The sale of Pakistan Steel Mills Limited - country's biggest industrial project - last month has been criticised by some members of parliament and also a section of the press (not this newspaper).
The contention is that the accepted bid amount of Rs 21.68 billion (around $362 million) is too low. It is argued that this amount does not even compensate for the cost of land. And, there are buyers who are willing to pay Rs 27 billion against the sale of 4,561 acres of Pak Steel land.
The critics claimed that the market worth of this land is Rs 20 million per acre, because there are now 110 kilometers of metalled road, 70 km of railway track and a 165 megawatt electricity generating station, water treatment plant and a dedicated jetty at Port Qasim.
A stockbroker cum real estate developer has offered Rs 30 billion in immediate payment for Pakistan Steel. All these arguments are not only too late but also completely fallacious.
The private sector was blamed for not putting up a steel mill in this country. Had they done so, the unit would surely have been nationalised by the Bhutto government in 1972. After all, the nationalisation process went as far as taking over small ghee units, flour mills as well as rice husking plants.
The damage to the economy was colossal and the country whose exports exceeded the combined exports of two or three South East Asian tigers is still tottering to meet the basic civic needs of the population.
Around 19 parties had filed expressions of interest for Pakistan Steel. Nine were pre-qualified of which eight conducted due-diligence exercise and six of them formed two competing consortiums. Those who now say that the accepted bid is low have had their chance to offer more. If they did not do it, when every one was free to do so, they do not have a cause for complaint.
For those who are evaluating the land at commercial prices ought to know that the buyers have been restricted to utilise the land for use of the steel plant only. They are not allowed to build plazas, hotels or luxury flats. And, this land belongs to the company where the government still has 25 percent stake. Therefore, let us not be deluded by such sophistry.
It needs to be understood that any kind of mega project will only be established by the private sector if the government assumes the responsibility of investing in the infrastructure for it, be it federal, provincial or city government.
All over the world, countries as well as provinces within a country strive to obtain investment to generate employment and revenue. For this purpose, all kind of tax breaks as well as free of cost land is offered to the investor.
A stable environment and continuity in policies are ensured to compete for the investment dollar. The same holds true of anyone buying a project like Pakistan Steel.
Pakistan Steel was commissioned in 1981. The investment in commissioning a dedicated jetty, roads, making a water canal as well as providing other utility services, are a sunk cost that the government had to write off when it restructured its balance sheet to reschedule the loans owed by it to government owned banks.
The steel unit did resurrect under late Colonel Afzal - who with the backing of his course mate, General Pervez Musharraf, managed to take the efficiency to an all time high with record production month after month. The plant and equipment was on its last leg and being a long time insider in Pakistan Steel the late Colonel Afzal could do the patchwork successfully to overcome the obstacles and improve its productivity.
However, by its very nature there is a life cycle of the kiln and other equipment that requires fresh investment in brick-lining as well as new operating and testing equipment. After Colonel Afzal's untimely death, the momentum could not be maintained.
The choice for the government was clear - either invest another $800 million or sell it and let the buyer take care of fresh investment. It rightly chose the latter course.
Yes, the government could have chosen to sell Pak Steel shares on the bourses and possibly earn more money. However, this would not have solved the problem of bringing in a management that knows how to run a steel plant. The only ones with the requisite knowledge are Pakistan Steel executives. But their exposure and experience is limited.
They are like frogs in a well. It was therefore necessary to sell the unit to those who have the mega bucks as well as the know-how and technology to run steel plants efficiently. Both the competing bidders had the money (Saudi versus Kuwaitis) as well as the technical expertise (Russian versus the Ukrainians). The local groups in the consortium are an added bonus as they are familiar with the domestic environment.
Pakistan is also looking for fresh investment to boost the petroleum refining capacity. We will have to provide all kinds of tax breaks, ie both on imports as well as local sales for anyone to invest billions of dollars. The government does not need to be apologetic about giving Al-Tuwairqi group special exemptions for setting up a new steel plant at Port Qasim.
It is the right thing to do and it will have to offer similar concessions to attract other mega projects if the desired investment is to materialise. It is the size of the investment and its contribution in overall industrialisation that has to be the guide and justification for such concessions.
We also need to put up a mega project for urea production to reduce the present imports - give investors the break and ignore the loud protests from cartels operating to raise land prices beyond the reach of the middle class.
Instead, provincial governments should release more land for development to bring about a crash in land prices in the cities, both in industrial as well as residential areas. More jobs and housing is needed for the people. It is incumbent on the government to adopt policies that work towards it.
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