Board of Directors (BoD) of financially undisciplined Pakistan Steel Mills (PSM) has expressed serious concerns over mismatched spending of billions of rupees extended by Federal Government as a bailout package, sources close to Chairman of the Board told Business Recorder.
Chief Executive Officer, Major General Muhammad Javed (retired) briefed the board about the utilisation of first tranche of the 14.6 billion rupees bailout package, the consequential effects of late disbursement of first tranche and the CAPU targets initially determined for July 2012 that had to be deferred to November 2012. The committee in this respect sought various clarifications and gave observations/recommendations at different points during the presentation. One of the participants, Mahmood Akhtar, enquired about the break-even point of PSM, and asked for the cost structure. GM (Finance) responded that the break-even point for PSM is 75 percent.
However, the cost structure is not readily available and will be provided to the committee in due course. Mahmood Akhtar further added that the cost structure of some of the international steel mills should be explored and a comparative study should be carried out in this regard to curb unnecessary cost. The chairman of board, Fazal Ullah Qureshi, observed that the management procured higher quantities of coal while the procurement of iron ore with the required ratio had not been secured, which is the main reason behind reduced CAPU. He added that with the current level of stock and prospective procurement scenario, even the production targets for December, 2012 and January, 2013 was not achievable.
PSM production in September was 7 per cent which declined to 6 per cent in October. The CEO explained that various efforts had been made and tenders for procurement of iron ore had been published many times during the said period, but remained fruitless. He also highlighted the difficulties arising out of the procurement arrangements with Iran. He further revealed that currently PSM had been mainly relying on local iron ore "which has a supply potential of 25,000 to 30,000 per ton per month."
However, Daroo Khan added that the present level of supply is not sustainable as it reflected the reserve stocks being piled up at the mine mouth and warehouses of suppliers. He further emphasised that in order to procure a secure and sustainable position with respect to local iron ore, the management was required to put in more amounts of resources into its own captive mining operations.
The committee in this regard recommended that in the next board meeting the procurement of mismatched inventory, the reasons thereof and out of context efforts, including the slow procurement of local iron ore and other allied matters should be presented, and the board requested to examine the issue in the context of the observations of the Committee, as it was concerned that there was no exercise of prudence in spending the money acquired for raw material and working capital.
Furthermore, the committee said that the business plan approved by BA&FC and the board in 2011 included imposition of different tariff and non-tariff barriers. Hence, the committee advised that the said business plan should be examined by the management to explore all such options/recommendations considered vital for the revival of PSM and appropriate actions be taken in this regard and relevant authorities could be approached wherever required.
The CEO explained the manner of utilisation of first tranche of bailout package and assured that the money received was utilised exactly as promised/agreed with ECC/ CCOR. He further explained the revised month-wise production targets for the remaining year.
The Committee, however, argued that although the management is optimistic about ongoing efforts, the targets set for December, 2012 and January, 2013 seemed unrealistic, considering the present raw material stock position and prospective logistics arrangements. As observed earlier, the money received under bailout package had not been properly utilized in procuring and matching inventories to increase the CAPU to promised level.
The committee instructed the CFO to include a month-wise comparative position in the production targets to analyse the shortcomings and remedial measures taken by the management. Moreover, the revised production targets must be supported with the appropriate inventory movement position to a maximum possible extent, along with the concrete reason that the promised CAPU targets will be achieved. The committee also advised Arif Shaikh, GM (Finance) to explore regulatory mechanism for a barter trade with Iran.
The sources maintained that CEO PSM contributed a Rs 12 billion loss to PSM in seven months as Rs 1.8 billion per month loss has been witnessed. Peoples Workers Union first portrayed him as incompetent and unprofessional, but later praised him after he secured a massive financial package for workers.