Pakistan Steel Mills (PSM) and Engineering Development Board (EDB) have reportedly said no to open auction of steel products, arguing that open auction will result in cartelisation, which may adversely affect the smooth supply of products and prices.
The Competition Commission of Pakistan (CCP) has already charge-sheeted the PSM for its discriminatory policies in the sale of steel products. Last week, Minister for Industries and Production Mian Manzoor Ahmad Wattoo held a meeting with the top brass of PSM and EDB to discuss the proposal of selling of the PSM''s products through open auction on fortnightly basis as was desired by the Economic Co-ordination Committee (ECC) of the Cabinet.
The meeting was postponed for two consecutive days due to the absence of the minister, who was engaged with a Federal Cabinet and NEC meeting. The venue of the meeting had also been changed from the ministry''s committee room to the EDB office.
Source said the meeting, which continued for a couple of hours, failed to evolve a consensus over the "transparent sale" of the PSM''s products. The sources said the proposal had been sent to the PSM and EDB in writing for comments but, interestingly, both the organisations joined hands in defeating the ministry in its ECC-backed intention of selling the products through open auction.
The sources said the PSM, in its comments, stated that the sale of slow moving/stuck up/old stock through tender/auction was already in practice. Moreover, in view of disparity between listed prices and un-predictable auctioned/tendered prices, it was hard to determine profit/loss, said the sources.
According to the sources, the PSM management further argued that Rs 475.45 million, deposited by the traders/consumers as security amount, was over and above the down payment made against running contracts. In case of sale through auction, instead of regular sale, this would prompt customers to request a refund, depriving the not only the PSM of these deposits, but would also result in the following repercussions:
-- Supplies to regular/downstream industries will be disturbed, which may cause closure of the units.
-- Formation of cartel to bid lowest prices may deprive Pakistan Steel of its revenue by offering lower prices than the reserved prices.
-- Steel products in few hands may cause serious imbalance in demand/supply equilibrium creating distortions in the market.
-- In the absence of any consistent demand from the market, it will be difficult to prepare marketing and production plants, which will result in serious mismanagement at all production units.
-- Since auction will be done through press tender, the cumbersome procedure of inviting tenders preparation of comparative statement, issuance of material receipt of payment etc will cause delays in sale of finished products along with burden of inventory carrying cost.
The EDB, in its comments, said that the billets produced by the PSM were sold through a network of dealers, including traders and direct consumers. According to the current structure, the PSM has 704 traders and 229 consumers in all zones and total security, deposited by traders/consumer dealers is around Rs 475.45 million.
The proposal of switching over from dealership to auction of the PSM products needed careful examination and evaluation as both options had merits and demerits, the sources quoted EDB in its comments.
The EDB was of the view that in case of change of sales policy from dealership to auction, the PSM will have to refund an amount of Rs 475.45 million, which will probably be impossible for the PSM due to its current liquidity crunch.
The PSM is committed to supply its products to a number of downstream industries. In case of adoption of the process of auction, the PSM will not be in a position to honour its commitments to these industries. It has also been argued that dismantling of 25-year old system may create further complications.