Ministry of Production and Ministry of Finance are ready to challenge each other at the forthcoming Federal Cabinet's meeting scheduled to be held on April 11, 2012 when the issue of financial health of a sinking Pakistan Steel Mills (PSM) will come under discussion, well informed sources in PSM told Business Recorder.
"Most of the decisions taken by the Prime Minister, the Federal Cabinet and the ECC remain unimplemented or partially implemented because of non-co-operation by the Finance Ministry," the sources added. PSM has requested the government to release balance amount of finance facility of Rs 11 billion in accordance with the already approved business plan and injection of an additional Rs 4 billion as GoP equity to cover the losses, the sources added.
PSM has also urged the government to waive off the condition of appointment of Chief Executive Officer (CEO) for the release of Rs 5 billion. "Disbursement of Rs 5 billion is linked with the appointment of CEO, which could not be done and resulted in loss to PSM, therefore the disbursement should be linked with the appointment of CEO in public interest," the sources quoted PSM as stating in its presentation ready to be made to the cabinet.
Federal cabinet has also been recommended to appoint a full-time CEO for the PSM urgently so that its affairs are not left to an allegedly inexperienced and uninterested Board, the sources continued. Its present capacity utilisation is below 20 percent with no back-up of raw material, the sources continued.
Cabinet has been requested to instruct SSGC to allow PSM to pay its outstanding bills amounting to Rs 05 billion in instalments of Rs 110 million per month from October 2012 onwards and waive off Rs 1.5 billion surcharge. Tax issues of PSM with the F BR as contained in the business plan will be resolved to provide a level-playing field for all stakeholders.
Current financial condition of the PSM shows that its accumulated losses were at Rs 52 billion (estimated up to January 31, 2011) whereas the negative equity was at Rs 23 billion as on June 30, 2011. PSM's total outstanding liabilities are Rs 55 billion, including Rs 40 billion interest. The Mills are also facing an additional adverse impact of Rs 1 billion per annum on account of regularisation of over 5000 employees in fiscal year 2010.
The sources said the present position of PSM was due to massive losses of Rs 26.5 billion in 2008-09 and the entity continued to incur a loss of nearly Rs 11.5 billion annually in subsequent years. ECC in its meeting held on December 1, 2011 approved recommendations of the Cabinet Committee on Restructuring (CCoR) headed by the Finance Minister which are as follows: (i) Finance Ministry to issue sovereign guarantee of Rs 6 billion for opening of an LC for the purchase of raw material as immediate relief; (ii) total bailout package of Rs 20 billion as given in the business plan; and (iii) Finance Division to work out modalities in consultation with the Ministry of Production and PSM for actualisation of business plan/bailout package.
Additionally, after a detailed presentation on December 13, 2011, Prime Minister Gilani directed to appoint CEO in PSM and to fill vacant positions on Board of Directors (BoDs) urgently. Business plan approved with the direction that it would be finalised with a new CEO in place. Besides, CCoR was authorised to take appropriate steps for the revitalisation and restructuring of PSM. The federal cabinet also endorsed the decisions made by the Prime Minister.
According to the business plan approved by the government, it had been decided to inject Rs 11 billion at a tentative interest rate of 14 per cent for working capital. Repayment of principal had been decided to be deferred for three years. It had also been decided that GoP will pick up the interest cost for first three years of Rs 5.12 billion against the issue of share.
Outstanding term loan of Rs 8 billion was agreed to be restructured and deferred for a period of two years. However, interest would have to be paid as per schedule. The present capacity of 1.1 million tons per year was to be increased to 1.5 million tons per year which would, it was agreed, require capital expenditure of Rs 32.5 billion. 70 per cent of capital expenditure was to be financed through a foreign loan (suppliers' credit). Prime Minister Gilani had directed the concerned Ministries in the previous Cabinet meeting to put up the cases of PSM and Pakistan Railways at the next Cabinet meeting.
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