The Ministry of Industries and Production is likely to be grilled by the Senate Standing Committee on Industries and Production on Friday for misrepresenting an inquiry report on the financial mismanagement in Pakistan Steel Mills (PSM), well-informed sources, close to Minister for Industries, told Business Recorder on Wednesday.
There was an emergency-like situation in the ministry after the Standing Committee directed the ministry to submit reasons as to why the inquiry report had not been placed before it within the stipulated time, the sources added. The sources said that committee Chairman Senator Ishaq Dar had also taken a serious note of the ministry's mis-statement over the report, which was scheduled to be discussed two months ago.
The Ministry of Industries had constituted a three-member committee to conduct an inquiry into the recent massive financial losses incurred by PSM and to examine its audited accounts for the last three years. The committee, headed by Chief Executive Officer (CEO) of Pakistan Industrial Development Corporation (PIDC), Karachi, comprised Joint Secretary (CS Wing), Industries Ministry and General Manager (Steel), and Engineering Development Board (EDB).
According to the notification, a copy of which is available with this correspondent, the committee was to make a presentation to the Standing Committee of the Senate on Industries and Production on August 28. However, on that day (August 28), the Industries Ministry indicated that the inquiry report was incomplete, and committed to submit it in a subsequent meeting, which is yet to be scheduled.
Official documents show that the Industries Ministry blatantly misinformed the Senate Standing Committee as to the inquiry committee's report's availability. Documents available with Business Recorder show that the committee's report was completed on August 26.
"The Industries Ministry has been asked to present the inquiry report pertaining to recent financial loss incurred by the PSM along with reasons for not submitting the report to the committee within the stipulated time," the sources added.
The ministry, the sources said, would also give a presentation of the last three years contracts awarded by the PSM, including the break-up of Rs 22 billion loss. The ministry will identify names of those officials, who signed for the purchase of new material, payments made and cash flow of last three years.
According to the inquiry report, the PSM earned profits from 2000-01 till 2007-08. The company incurred a gross losses of Rs 19.5 billion (59 percent of its net sales) during 2008-09. This loss was further aggravated by a mammoth rise of about 200 percent in general and administrative expenses in comparison to the previous year.
Thus pre-tax loss, suffered by the company during 2008-09 was Rs 22.1 billion as compared to a profit of Rs 3.6 billion during the preceding year. The main reasons for the colossal loss of the PSM for the year ended on June 30, 2009 were as follows:
-- Non-action by the management to safeguard the company's financial position in view of abnormal decrease in the international price of raw material and freight charges. In 2005-06, the former chairman had successfully negotiated a 25 percent reduction in the price of coal that led to the dilution of the negative effects of similar international price trends even after signing agreements with international suppliers, thus averting a loss.
-- Pakistan Steel did not adjust its price proportionate to the increase in international prices. For instance, in July 2008, the landed cost of imported billet was Rs 104,873 per ton, whereas the price of PSM billet was Rs 60,537 per ton. The price of imported billet was drastically reduced in July 2008 from Rs 99,555 per ton to Rs 47,000 per ton in October 2008, whereas the PSM, instead of reducing its price, raised it from Rs 60,537 per ton in July 2008 to Rs 63,036 per ton in October 2008, which resulted in piling up of inventories.
-- Record of the PSM Board of Directors meeting on November 26, 2008, indicate that the Board directed the management to constitute a high-powered committee to negotiate with foreign raw material suppliers and freight companies to adjust their prices by offering a discount equivalent to the differential amount of current prices.
-- These directives were not acted upon in letter and in spirit. The stand, taken by management, was that the PPRA rules do not allow for such actions. It is interesting that on a reference by the PSM at a later stage, the company's lawyers Aga Faquir Muhammad & Co rendered their opinion vide their letter dated April 4, 2009 that PSM can negotiate with international suppliers and freight companies and the PPRA rules need not deter the company from this action.
-- It also transpired from the record that the 'Baltic (Freight) Index' was dropped by almost 80 percent during 2008-09, but the management failed to avail of any reduction in freight charges.
-- If the rates of raw material and freight had been re-negotiated by PSM, then as per calculations made by the PSM Finance Department, billions of rupees would have been saved. It transpired that a note in this connection was submitted by the General Manager (F&A) of Pakistan Steel on January 6, 2009 for the Chairman's approval, but apparently the matter has lingered on.
-- Previously, on more than one occasion, the company had allowed huge upward revision of 50 percent to 70 percent in international freight charges when the international market rate increased. The reluctance to renegotiate prices of raw material and freight charges on the pretext of PPRA rules was a criminal act. It is interesting to mention here that under PPRA rules, there is no specific penalty for violation of any section of the rule.
The inquiry committee, in its findings, recommended that as per Articles of Association of Pakistan Steel, the Chairman, being Chief Executive, is accountable for all actions, ie administrative/operational/policy matters etc. Since the Chairman of Pakistan Steel enjoys complete operational autonomy, he can be held responsible for colossal losses suffered by the PSM. However, insiders in the Industries Ministry revealed that the key responsibility of the sacked Chairman was to deal with routine matters, as he was not allowed to take policy decision.
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