Finance Ministry is said to have become the main hurdle in the way of another bailout package of Rs 11 billion for Pakistan Steel Mills (PSM), informed sources told Business Recorder. Caretaker Prime Minister Mir Hazar Khan Khoso, who is in favour of a reportedly advocating another bailout package for PSM, on Thursday heard the Finance Ministry and constituted a committee comprising representatives from finance, production and management of PSM to work out a business plan and present it to him for consideration in the shortest possible time.
At a recent meeting Special Secretary Finance Abdul Khaliq observed that during the current financial year Ministry of Finance had already granted a bailout package of Rs 14.6 billion but the PSM had not given any positive results, and instead was requesting another financial assistance of Rs 11 billion. Thus during this financial year PSM expected more than Rs 25 billion without any tangible and positive results. "When budget for the year is made, each and every penny is accounted for. As we have already violated financial discipline, hence the grant of another Rs 11 billion would be a very difficult preposition," the sources quoted Special Secretary Finance Abdul Khaliq as saying. Advisor to PM on Finance, Dr Shahid Amjad Chaudhry, inquired whether the mills would perform well if the government decided to write off the mark-up of Rs 5 billion on GoP loan of Rs 41 billion. He further asked whether there was any guarantee that PSM would not come back again to the government for further financial assistance?
Chief Executive Officer (CEO), PSM, Major-General Muhammad Javed (Retd) maintained that the Mills required a working capital of Rs 11 billion without any encumbrance to purchase raw materials and if production was more than 75% of capacity of the Mills, that will only reduce loss. PSM can come into profit only if production is more than 75% of its capacity, according to him.
On Thursday, Mir Hazar Khan Khoso directed the Ministry of Finance to work with the Ministry of Production and the management of Pakistan Steel Mills and work out a financial package so that this strategic financial asset could be made a viable entity. The next meeting of the committee is expected to be held on Saturday before the Federal Cabinet meeting.
Official documents presented to the committee reveal that PSM suffered huge losses to the tune of Rs 72 billion (approx.) from the year 2008-9 to 2011-12. The Government extended support and provided bailout packages of Rs 41.20 billion to PSM from time to time during the last four years for its revival. The last bailout package of Rs 14.6 billion (to be paid in four quarterly instalments against PSM's demand of Rs 27.2 billion including equity injection of Rs 15 billion) was approved by the Cabinet Committee on Restructuring (CCOR) and ECC in their meetings held on June 28, 2012 and July 24, 2012 respectively. At present, Capacity Utilisation (CAPU) is 15/20 percent which needs to be enhanced to 80 percent. PSM is losing Rs 50 million per day and approximately 1.5 billion per month.
Recently, PSM signed an MoU with state-owned Russian firm VO Tyazhpromexport wherein a phase-wise programme involves expansion up to 1.5 mtpy in first phase, with subsequent expansion up to 3.0 mtpy in second phase besides upgradation of existing facilities.
In consideration of critical financial position, the following support from the government to revive PSM is required immediately: (i) PSM may be provided Rs 11 billion as equity (in lump sum), immediately to meet its working capital requirement; (ii) mark-up on GoP loan amounting to Rs 41.20 billion for the first three years (July 2013-16) ie Rs 5 billion (approx) per annum may be borne by the GoP; (iii) PSM has already made a payment of Rs 3.5 billion against total amount of Rs 7.767 billion in 2007 leaving a balance of Rs 4.2 billion. The instalment of balance Rs 4.2 billion due in June, 2013, may be deferred for next three years with the service of mark-up by GoP as per the agreed schedule. The payment of principal amount of instalment may start from June, 2016.
The current liability of SSGC is Rs 14 billion, inclusive of surcharge amount of Rs 3.6 billion, the GoP may pick-up at least Rs 1 billion on an immediate basis, with a waiver of current surcharge amount and surcharge amount likely to accrue up to March 2014.