ISLAMABAD: The Ministry of Privatisation is all set to hand over Pakistan Steel Mills (PSM) to the Ministry of Industries and Production (MoI&P) after wastage of about four years and massive financial loss to national exchequer under the garb of its revival or sell off plans.
The caretaker Federal Cabinet, in its meeting held on October 30, 2023 gave nod to the recommendations of Privatisation Ministry prepared in the light of decisions taken at the level of SIFC (Special Investment Facilitation Council). However, PSM (Steel Corp Ltd) is still at serial number 11 of entities which are on active list of privatisation program.
Ministry of Privatisation informed the caretaker Cabinet that PSM was listed on the active privatisation list by the Federal Cabinet in its decision of June 17, 2019.
Privatisation list: Cabinet approves withdrawal of PSM
It was further informed that on November 19, 2019, the Privatisation Commission (PC) Board approved the appointment of Financial Advisory Consortium (FAC) comprising Pak China Investment Co Ltd (PCICL) and Bank of China International (BOCI) as Joint Lead Financial Advisors along with Deloitte/ Yousaf Adil (Accounting Firm); Sinosteel (Technical Firm); Cornelius Lane Mufti (CLM) (Law Firm); and Abacus Consulting (HR Firm) and M/s Iqbal A. Nanjee (Valuator) as sub-contractors for the privatisation of PSM. After fulfilling procedural requirements, PC signed Financial Advisory Services Agreement (FASA) with PCICL and BOCI on January 10, 2020.
Ministry of Privatisation explained that the Financial Advisors had prepared due diligence reports and the transaction structure, which was presented before the Transaction Committee and PC Board for deliberations and threadbare discussions.
Consequently, on recommendation of PC Board, the Cabinet Committee on Privatisation (CCoP) approved the following transaction structure on December 24, 2020, which was ratified by the Federal Cabinet on December 29, 2020: “Transferring of identified core operating assets into wholly owned subsidiary of PSMC through Scheme of Arrangement (as provided in the Companies At 2017) followed by sale of majority shares of the newly formed subsidiary (without transferring of full ownership) to strategic private sector partner.”
The Ministry further explained that the key activities, pursuant to the Cabinet approval, included: registration of Steel Cop (Pvt) Ltd by MoI&P/ PSMC on June 1, 2021; approval of key features of the transaction by CCoP on August 10, 2021 and its ratification by Federal Cabinet on August 17, 2021; fling of Scheme of Arrangements (SoA) de-merger with SECP on August27, 2021 by PSMC; and advertisement of Expression of Interest (EoI) by PC on August 31, 2021.
The EoI process led to pre-qualification of following four Interested Parties (IPs) by the PC Board in its meeting held on January 20, 2022: (i) BaoSteel Group Xinjiang Bayi Iron & Steel Co. Ltd (BaoSteel); (ii) Tangshan Donghua Iron and Steel Enterprise Group Co. Ltd (Donghua); (iii) Maanshan Iron and Steel Co. Ld (Maanshan) and;(iv) Tianjin Jianlong Iron & Steel Industry Co. Ld. and MCC (“Jianlong” and MCC).
After signing Confidentiality Agreement (CA) with the Pre-Qualified Bidders (PQBs), access to Virtual Data Room (VDR) was provided to all PQBs on March 9, 2022 to conduct buy-side due diligence. Soon thereafter, Jianlong and MCC expressed disinterest in a meeting held in May 2022, whereas, BaoSteel and Donghua visited Pakistan to conduct the on-site visit of the Steel Mills Plant, the Iron Ore and Coal Berth Jetty (IOCB), and allied infrastructure in June and August 2022.
However, both BaoSteel and Maanshan withdrew their interest, quoting slowdown in global economic conditions, which adversely impacted the global steel demand, coupled with Pakistan’s debilitating macroeconomic outlook, with particular concern relating to difficulties in importing raw materials, as well as, State Bank of Pakistan’s Foreign Exchange Regulations.
The Ministry further noted that the matter was then discussed in the Sixth Apex Committee meeting of the SIFC on October 4, 2023 in which the following decisions were taken: (i) The recommendation of Privatisation Commission to annul the current bidding process for privatisation of Steel Corp (which has only one bidder) was approved. Case be moved to the PC/ ederal Cabinet; (ii) The options of closing Steel Corp and auctioning its plant and equipment or re-operationalising it with any mode of private sector participation be examined in Working Group, and way forward presented in next Executive Committee; and (iii) Committee comprising Minister Industries, Minister Privatisation and Chief Minister Sindh to recommend optimum utilisation of the industrial land of Steel Mill for industrial purposes, either through SEZ or EPZ be presented in next EC.
The Ministry of Privatisation informed that thereafter, the PC Board in its meeting held on October 6, 2023 deliberated the issue in detail.
The PC Board was of the opinion that although Donghua expressed its continued interest, the withdrawal of three other PQBs left the PC with single bidder scenario, which not only denies competitive process but also raises questions on the transparency of the transaction of a very significant magnitude. It was further explicated that given the current circumstances, in particular the single-bidder aspect, which could pose issues regarding fair market value and transparency, proceeding further with the transaction would not be justified.
Additionally, the Technical Due Diligence report indicated that an investment of US $ 584 million would be necessary to revive the Steel Mills plant to its existing capacity of 1.1 million metric tons per annum (mmtpa), with the potential for further expansion to 3 mmtpa requiring up to S 1.4 billion.
The Ministry of Privatisation was of the view that recent advancements in steel production technology have significantly altered the industry dynamics.
Attention was also drawn to the Technical DD Report submitted by Sinosteel (Technical Sub-Con of FAC) and plant and machinery valuation Report.
Copyright Business Recorder, 2023