Planned PSMC sell-off: PC asked to scrap bidding process

ISLAMABAD: The Apex Committee of Special Investment Facilitation Council (SIFC) has directed the Privatisation Commission (PC) to annul the current bidding process for privatisation of PSMC Corp as it has only one bidder and move to the Federal Cabinet, sources close to Privatisation Minister told Business Recorder.

Secretary Industries and Production and Secretary Privatisation have been directed that further alienation of PSMC land be stopped forthwith.

According to sources, Ministry of Industries and Production and Privatisation have been directed that the option of closing Steel Corp and auctioning its plan and equipment or reoperationalizing it with any mode or private sector be examined in a working group and way forward presented in the next EC meeting.

PSM expenditure since its closure: ECC directs FD to submit details of cost borne by govt

A committee comprising, Minister Industries, Minister for Privatisation and Chief Minister Sindh to recommend optimum utilization of the industrial land of Steel Mills for industrial purposes, either through Special Economic Zones (SEZ) or EPZ be presented.

Pakistan Steel started its commercial operation in 1984. After remaining in profit during the eight-year period between 2000 and 2008, Pakistan Steel has been making losses since 2008/2009.

During 2010-2015, its production output was less than the optimum level. During 2014, its output was lowest – six percent of capacity. It was finally shut down in June 2015.

Serious efforts by various governments have been made including injection of various bailout packages to bring its performance to a self-sustainable level.

As an attempt to enable the nationalized industries towards market economy, its privatization process was first conceived in 1989–90 by the then Government. However, the then Government’s efforts to privatize the PSM met with resistance from the then political parties in opposition.

After around 22 years – in 2006 (when it was operating at its optimum capacity for at least the previous three years) – PSM was privatised to a consortium of foreign and local investors.

However, that privatisation program suffered a major setback in 2006 when the Supreme Court of Pakistan struck down the decision to privatize Pakistan Steel Mills. The court held that the entire disinvestment process of the Pakistan Steel Mills reflected haste and ruled that the privatization process was not transparent and did not follow the proper procedures.

Production of Pakistan Steel halted in 2015, and the subsequent Pakistan Tehreek-e-Insaf government envisaged PSM’s revival initially under Government control. In order to resume operations of PSM, the then Cabinet Committee on Privatization (CCoP) delisted Pakistan Steel from the Privatization program in its meeting held on 31st October 2018.

Subsequent to the CCoP decision, Economic Coordination Committee of the Cabinet (ECC) in its meeting dated 7th November, 2018 directed MoI&P to present a plan to the ECC for operationalisation of Pakistan Steel within two months.

An expert group was constituted with the approval of Prime Minister comprising 11 members (06 HUBCO Executives, 03 Technical Experts & 02 Steel Business) to work out operationalisation plan for revival of PSM and MoI&P directed PSM to share relevant information with that group, whatever it required, to compile its recommendations to the Government.

The matter of data sharing was taken up in 400th PSM Board meeting held on January 21, 2019. Additional Secretary-II, MoI&P was invited to the said meeting as a special invitee to share the views of MoI&P regarding involvement of the Expert Group for developing options on operationalisation plan of Pakistan Steel.

On April 08, 2019 the Expert Group gave a presentation to the ECC of the Cabinet about the proposed revival of PSM On April 16, 2019. MoI&P moved a summary to consider the following: (i) putting PSM on privatization list; and (ii) appointment of Transaction Advisory Consortium (TAC) for revival of PSM through advice to the government on set of appropriate Public-Private Partnership models.

On May 03, 2019 ECC considered the above proposals and decided to place PSM back on privatization list. The Committee directed MoI&P to place the matter before CCoP being the competent forum. On June 17, 2019, the CCoP noted the position presented by the Privatisation Division regarding Privatisation of PSM and directed that the Mills be placed on the privatisation list.

The CCoP directed Privatization Commission (PC) to immediately advertise for the recruitment of a Transaction Advisor for PSM, ie, to bring in a party for revival of Pakistan Steel Mill without transfer of full ownership. The decision was later ratified by the Federal Cabinet.

From July 13, 2019 to Jan 15,2020, after completion of all legal formality PC finally appointed the Financial Advisor (FA) “Pak China Investment Company Ltd” and the process of due diligence on PSM Accounts, Tax, HR, Legal & Land started by the subcontractor of the FA from the month of January 2020.

First Steering Committee meeting on PSMC transaction was held and the list of required information, as requested by FA, was shared with PSMC.

From April to August, 2020 Transaction Committee meetings were held to review draft DD reports submitted by FA and finalized the transaction structure for PSMC on 19th Aug, 2020. During the meetings with FA, PSM repeatedly conveyed its concerns/reservations regarding transaction structure.

In the meantime, PSM has communicated its key concerns/issues regarding transaction structure. Chairman PSM Board also wrote letters to the Chairman of Board of the Privatisation Commission in this respect.

A high-level meeting co-chaired by Minister for Industries & Production and Minister for Privatisation was held on 27th July, 2020 for resolution of impending issues and discussed various options of transaction structure. The matter of PC’s process was also raised as an issue notably that under the current approach the whole exercise could go on for an indeterminate period of time, which it ultimately did.

On December 24, 2020, the CCoP approved a Transaction Structure (presented by PC), which includes incorporation of a subsidiary company consisting 1229 Acres (Core Plant Land), identification of Key Operating Assets, Transfer of utility connections to New Subsidiary, NOC by NEPRA for transfer of power generation license to new subsidiary, NOC from NBP and SSGC after settlement of their outstanding liabilities, PSM filed a Scheme of Arrangement (SoA) with the SECP to transfer its Key Operating Assets in the name of the new subsidiary.

On 10 August 2020, the CCoP approved an amended Transaction Structure (ratified by the federal cabinet on 17th August 2021), according to which the new company incorporated by PSM instead of being subsidiary will be owned by the federal government.

The quantum of range of equity stakes of Steel Corp (Pvt) Ltd shall be 51-74% for divestment through bidding process, the paid-up capital of Steel Corp (Pvt) Ltd shall be equal to its Net Equity as on December 31, 2020.

The CCoP directed the Privatisation Commission to invite the Expression of Interest (EOI) from Interested Parties for Revival of PSMC, after filing of Scheme of Arrangement (SOA) with SECP by PSMC.

After incorporation of new company, KOA have been identified and evaluated (may be transferred any time as and when required), NOCs from KE, NBP and NEPRA have been obtained, and SoA has been approved by the SECP.

The NOC from SSGC is still pending due to reasons known to the Board, MoI&P and the PC. The PSM has been informed that the PC Board had prequalified following four companies of China origin for acquisition of 51-74% issued, shared capital of Steel Corp (Pvt) Ltd – the four pre-qualified bidders provided access to Virtual Data Room (VDR) to conduct buy-side due diligence: (i) Baosteel Group Xinjiang Bayi Iron and Steel Company (owned by govt of China); (ii) Tangshan Donghua Iron and Steel Enterprises Group Company Limited and Metallurgical Construction Corporation of China; (iii) Tianjin Jianlong Iron and Steel Industry Company Limited; and (iv) Maanshan Iron and Steel Company Limited (owned by govt of China).

Copyright Business Recorder, 2023