Interim ECC reviews bailout for Pakistan Steel Mill, availability of staple foods and power sector benchmark rates

The Pakistan Steel Mill has cumulatively incurred the losses of Rs 206 billion up until the end of FY23 

ISLAMABAD: The session of the Economic Coordination Committee (ECC) of the Cabinet was held on Tuesday in Islamabad. In the topics under discussion in the meeting, it was disclosed that the accumulated losses of Pakistan Steel Mill (PSM) stood at Rs 206 billion till June 30, 2022.

The Caretaker Federal Minister for Finance, Revenue, & Economic Affairs Dr. Shamshad Akhtar chaired the meeting of the ECC of the Cabinet.

In the session, the Ministry of Industries and Production presented the summary with regard to the approval of the payment of projected net salary of the PSM employees for the Financial Year 2023-24.

PSM is a wholly owned entity of the government of Pakistan. It started incurring losses from the year 2008-09 and its accumulated losses climbed to Rs 206 billion till June 30, 2022. The government of Pakistan has been providing funds for the net salaries of PSM’s employees since 2013 while the production operations of PSM have been suspended since June 2015 therefore the entity does not have adequate financial resources to pay the salaries of its employees.

In the wake of privatization process of PSM, the government decided to retrench the PSM’s employees and so far 5679 employees have been retrenched and approximately 3100 employees are working. Due to the retrenchment of the employees, the salaries of the employees have been reduced from Rs 360 million per month to around Rs 104 million per month at present. However the PSM is not even self-sufficient enough to pay that amount.

The industry and production ministry has asked ECC to approve the payment of projected net salary of Rs 1.24 billion for the Financial Year 2023-24 to be disbursed according to the salary demand of PSM for every month from the already approved budgetary allocation of Rs 10 billion.

After detailed discussion and deliberation, the ECC authorized the Finance Division to approve the payment of projected net salary for the first 6 months of the Financial Year 2023-24 to be disbursed according to the salary demand of PSM for every month from the already approved budgetary allocation of Rs. 10 billion.

Meanwhile, the Ministry of Planning, Development, and Special Initiatives also gave a briefing about the trends of Major economic Indicators and trends in the Prices of important food items. The ECC directed the Ministry of National Food Security and Research to prepare and submit regular reports on availability of stocks, consumption, and pricing of all staple items specially Wheat and Sugar to the ECC in order to enable it to monitor the availability and pricing of these important commodities. 

The ECC also directed the Ministry of Planning, Development, & Special Initiatives, to control undue profiteering and to maintain the gap between wholesale & retail prices of essential food items through its respective Chief Secretaries.

Similarly, The Ministry of Energy presented the summary regarding “Transition of London InterBank Offer Rate (LIBOR) to Secured Overnight Financing Rate (SOFR)”.

Sources said that Several IPPs together with their lenders approached Private Power and Infrastructure Board (PPIB) for transition from LIBOR to SOFR as UK’s financial conduct authority announced that US $ LIBOR will cease to be applied as benchmark for financial transactions after December 31, 2021 and will no longer be available for quoting after June 30, 2023. 

The Federal Reserve’s Alternative committee has selected the SOFR which is a robust benchmark and risk free rate to replace LIBOR for both legacy and new contracts to be entered in future.

Sources have revealed that the Power division has proposed to the ECC that project lenders of IPPS/ ITC should be allowed to adopt SOFR as a replacement to US LIBOR .

Meanwhile, NEPRA may finalize all the modalities related to the amendments in the tariff determination/indexation mechanism with regard to SOFR at the earliest. Whenever concluded, the same shall be effective from July 1, 2023.

PPIB, AEBD, CPPA-G and NTDC may also be authorized to execute appropriate amendments to the respective agreements to cater for change from UAD LIBOR to SOFR.

According to the finance division, the ECC, after discussion, directed the Ministry of Energy to prepare a detailed analysis of the financial implications of this decision and bring it to the next ECC meeting for discussion and approval. 

Shahzad Paracha
Shahzad Paracha
The writer is a member of Pakistan Today's Islamabad bureau. He can be reached at [email protected]

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