by GHULAM ABBAS
After the decision of the government to go for a long-term lease plan instead of privatising Pakistan Steel Mill (PSM), an Iranian firm and some other local companies have finally agreed to get the mill on the lease.
Reliable sources at Privatisation Commission (PC) of Pakistan told Pakistan Today that an Iranian firm and two local companies (steel group) have made a consortium to run the mill as per the decision of the PC Board. PC Board, last month, had in principal decided to lease the PSM out for 30 years as foreign firms had backfired from purchasing the mill mainly owing to the huge losses and payables dues of the mill.
According to the sources, the consortium is in negotiations with the PC and other concerned authorities.
As per the agreed plan, so far, there will be international bidding/tender for the process. The successful bidder will run the plant at 25 per cent capacity utilisation in the first year and then raise it to 50 per cent in the second year. The plant will be running at 75 per cent by the third year of the lease. The government will retain the right to encash the investor’s bank guarantee if the private firms fail to achieve 50 per cent capacity utilisation by the end of two years or 75 percent capacity utilisation between three to five years.
According to proposals made by the Iranian-led-consortium, during the lease period, the lease will upgrade the technology at the mill. The Iranian firm which has experience in running the same mill of Russian design has also spare-parts and other required material to run the mill. The Iranian firm has also reportedly enough material required for the mill.
The consortium, as sources believe, has also the capability to fulfil commitment regarding revival of the country’s largest industrial complex. A team of the Iranian firm had visited the mill last year after Chinese firms, including Boa Steel Group, had lost interest in the PSM. Struggling with financial crisis, the Pakistan Steel Mills were given bailout packages worth 38 billion rupees in Pakistan Peoples Party’s (PPP) tenure of five years.
The condition of the PSM got worst with every coming year as the liabilities kept on increasing which brought the production level to zero in last one and half years. The payables of the mills have increased to a record 178 billion rupees. According to sources, after the decision of PC Board for leasing out PSM for 30 years last month, the proposal was yet to be discussed and approved in a session of Cabinet Committee on Privatisation (CCoP).
The privatisation board had decided that the entire land of the PSM would remain with the government while its plant and machinery would be handed over to the new company for a maximum time of 30 years. The board decided that no asset of the country’s largest industrial complex would be sold. It may be recalled that then prime minister Shaukat Aziz had tried to sell the PSM to a Saudi-led consortium for Rs21.6 billion ($362 million) but his plan was struck down by a landmark Supreme Court ruling in June 2006, which practically led to a halt of the privatisation programme for almost eight years.
The PSM’s accumulated losses and liabilities, which stood at Rs26bn at the end of 2008, have increased to over Rs400bn, including Rs178b payable liabilities.
