Pakistan Steel Mills

In a refreshing display of conviction, the PTI government has gone ahead with the decision to layoff 9,350 employees of Pakistan Steel Mills (PSM) against total severance of Rs20 billion, and approved the privatisation of the sick and dead entity.

The opposition obviously sees this as an opportunity. Charged rhetoric abounds both among the opposition and certain sections of the press, as well as academic community. Firing employees in the wake of pandemic has been termed an exercise of cruelty. But is it really the case?

Before answering that question, one would want to look at the average monthly salary of various employee categories and compare it with the monthly severance offered to them from the total Rs20 billion severance fund. Such details are not shared by the government, and they should. However, details from Q-Block’s annual report on state-owned enterprises (SOEs), media reports, and the PSM’s annual accounts provide some clue.

Back in 2017, when the PSM had a total of 11,280 non-executive staff (as per Q-Block’s SOEs report), PSM’s total salary expense under ‘cost of sales’, distribution and administration heads of account was about Rs704 million per month (BR Research’s estimates based on PSM’s FY18 report). This roughly translates into average monthly salary of about Rs62,000 per employee. Obviously, some of these employees may be getting much higher pay – say about two or three times the average numbers. But in the absence of detailed numbers, this serves as a tenable proxy.

In contrast to these numbers, media reports from January 2020 reported that monthly salary expense at the PSM in the ongoing year was around Rs350 million. If that number is correct, then average monthly salary of about 9,400 employees equals about Rs37,000. One could argue that media reports are not reliable. However, intuition suggests that average monthly salary should have gone down over the last five years as officer grade employees have sought jobs elsewhere leading to a decrease in total number of employees at the PSM from 15,063 in FY15 to 9,350 reported today.

But let’s ignore both these estimates (Rs62,000 & Rs37,000) of average monthly salary. Instead, let’s assume that average salary of all the 9,350 employees at the PSM (including umpteen number of gardeners, guards, drivers, etc) is Rs100,000 per month. Even such a high assumption translates into about 21 months of severance pay, which is better than what the best of private sector employers would dole out.

A disclaimer: these estimates may be off the mark given differences in monthly salaries of different grades of employees, and given unaccounted-for details of various employee funds, details of which aren’t clear. For instance, it’s not clear whether those employee funds are made a part of the Rs20 billion severance package announced for PSM employees. But from what it appears, the deal offers a decent golden handshake that covers about 20 months of pay. If this estimate is correct, it is not cruelty by any measure.

The anti-privatisation camp would do well to demand employee grade-wise average severance package, before assigning labels of cruelty. It would also do well to remember that PSM’s equity has been negative for many years, even before operations were shut down in 2015. The steel producer had a negative equity of Rs15.3 billion in FY13. That number grew to Rs38 billion in FY18 with accumulated losses totalling Rs174 billion, as per official PSM accounts released in December 2019.

And most importantly, it would do well to appreciate the maxim that it is not the business of governments to do business. The idea of infant industry that once supported nationalised industries is no more valid – as VC PIDE Dr Nadeem ul-Haq often says, “Pakistan has 65-year old infants.” Pakistan’s is a state that can’t even collect tax or ensure monopoly of violence and sanctity of law – some of the critical functions of the state. And yet there are some who romanticise about the state running steel and airline businesses.