Only 1 company interested in beleaguered PSM

ISLAMABAD: The Privatisation Commission (PC) is said to have put privatisation process of Pakistan Steel Mills (PSM) on the back burner as no potential investor is interested in it except a Chinese company, well informed sources told Business Recorder.

Ministry of Industries and Production (MoI&P), sources said it is endeavouring to resolve the longstanding issue of receivables and payables between Sui Southern Gas Company Limited (SSGCL) and PSM.

Recently, a team of MoI&P visited Karachi and held meeting with the concerned authorities to find out any amicable solution of disputed amount.

PSM privatization: PM grills PC for its failure to satisfy potential buyers

Pakistan Steel has three large institutional creditors - SSGCL, Government of Pakistan and National Bank of Pakistan. All three creditors, including the Government of Pakistan are booking mark up on this debt at considerably high rates.

Consequently, these debts are adding up to Rs20 billion approximately every year in interest charges to the losses of PSM which is close to 70% of the total annual losses of the corporation.

Insiders are of the view that even after the passage of so many years since the Mills closed down in 2015, these liabilities remain unresolved. Various initiatives to arrive at a negotiated settlement with creditors have been made, but to no avail.

“Attempts were made to reduce the burden of the interest ranging from writing off of all interest to at least freezing it from the date the Mills were closed in 2015,” the insiders said adding that as is customary in the case of distressed entities, creditors are expected to compromise on interest and or principal amounts particularly if both creditor and debtor are majority government owned entities.

PSM now owes the GoP Rs.102 billion in principal and Rs.48 billion in interests. National Bank of Pakistan is owed Rs.38 billion in principal and Rs.38 billion in interest where as SSGCL is owed Rs.23 billion principal and a disputed amount of LPS on this amount.

SSGCL is asking for Rs 40 billion LPS on base amount of Rs 23 billion.

An official who is associated with PSM affairs told this scribe that Pakistan Steel is probably not an isolated case. Liabilities of all entities under the government’s purview might need a review and the creation of a legal and financial mechanism to address them, as they don’t automatically go away, and allowing them to grow unchecked will make most entities insolvent.

“Individual government departments remain reluctant to accept this responsibility and tend to lean towards obtaining just No Objection Certificates (NOCs) to green light corporate actions, rather than settling the underlying liabilities,” he added.

The official proposed that Privatisation Act be amended to include effective liability settlement as a responsibility of the Privatization Commission for entities on the Privatization List, adding that for settlement with creditors, the latter should not be allowed to block the revival/ privatisation process or extract unfair terms.

For all others companies, the Government should assign legal responsibility to individual administrating Ministries to manage and restructure the entities and their liabilities to ensure their financial well-being,“ he continued.

The official further stated that LPS issue can be solved by the Federal Government by producing a well thought out policy on Debt/LPS between State Owned Entities (SOEs) while considering financial impacts, fairness and practicality.

Talking about privatisation process of PSM, he said that from the lack of progress on bidding by the Privatisation Commission, apparent weak investor response and recent committee discussions, it appears that the privatisation process may have stalled as the number of qualified and interested parties is less than the minimum needed for a competitive bidding process to take place. There has been very little meaningful progress on the bidding process during the last two years.

The ongoing economic situation in Pakistan and the exacerbating balance of payment’s crisis is also discouraging private parties, who were relying on repatriating profits in dollars and also planning on importing much of the raw materials required for steel production instead of exploiting local sources of iron ore.

Hundreds of people in various government departments and PSM have worked hard to support the privatisation process during the last four years.

A number of useful steps have been accomplished that have reduced losses and prepared the entity for investment. However, with every passing day, losses accumulate and the cost of missed opportunity escalates.

“Outright sell-off is not the only method available to revive the Mills. There are other options worth exploring to source private capital, private operations and technical expertise that are necessary to revive Pakistan Steel.

A stage wise and phased revival of the plant using a combination of local and foreign resources with maximum usage of local raw materials might be worth looking at,“ the official suggested.

Copyright Business Recorder, 2023