a discussion on the affairs of the country’s largest industrial unit.
He said the government wanted to continue with the status quo till a full-time chief executive officer took charge of the company. In the meanwhile, the government would try to find out new sources of financing. “We cannot commit huge public money in an environment of uncertainty. Privatisation is also not an immediate option,” he said.
This is also evident from a revised summary to be submitted to the ECC. It notes that a status quo has been agreed upon at the federal level after a consultation between the ministries of finance and industries.
The government has now decided in principle to provide about Rs3.4bn to clear past three months’ running salary of PSM employees and take care of the next two months — October and November.
Of the Rs1.98bn being paid to the PSM immediately, Rs1.3bn will consume the past salary and Rs694 million working capital deficit. This will be followed by another Rs694m for October and Rs649m for November.
Analysts said the government’s half-hearted efforts were evident from the fact that it was now asking the company “to float tenders for procurement of raw material through suppliers’ credit or other sources of international financing backed by government guarantee, in a transparent manner, by way of fulfilling legal formalities duly authorised by its board of directors”.
“When the National Bank is not ready to provide financing to the PSM despite government guarantees, it is not difficult to predict the outcome of looking at international sources,” said a former chief executive officer of the company.
He said the PSM’s payable liabilities were now in excess of Rs40bn, including Rs15bn to be paid to the Sui Southern Gas Company Limited.
In order to settle SSGCL’s outstanding claims, default surcharge and payment of dues, the petroleum ministry’s help would be sought. Also, the finance ministry will facilitate refinancing with the National Bank.