The Ministry of Industries and Production has turned down a proposal of Pakistan Steel Mills (PSM) Chairman in which deferment of the privatisation process was pleaded. Sources in Privatisation Commission (PC) told Business Recorder that the PSM Chairman, in a letter to the Ministry on July 14.
He had asked for postponing privatisation of PSM and had sought a financial package for its expansion, but the Ministry in its letter of July 29 rejected the proposal, saying that it was not feasible.
Sources said that the Supreme Court, in its short order held that "the approval for privatisation of PSM by the Council of Common Interest (CCI) on May 29, 1997 continues to hold the field. But in view of the developments that have taken place during the intervening period and the stand taken by the counsel for the federal government that the referred order was never recalled and the stand taken by the counsel for the PSM that the matter of its privatisation had been dropped subsequently, by way of propriety, it would be in order if the matter is referred to the CCI for consideration."
According to sources, the Privatisation Commission was asked to indicate the factual position with regard to any decision to drop PSM from the privatisation list, while the Ministry has clarified that there was no such decision in its record.
The Ministry also provided statement indicating, in chronological order, the history of privatisation and decisions relating to restructuring of the mills.''
Sources said that the Privatisation Commission is of the view that PSM should remain on the privatisation list for the following reasons, beside other reasons:
-- The PSM plant is outdated and inefficient. It has never achieved its designed production capacity of 1.1 million tons per annum, which in any case is sub-optimal.
-- Huge investment (estimated $1 billion) is required to increase its capacity to 3 million tons per annum to make it more economical. This huge investment could be better made by the private sector, which will also introduce new technology, improve competitiveness and transform the PSM into a commercially viable unit in the long run.
As regard the need for critical repairs, the Prime Minister had directed the newly constituted PSM Board of Directors on February, 10, 2005, that critical maintenance could be undertaken side by side with the privatisation process to ensure that the plant runs smoothly.
Despite tariff protection, the PSM has incurred heavy losses ever since it commenced production in 1984. After restructuring, its financial performance improved significantly during the past four years due to high international steel prices and margins as the steel industry globally hit a historic peak.
The government''s decision to directly pay interest/mark-up on its Rs 7.8 billion subordinated loan and allow its mark-up-free loan of Rs 825 million also contributed to its improved performance.
The PSM is neither a "strategic" industry nor it produces specialised steel used for any strategic purposes. It is not a dominant player in the steel market and has less than 25 percent market share. The steel demand is approximately 4.5 million tons per annum. Two million tons approximately is produced by a large number of small private sector units and the remaining demand of more than 1.5 million tons is met through imports.
As the CCI has approves PSM privatisation in its meeting a few days earlier, the Privatisation Commission would pursue necessary pre-qualification and valuation process and documentation in accordance with the rules and regulations as well as relevant observations of the apex court, the Ministry said, according to sources.
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