The Board of Directors of Pakistan Steel Mills is scheduled to meet on Wednesday (December 5) to discuss issues related to commissioning of Coke Oven Battery 1 along with its allied benefits, financial arrangements, its impact on overall financial position and prospective schedule of commissioning.
The Board will confirm the minutes of the Board Audit & Revenue Committee (BA&FC) meeting held on November 19 and November 28, 2012. PSM's key performance comparative figures in July 2011 and April 2012 as per Wasif Mehmood, Acting CEO are as follows: sales average per month Rs 1.430 billion and production attainment of coke 19%, sinter, 18%, hot metal 21%, raw steel 19%, slabs 24%, HR products 20%, and CR products 13%.
Major General Muhammad Javed (retired) assumed the charge as CEO on April 26, 2012. From May to October, 2012 average monthly sales remained Rs 889 million and production attainment of coke remained 17%, sinter, 17%, hot metal 14%, raw steel 11%, slabs, 17%, HR products, 14%, CR products 8% which implies that the incumbent CEO's performance in 7 months is comparatively poorer than his predecessor's who was acting CEO .
PSM's Board in its meeting in October expressed concern over increasing financial issues and conveyed to the management that it would be difficult for the government to consider another bail-out. The Board argued that it was high time for the management to consider alternative financial modes including Public Private Partnership (PPP). The Finance Ministry is of the view that the government should have special surveillance regarding implementation of the latest bail out plan.
"There are lot of reservations about the future of PSM and BoD has to take due care," the sources quoted, Finance Ministry representative as saying in the meeting. Secretary Privatisation and other members suggested that it is hard for PSM to survive only on government bail-outs even with the completion of present bailout, there would be likely deficit of over Rs 6 billion and now it would be very difficult to convince for another bailout.
The CEO has also expressed his reservation on the performance of CFO indicating his failure to bring up suitable financial plan in last two months as well as his slow/belated response in day to day matters. The CFO recently briefed the committee about Stemcor's proposal for international financing along with the pros & cons of the proposal. He emphasised that one of the main obstacles in opting for this proposal is the requirement of bank guarantee from National Bank of Pakistan, and as PSM is already under a bail-out package, it is quite difficult to obtain any such guarantee in this particular scenario. However, this transaction appears to be less expensive as it is based on Libor.
The chairman pointed out that although the proposed transaction is based on Libor however the spread number is not mentioned in the proposal and considering the general business environment risk in Pakistan as well as the risk specific to Pakistan Steel, the anticipated spread to be associated with Libor in this transaction may equate it with the domestic cost of finance. Moreover another major disadvantage is the place of arbitration which may cause various administrative difficulties in future. He further pointed out that the main clauses/terms of the proposal are either incomplete or not clear which is making it difficult to assess the proposal in its entirety.
He added that the PSM being State Owned Enterprise may not be able to directly negotiate this proposal due to implications of PPRA and as a matter of financial discipline the said proposal may also be required to be referred to Ministry of Finance/EAD. Therefore, the question arises whether management is confident about the suitability of the proposal and considers it appropriate to refer this proposal to MoF/EAD.
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