PSM predicament

The vision to have a steel mill for Pakistan was captured immediately after the birth of the nation. The first five-year plan of 1955-60 included the setting up of a steel mill. It was only in 1973 that the foundation stone of Pakistan Steel was laid, construction started with technology provided by the then Soviet Union and production started in the mid-1980s. PSM enjoyed few a short spans of good governance and good productivity. By and large, it remained a troubled entity on account of poor governance and political interference.
The first serious attempt to sell-off majority shares of Pakistan Steel Mills (PSM) in 2006, under the non-performing public assets privatisation programme, was aborted when the Supreme Court of Pakistan halted its sale on grounds that the sale process was conducted in haste ignoring the profitability aspects and the assets of the mills. At that time a consortium led by Saudi based Al Tuwairqi group, together with Magnitogorsk Iron and Steel Works of Russia and Arif Habib Securities of Pakistan, submitted a winning bid of US $362 million (Rs 16.8 per share) for a 75% stake and management control of PSM at an open bidding held at Islamabad.
Under the hammer around that time was also the privatisation of PIA, PSO and others. But, much under the influence of politics and vested interests, the privatisation programme of the government of Shaukat Aziz did not fly. In the subsequent years the financial health and governance of these mega entities further messed up on account of their unchallenged exploitation by state leadership and vested interests. Since the botched privatisation of 2006, the government has injected Rs 80 billion into PSM to compensate incompetence and corruption by keeping it afloat at the expense of public money.
The incumbent government is now making an attempt for the privatisation of public assets, including PSM. While taking into account the criticism surfaced in the first attempt of PSM privatisation, a new framework has been engineered. It is reported that this time the government is offering to sell off 51% of PSM shares with management control awarded to the buyer. The government is considering setting a minimum investment requirement of around Rs 90 billion, a large part of which is for manpower rationalisation inclusive of surplus manpower separation. Further, the government is reported to have been advised to split PSM into core assets and core operations and allied assets and support facilities. Under this only 4,500 acres of core land will be provided to privatised PSM under a 30-year rental agreement along with existing core infrastructure and the steel plant. Whereas, the government will retain 19,000 acres of land and non-core assets of PSM such as medical and educational facilities, staff housings, farms and parks, commercial outlets along with workforce working there. To manage all of these non-core assets, the government plans to set up a new subsidiary company under the Production Ministry.
The financial and operative health of PSM today is much worse than what it was at the time of first privatisation attempt in 2006.
PSM has a permanent staff of 15,500 plus 1,500 temporary workforce. It is estimated that the organisation is overstaffed by at least 40% which needs to be separated to manage the viability of PSM. The total assets of the company are reported to stand at Rs 279 billion as of March 31, 2015 of which Rs 175 billion belongs to the federal government and Rs 104 to PSM. The losses stand at over Rs 150 billion and liabilities over Rs 173 billion of which Rs 134 billion towards federal government and Rs 39 billion towards PSM, both of which has steeply escalated since 2006. It is estimated that the new investor has to invest around $1 billion to revamp and expand the plant to three million tonnes per annum production capacity to make it financially viable.
The score card of PSM is not expected to invoke much interest of the investors compounded by the fact that the investment climate is not as attractive as it was in 2006 compared to the present negative FDI inflows into country. The threat of court intervention and foul play by vested interest continue to be a deterrent.
The government plan to carve out 19,000 acres and non-core assets and services out of the privatisation process and placing it under a new public sector entity is flawed and intentions suspicious. It is creating a bigger financial and management disaster and public money exploitation than perhaps the PSM itself. The public is well aware how the real estate in the country is exploited. Up to now the massive lands of PSM enjoy protection and public focus being the integral part of PSM.
It is reported that the federal government is also favourably considering requesting the Sindh government to acquire PSM with all its assets and liabilities. With the pathetic track record of the Sindh government in managing the present public sector entities under its fold and the poor level of governance it has exhibited, it is not understandable as to what value the Sindh government can add to pull PSM out of its decades-old financial and management crisis. Obviously, to expect any good out of this inter-government transfer of PSM is not realistic.
The pathetic performance of PSM, PSO, PIA, Pakistan Railways and public-sector entities in the energy sector and similar has exposed that Pakistan has lost out its management and governance competence. The fault does not rest with the professional managers but the fault lies with the environment in which they are subjected to operate being infected with politics where vested interest prevail over national interests.
PIA was once the pride of not only Pakistan but of the world. PSO ranked high among 500 Fortune Companies of the world. Wapda electrified the new-born nation in a record time and produced engineers who went out to set up the power entities in most of the Middle East. Pakistan Railways trains operated on the dot. All of this was achieved by the talented managers of Pakistan who then operated isolated from political influence and vested interest. The mid-70s witnessed the creeping in of political interference and play of vested interests. This phenomenon continued with up and downs and brought the nation to the bottom we stand today where a large part of the nation's budget is consumed to make payment for poor governance. The salvation of this nation lies in isolating business from politics and vested influence.
(The writer is Chairman Avant Ventures and former President OICCI & ABB Pakistan)