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PSM production hits zero level due to low gas pressure

Islamabad Pakistan Steel Mills (PSM) production has reached zero level because of extremely low gas pressure. The documents available with The News show that almost zero gas pressure is because of the nonpayment of gas bills. The PSM consumed Rs19 billion worth of gas from March 2014 to May

By Fakhar Durrani
July 04, 2015
Islamabad
Pakistan Steel Mills (PSM) production has reached zero level because of extremely low gas pressure. The documents available with The News show that almost zero gas pressure is because of the nonpayment of gas bills.
The PSM consumed Rs19 billion worth of gas from March 2014 to May 2015 against the total sale of Rs9 billion during the same period, the documents reveal.
PSM has to pay Rs35 billion in gas bills to Sui Southern Gas Company Limited (SSGCL) and the non-payment of these bills is the reason for the zero gas pressure.
The News contacted the PSM spokesman for his version and initially he asked for some time to check with the relevant departments. However, after three days he refused to comment on the situation.
The PSM plant has reportedly been damaged apparently due to zero gas pressure and the documents available with The News reveal that this happened because of the negligence of the management.
The PSM on June 26 issued a statement, which said: "The production at Pakistan Steel Mills has hit zero level owing to the low gas pressure from SSGC. The existing pressure of less than 0.9 kg/cm2 and flow of 12,000 m3/hour is not sufficient to produce any product, while intermittently starting and stopping of huge blast furnaces is not only leading to their complete stoppage but have skulled all ladles except 2 of the total 19 available which handle hot metal. This is a very serious situation and minimum pressure of 3 kg/cm2 and flow rate of 28,000 m3/hour is essential for any production".
Sources in the PSM informed The News that the sitting chief executive officer (CEO) of PSM, Major Gen (retd) Zaheer Ahmed, has no metallurgical experience whereas his appointment was also in violation of the memorandum of article of association of PSM. According to the rules, the board of directors of PSM is authorised to appoint the CEO but the government appointed the sitting CEO through Abdul Rauf Chaudhry-led commission.
The CEO assured the Economic Coordination Committee (ECC) while getting bailout package of Rs18.5 billion the anticipated results will be achieved with the restructuring plan. The management of PSM assured the ECC that with the implementation of the plan, PSM will be able to pay all their liabilities and with operational capacity around 77%, they will earn a monthly profit of Rs38 million onward from January 2015.
The source said that the accumulative losses of PSM have reached Rs150 billion whereas payable debts and liabilities have also reached Rs165 billion, which means Rs315 billion burden on the national exchequer.
On August 2013, the then secretary industries and production Shafqat Naghmi in his summary at the time of awarding bailout package gave shocking remarks about PSM. He said, "PSM arrived at the present state due to unchecked corruption, inefficiency, over employment and government's lukewarm attitude. The unbroken series of losses started from the year 2008-09 when PSM suffered Rs26.45 billion operating loss. According to a report submitted by PSM before the Supreme Court of Pakistan, Rs7.8 billion loss was because of corruption, Rs11.84 due to mismanagement, while the rest was genuine business loss. Despite -32% contribution margin that year, the management kept production at 65%, while steel mills around the world cut down or stopped production to minimise losses. To top it all, 4,800 daily wages workers were permanently absorbed in 2010, adding financial burden of Rs2 billion for the first year and recurring expenditure of Rs1 billion per annum."
The PSM top management in its reply confirmed that it has to pay Rs19 billion gas bills. “PSM has to pay a principal amount of Rs.15 billion while late payment surcharge amounts to Rs.19 billion. PSM had requested in ECC of 25th April, 2012 and again in the ECC of 25th April, 2015 to waive off surcharge and reschedule principal payment for 10 years rather it was principally agreed in ECC of 2012,” informed the PSM management.
The management further said that from April 2014 to May, 2015, PSM consumed gas worth Rs6.6 billion and late payment surcharge (imposed from Oct-2008) amounted to Rs8.0 billion. Rs2.2 billion of principal amount has been paid while Rs.4.4 billion is balance from this period.
To a question about total sales of PSM from April-2014 to May-2015, the PSM management replied that the total sales are Rs10 billion rather than Rs9 billion.
When asked whether the zero gas pressure to PSM is because of the nonpayment of the gas bills, the management replied, initially on 7th June 2015, it was informed that gas pressure is being reduced due to maintenance work on the system. Later it was revealed that it is due to short payment of gas bills.
About the non metallurgical experience of CEO, the PSM management said the Pakistan Steel is an Engineering Production Organisation in which mechanical/electrical/electronic engineers play more dominant role.
However CEO should preferably have an engineering background and an experience from ground level to heading big production organizations. Present CEO has decades of experience starting from ground level to heading big production units and related Quality and Research/development establishment.
When asked about Rs315 billion burden on national exchequer because of Rs150 billion accumulative losses and Rs165 billion payable debts and liabilities, the PSM, however manipulated the figure in its reply and presented the details of losses and liabilities up till June 2014 rather June 2015.
According to PSM reply, “The accumulated losses as per audited accounts 30/6/2014 has reported as Rs.118 billion and liabilities comes to Rs.111 billion. As PSM capacity utilization enhances, the major liability related to banks will be rescheduled and paid accordingly”.
About the zero performance of CEO PSM despite getting Rs18.5 billion bailout package, the management replied, “The 77% capacity achievement was linked to timely release of funds and availability of gas and NBP L/C facility. The delay in release of funds and gas, electricity stoppages affected capacity utilization. But still 27% CAPU was achieved in 6 to 8 months after four years. 50% was achieved on 7th January, 2015 and 65% on 10th March, 2015 when gas pressure were reduced. A new operational plan to achieve 77% CAPU by December 2015 with bare-minimum fund requirement just equal to salary amount is being forwarded for consideration of ECC”.