PSM issues warning

Pakistan Steel Mills (PSM) has reportedly warned the government to ensure implementation of the revised business plan or be ready to pay monthly salary deficit, sources close to Secretary Industries and Production told Business Recorder. Secretary Industries and Production, Arif Azim also claims that he is the Chairman of the PSM Board of Directors (BoD) because the government did not appoint a new Chairman after Zafar Khan refused to accept the position.
According to the PSM management, the plant has not been maintained over a long period and is prone to unexpected failures when operating at higher capacity, will not cause major disruption. Some of the major equipment such as thermal power plant is still under major repair and the oxygen plant also needs some critical repairs from western sources that are reluctant to come to Pakistan due to security reasons. Moreover, blast furnace-I has to be constantly monitored due to overdue capital repair for the last four years. The supply of basic raw materials ie iron ore and coal, hindered by uncertainty of mine operations, delay in timely availability of ships and finally the machinations of a local representative of suppliers is severely disrupted.
Dumping of HR products by China which affects the sale of PSM production resulting in shortage of funds and disrupting the material supply chain and salary and utility payments is within manageable limits. A Rs 3 billion L/C facility with NBP without margin of procurement of raw material on basis of GoP guarantee will continue and the bank will not demand principal amount due and mark-up until the fate of liability to NBP is decided during privatization.
Some of the demands of PSM are as follows: (i) Uninterrupted electricity supply to continue production; (ii) gas pressure of 4 kg/cm2 and flow of 30,000 m3/hour will be maintained by SSGC. This business plan includes Rs 1 billion payment to SSGC for March-April 2015 and monthly bill after April 2015 will be paid by PSM. SSGC will not demand outstanding liability as it will be decided during the process of privatisation; (iii) immediate release of 4.1 billion for two months cash salary and working capital deficit to maintain raw material supply chain and ensure payment to SSGC; (iv) release of Rs 2.3 billion required for essential unavoidable plant repair for sustainable production in July 2015 and Rs 1.4 billion capital commitments next FY for B.F-1 repair to be actually spent in 2016-17; and (v) RD on HR products and pipes is to be maintained rather enhanced to 20 per cent and at least 25 per cent RD is imposed on boron mixed alloy steel which is presently being imported on zero percent duty under Pak-China FTA, nullifying 12.5 per cent RD recently imposed on HR Steel material.
"If any of assumptions of the business plan is not fulfilled resulting in reduction of average CAPU less than 60 per cent or corresponding sale then GoP will pay monthly salary deficit," the sources quoted PSM management as conveying to the federal government. China Development Bank Securities Co Ltd (CDB Securities), Pak China Investment Company Limited (PCICL), Iqbal A Nanjee & Co Pvt Limited, Sinosteel, Abacus Consulting Technology (Pvt) Ltd (Abacus Consulting), Cornelious, Lane & Mufti & PWC CA have been appointed FA for the PSM.
An eight-member team of FA held a meeting with PSM officials a couple of days ago. PC consultant advised PSM officials to convince employees that privatization of the Mills is in national interest and requested for cooperation for evaluation task completion assigned to Financial Advisor. PSM management gave a detailed briefing to the team on the current status of entity which is suffering a massive financial loss. PSM production attainment was 20%CAPU against proposed 58%CAPU and sales revenue was Rs 7.3 billion from July-May against target of Rs 44 billion for the year 2014-15. For current month, production attainment is approximately 10% due to shortage of raw material iron ore with stocks depleted and using poor quality ore dug out from the stockyard pits.