Ministry yet to find out-of-box PSM solution

Ministry of Industries and Production (MoI&P) is said to have failed in finding an out of the box solution for Pakistan Steel Mills (PSM) which is inflicting Rs 1.5 billion financial loss per month to the national exchequer.

Insiders in the Ministry argue that over Rs 20 billion financial loss has been incurred during this government's tenure so far and the Ministry's top brass has failed to meet the deadline given by the Prime Minister Imran Khan who is also Minister in Charge.

On December 27, 2019, PC Board did not approve the much talked about the proposal submitted by Financial Advisers (FAs) for the privatisation/revival of PSM due to differences on some clauses of the agreement as the PC has to pay the FAs on firming up of deliverables.

"If consensus is not evolved on agreement with the Chinese, then FA will go for negotiations with the second party", said official spokesperson for Privatisation Commission. The government intends to privatise PSM in the fourth quarter of current fiscal year.

Prime Minister's Adviser on Commerce, Industries and Production and Investment, Abdul Razak Dawood has convened a meeting on this issue on Monday (today) with Minister for Privatisation, Secretary Privatisation and Secretary Industries and Production. The appointment of new Chief Executive Officer (CEO) of PSM is also expected to be discussed during the meeting.

A committee comprising Additional Secretary of MoI&P/acting CEO PSM, Sher Alam Mehsud and Chairman PSM Board Aamir Mumtaz interviewed the five or six candidates for the permanent CEO but their names are being not disclosed.

The source said there is a general consensus with the stakeholders that PSM should be revived under Government-to-Government (G to G) agreement aimed at avoiding litigation or any other issue. For this purpose, Chinese and Russian companies have already visited the mills.

However, the foreign companies want substantial incentives though PSM audited accounts and balance sheets from 2015 to December 2019 are not available to any independent observer. These accounts have also not been verified by the Auditor General of Pakistan. Pakistan Steel Mills debts and liabilities have already touched Rs 515 billion from July 2008 to December 2019.

PSM Board recently analysed the decisions/findings of the Audit Committee. The chairman, Audit Committee, pointed out that its member, Dr Imranullah Khan, had highlighted in the Audit Committee meeting that auditors had not made provision for mark-up on government loans, to which ACFO and external auditors had expressed surprise, as no such intimation had been received from the Ministry of Finance in this regard at any point of time.

However, Dr Imranullah agreed to provide the applicable rates of markup, if a request is sent to MOF in writing. On November 21, 2019, the Finance Division wrote a letter to the Ministry of Industries and Production, saying that PSM should accurately reflect its assets and liabilities position along with the accrued mark-up on the loans provided by the Finance Division in its financial statements.

Terms and conditions of loans applicable retrospectively and prospectively have already been conveyed. Regarding the possibility of compromising IMF benchmark deadline, PSM management needs to consult with its auditor, Crowe Horwath Hussain Chaudhary & Co to work out appropriate audit treatment that serves the purpose of correct reflection of assets and liabilities in its financial statements without compromising end-December deadline.

Based on the information and subsequent discussions by the ACFO, Chairman-BoD mentioned that he has written to the Finance Ministry that interest on loans given to PSM by the government has never been declared while approving the said loans.

He further stated that a request to proclaim PSM as a sick unit from the year 2015 under provision 292 of the Companies Act 2017 is under consideration, for waiver of interest on government loans.

The sources said, since Privatisation Commission is in the process of hiring consultancy firms to recommend the mode of revival of PSM to the government, PSM top management believes that it is imperative to constitute a risk management committee to analyse and identify issues in the revival of PSM. The committee will develop risk mitigation strategies and recommendations for the Board and PSM Executive Management.

The Board has constituted a Board Risk Management Committee comprising Aamir Mumtaz Chairman PSM Board and Asif Jabbar Khan Member PSM Board. The committee will review the risk functions which include operational risks, political risks, financial risks, labour risks and technical plant related risks.