delayed, pushing the breakeven to May 2015.
In the ‘Caution Clause’ approved in the summary, it was stated that each months delay will entail an additional payment of Rs1.4 billion to make up for the resulting deficits.
Since 2008, the PSM is accumulating losses of around Rs118 billion. It also carries liabilities of Rs126 billion on its balance sheet. Earlier, the losses were due to the mismanagement and lack of capacity, but now it has been experiencing a huge deficit of materials and gas to run the mill and bring it to a desirable level. Currently, the PSM is at zero production level for the last two months.
The PSM at the moment has about nine billion rupees of inventory, in which two billion are finished products. If the government allows, the PSM can also sell the inventory to run the mills, but at the moment, due to a huge dump of products from China, its products have been left less attractive.
Interestingly, at two critical moments when the PSM was on the way to achieve the 77 percent capacity utilization [breakeven], at the very next day the gas pressure was reduced to almost zero. On January 7, 2015, it achieved capacity utilization of 50 percent and next day gas pressures was reduced for ten days and then on March 10, 2015 it achieved 65 percent capacity utilization but again the pressure was reduced which adversely affected the production. This has led to confusion that whether the government is serious in helping the industry stand on its feet.
The PML-N led government has time and again expressed its seriousness in revival of the Pakistan Steel Mills (PSM), but due to the government’s own policies, the mill has remained at zero production, staying heated only in order to avert a complete breakdown and is relying on K-Electric supply.
The official further said that dumping of the import of steel products, particularly Hot Rolled Coils (HRC) as massive import from China starting in Feb 2015 has affected the PSM sales badly.
The billet manufacturers received 15 percent Regulatory Duty (RD) in Feb 2015, while PSM was allowed only 12.5 percent RD on March 9, 2015 on normal HR steel, leaving out Boron mixed alloy steel which nullified 12.5 percent RD effect.
Over one Lac ton of boron alloy steel came into the market at zero duty each month, reducing PSM sales to a level that was insufficient to pay monthly gas, electricity bills and meet other expenses.
“Complete gas halt would shut two blast furnaces and two coke oven batteries at the PSM forever, as such plants cannot be temporarily switched off for any reason at any point of time,” the official said, adding that they need round-the-clock gas to keep them on heating.
He said smuggling and under invoicing are two major issues that are restricting the sale of PSM products.
The government’s grant of concessions to influential importers through Statutory Regulatory Orders (SROs) has also affected the mills performance and made its products costlier than others. Under these SRO’s, imported products and the concessional duties on them make the products less costly than locally produced products.
According to the SRO No 421 that was issued on June 4, 2014, the government has imposed 17 percent sales tax on every type of local iron and steel. Whereas, on import of such scrap, the government has imposed only Rs5600 per ton sales tax, making domestic scrap Rs2000/ton costlier than imported ones.