Privatisation of Pakistan Machine Tool Factory

The Government of Pakistan has invited, by December 10, 2007, the Expression of Interest (EOIs), from prospective investors for the sale of maximum shares, alongwith management control, of Pakistan Machine Tool Factory (Pvt) Ltd, (PMTF) Karachi.
It has also been decided to initiate action for offering the Voluntary Separation Scheme (VSS)/ Golden Handshake Scheme (GHS) to some 1,500 regular employees of the company to pave way for its privatisation that has been on the cards for sometime. PMTF is a private limited company with 100% shares owned by the federal government.
PMTF, a company of State Engineering Corporation operating under the Ministry of Industries, Production and Special Initiatives, is the only industrial unit of its kind.
Through this project, which was established by the Pakistan Industrial Development Corporation (PIDC) in 1968, a regional programme for development of machine tools was launched, under the aegis of the Regional Cooperation for Development (RCD), now known as the Economic Cooperation Organisation (ECO). World-renowned Oerlikon Buhrle & Co of Switzerland provided design, engineering and manufacturing of general-purpose machine tools, under technical collaboration and technology transfer agreements.
The operations of PMTF ran into snags from its very early days. The objective of the project was to lay a base for indigenous manufacturing of machine tools and machine tools accessories in Pakistan, to cater to the needs of the RCD countries.
Nonetheless, as soon as the factory was completed, in 1968, Iran started construction of its own machine tool factory---under the name and style of Machine Sazi Tabriz--- at Tehran, in collaboration with the then Czechoslovakia.
Likewise, Turkey decided to set up its own facilities for manufacturing of machine tools. These were difficult times for the local company, which was not supported by other RCD members where demand for machine tools was high, and Pakistan market for its products had not developed, particularly that of quality machine tools.
Thus, regular commercial production commenced in PMTF in 1971, but without major orders in hand for machine tools. It was therefore decided to give up manufacturing of machine tools temporarily and to start production of defence products, in the wake of 1971 Indo-Pak war, and other precision engineering products. This was a wrong policy decision that lacked foresight and has resulted in practically slowing down the growth of market for domestic machine tools.
Currently, the company produces and sells limited range of conventional machine tools, which comprises precision lathe, milling machine, engraving and special purpose machines etc. Since the dynamics of technological change in machine tool industry is very rapid, all the PMTF products lagged behind technologically over the years.
For this reason the company lost domestic market share and it could not make inroads in export market either. The country continues to depend largely on imports to meet its demand of sophisticated, high precision, high speed and CNC (computerised numerically controlled) machine tools.
How one wished we could have followed India where a similar project Hindustan Machine Tools Factory, in technical collaboration with Oerlikon Buhrle & Co, was inaugurated in 1955. Marketing constraints compelled the government to consider diversifying its products-from machine tools to other commercial and defence products.
But Prime Minister Jawaharlal Nehru directed to focus on producing a range of machine tools only, thereby duplicating the facilities for producing machine tools at other locations, implementation of which created a second machine tool factory, in 1961.
Until 1975, the company, now known as HMT Ltd, had six machine tool factories located in Jalahalli and Banglore (Karnataka), Pinjore (Haryana), Kalamassery (Kerala), Hyderabad (Andhra Pradesh) and Ajmer (Rajasthan), which all are profitable.
In addition, these plants proved to be harbinger to the nation-wide establishment of five watch factories and five single-product industrial units manufacturing tractors, printing machinery, precision machinery, bearings and CNC systems, as subsidiaries of HMT Ltd.
Today, India, having 210 units in organised sector, is ranked 19th among machine tools producers, with an output of $631 million in 2006 and HMT Ltd is internationally recognised as one of the renowned manufacturers of machine tools.
Machine tools are a wide range of machinery employed for cutting, removing or forming the metal to produce components for assembly into a single machine. Termed as strategic sector for any country, it is essential for reproducing the technologies and adoptions of advanced state-of-the-art manufacturing processes.
The industry serves as precursor to the process of industrialisation and self-reliance as machine tools are widely used in capital goods, automotive, consumer-durables, railways, aviation and aerospace, shipbuilding, defence, electronics, atomic energy and IT-related manufacturing sectors.
Significance of the industry is reflected in the fact that globally twenty-nine countries produced machine tools in the year 2006 worth US $65.30 billion. Japan with machine tools valuing $13.50 billion dollars ranked number one, followed by Germany, Italy and China, in the same order.
PMTF has Integrated production facilities for forging, machining, pressure die casting, heat treatment, surface treatment, material testing, product designing, tool designing, tool-room shop, sheet metal & welding shop, CNC shop and machine rebuild shop.
The diversified product range includes automotive transmission parts, die cast parts and armaments. In addition, PMTF produces digital fuel dispensing units, surgical instruments and ring spinning frames for textile industry.
The company is also capable of setting up technical training institutes and base overhaul workshops for maintenance of machinery, vehicles, etc. It is only recently that a number of products have been developed, or are in the advanced stage of development, at the PMTF including CNC milling machine, CNC lathe and CNC turning centre.
Fortunately, the company is not faced with any major problem---commercial, financial or administrative. Its production and sales during the year 2005-06 stood at Rs 812 million and Rs 928 million, respectively, resulting in pre-tax profit of Rs 928 million.
Total assets of the company, as on 30th June 2006, stands at Rs 3,206 million, whereas total liabilities were to the level of Rs 1,133 million. The plant, spread over an area of 226 acres (914,589 square meters), was established at a cost of Rs 2.43 billion.
Apparently, PMTF is therefore an attractive venture for an entrepreneur, but not for undertaking industrial production of modern machine tools, due to a variety of factors related to machine tools industry, like high cost of technology, building up inventory of imported components, accessories and materials for longer time and marketing impediments.
Taking a look at privatisation of the seven engineering units of the State Engineering Corporation in the past, which was finalised and completed mainly during the period 1992-1995, it is observed that the objectives of privatisation could not be achieved - rather it proved to be detrimental to the national economy.
In fact, the experience was a total failure as most of these units, such as Pakistan Switchgear Ltd, Lahore, Karachi Pipe Mills Ltd, Karachi and Textile Machinery Co Ltd, Karachi, are closed down since long, on take-over by private sector.
The buyers were simply interested, in most cases, to purchase assets, particularly the real estate, and never intended to operate these units as an industry. Similar may be the case with the PMTF that has 226 acres prime industrial and commercial land at Landhi Karachi, estimated to be worth over one billion rupees.
The domestic machine tools industry, predominantly in public sector, has been declining over years. Currently there is hardly any machine tool produced indigenously that is based on international advanced technology. First, Pakistan Engineering Co Ltd (PECO), Lahore discontinued production of its popular range of standard machine tools a few years ago, and now Pakistan Machine Tool Factory (Pvt) Ltd (PMTF), Karachi is being privatised.
There is no other machine tools manufacturer in the formal sector, whereas the SME sector could not develop a single manufacturer of quality machine tools. It is recognised that production of machine tools being capital intensive is feasible only in the public sector. It is on record that in the mid-1990s, the government had taken PMTF out of the privatisation list realising its strategic importance.
Since the government has recently shelved its plans to privatise heavy engineering industrial units namely Karachi Shipyard & Engineering Works (KS&EW) and Pakistan Steel Mills (PakSteel), one hopes that machine tools industry would be salvaged by not selling the PMTF outrightly.
It is proposed to divest 90% shares of the comapany to the highest bidder. Instead, it may be divested through establishing joint venture with a qualified foreign strategic partner already active in machine tools production globally. This will be in the larger national interest.
It is imperative to extend policy and infrastructure support to the engineering industry, which has stagnated over the last many years. Pakistan needs to industrialise rapidly on the back of a well-developed machine tools sector, as demonstrated by the newly industrialised countries.
(The writer is former Chairman of Pakistan Machine Tool Factory of the Ministry of Industries, Production and Special Initiatives, Government of Pakistan).