Rusting in pain

Hussain Ahmad Siddiqui
September 16,2019

The government’s policy and attitude towards revival of Pakistan Steel Mills (PSM) is apathetic, to say the least, as no road-map for the strategic integrated steel mills has been worked out. Seemingly, the government lacks vision and political will regarding the future of the PSM that has been non-operational for more than four years, while the gap between demand and supply of steel continues to widen, leading to huge imports.

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The government’s policy and attitude towards revival of Pakistan Steel Mills (PSM) is apathetic, to say the least, as no road-map for the strategic integrated steel mills has been worked out. Seemingly, the government lacks vision and political will regarding the future of the PSM that has been non-operational for more than four years, while the gap between demand and supply of steel continues to widen, leading to huge imports.

On September 1, 2019, the PSM Stakeholders Group, which comprises its employees, pensioners, suppliers, dealers, and contractors, cautioned Prime Minister Imran Khan over the deliberate delays perpetrated by the vested interests in the revival or the sell-off of the largest industrial complex, highlighting that the Prime Minister was being misled by his advisers. On August 6, Prime Minister Imran Khan had directed the concerned authorities to expedite revival of the ailing PSM, pledging once again that “saving and restoring PSM is the top most priority of the government”.

Sadly, no concrete steps for its comprehensive restructuring and revival have been taken. The only progress is that the ECC (Economic Coordination Committee of the Cabinet) has approved outstanding salary of the employees for the month of June amounting to Rs355 million and the Ministry of Industries and Production appointed a new board of directors, its chairman and the chief executive officer, who practically would have no role in the privatisation process as per the defined procedure. For all transaction purposes, the PSM is under the control of the Privatisation Commission (PC). It is ironical that all employees of the cash-bleeding PSM would continue to receive salary and perks, for which the government has already earmarked Rs4 billion, in advance, for the salaries for the whole 2019-20 year, whereas the steel mills will remain cold without any production activity, rendering Rs200 billion in annual losses.

Steel is termed as backbone of infrastructure of any country. Developing and strengthening steel industry is considered vitally important for achieving the most cherished goal of rapid industrialisation and self-reliance. Apparently, the government has no plans to revive and restructure the PSM. In marked contrast to earlier commitments of the government that the strategic industrial unit would not be privatised but revived, the Cabinet had decided on July 2 to place the steel complex under active privatisation list programme. Appointment of the financial adviser, for which Expressions of Interest (EOI) were invited on July 13, is in process. The mode of divestment is through public-private partnership for the revival of the PSM, though such divestment is not within the purview and mandate of the PC.

In fact, the government has frequently changed its stance about the future of the PSM. Minister of State Ali Muhammad Khan had stated in the National Assembly on May 2 that the government was not considering privatising the strategically important PSM. Earlier, former finance minister Asad Umar and Adviser to the PM on Industries and Commerce Razak Dawood have been assuring the nation, time and again, that the PSM would be revived and restructured soonest to make it a profitable and competitive organisation. Dawood had stated that the resumption of its operations require a new process to revive the mills necessitating a minimum injection of $100 million.

This is the punch line. The PSM is currently in a state of disrepair and putting it into operation with existing plants would not be feasible, technically and or economically. Serious damage has been done to the critical equipment since June 2015. Practically, there is a need to scrap the major plant machinery, such as blast furnace, converter and coke ovens, and to build a new unit based on modern steelmaking technology. Notwithstanding the fact that there have been many failed attempts to privatise the PSM in the past, the serious investor could come only after the closed mills is revived for operations by replacing the outmoded inefficient plant of the 1960s, which was also recommended by the Experts’ Committee on the PSM revival.

On the other hand, Razak Dawood has recently said that many industrial groups from various countries including Japan, China and Russia were interested in take-over of the largest industrial unit. Earlier he also had a meeting with a consortium of China Metallurgical Group Corporation (CMC) and Donghua Iron & Steel of China. To avoid further delays in revival of PSM, it may be the need of hour to negotiate with the Chinese to include the PSM project under the CPEC (China-Pakistan Economic Corridor) programme.

Turning the pages of history, one observes that an excellent opportunity to modernise and expand PSM was lost in 1998. China Metallurgical Construction (Group) Corporation (MCC) had offered to arrange an investment of $1.5 billion including $ 850 million loan by MCC, with possibility of some state credit, to modernise and expand PSM’s capacity to 3 million tons of steel annually, and an additional $ 100 million as equity participation in PSM. A detailed technical and commercial agreement was finalised and initialed between the Chinese side and the Government of Pakistan in January 1998 in Beijing, which was to be formally signed during the visit of the then prime minister Nawaz Sharif to Beijing in February 1998. Though included in the agenda, the agreement was not signed on the occasion, to utter surprise of the Chinese side, whereas no official reason was ever given by the Pakistan side for the same.

The writer is retired chairman of State Engineering Corporation


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