ISLAMABAD: Pakistan Steel Mill’s Stakeholders Group has written a letter to Prime Minister Imran Khan requesting him to review the privatisation of PSM by forming a subsidiary company, terming it a non transparent process that will lead to further financial losses to the national exchequer.
Chairman Board of Directors Pakistan Steel Aamir Mumtaz, who had also tendered resignation from the Transaction Committee, also wrote a letter to the Privatisation Commission on July 18, stating that the purpose of the undertaking is a competitive bidding exercise run by an independent consultant to ensure clean and professional process.
However, the approach of the consultant is to provide us with a wish list of concessions as revealed in the comments during the meetings and review sessions. Some examples of this are the PQA-PSM Agreement for use of Jetty, comments of Joseph Lobo valuation, and preferred valuation of assets from valuator.
How are such discussions taking place in a process that has very strict rules of information disclosure, arm’s length communication, and legal requirements to obtain the best term through bidding? It would be very helpful for the Board to examine the working of the consultant to ensure that we are following the norms of the competitive bidding process.
Very often it feels like a negotiated process with the consultants negotiating on behalf of an investor. He had also highlighted issues related to structure and guarantees and other issues in his letter.
However, PSMC’s Stakeholders Group Convener Mumrez Khan in his written letter to the PM stated that during two and half years of the present PTI government from July 1, 2018, to December 31, 2020, the losses of around Rs44.5 bn and liabilities of around Rs96.64 bn have been added to the Corporations balance sheet as per reported audited accounts, for which no accountability of the present PSM management has been made by the government.
The audited financial statements of PSM show accumulated losses of Rs217.5 bn and total liabilities of Rs307 bn as on December 31, 2020 i.e., after completion of two and half years of the PTI government and next six months accounts are not yet audited.
Now, the Privatisation Commission through the advertisement on August 31 has invited Expression of Interests from the interested parties/investors for the acquisition of 51-74pc issued share capital together with the management control of the Steel Corp (private) Limited, a wholly owned subsidiary of PSMC with last date for the submission of EOIs on or before September 30.
According to reports published in the media, as suggested by the Financial Advisors (M/s PCICL & M/s BOCI) of the Privatisation Commission, the core assets of the Corporation along with 1229 acres of land have been decided to be transferred to a newly formed subsidiary company Steel Corp (Pvt) Ltd, after the valuation being done by M/s Joseph Lobo, a local firm. The Privatisation Commission has decided that a clean balance sheet will be given to Steel Corp that will have assets of Rs134bn and deferred tax liabilities of Rs38bn (which actually become an asset in case of loss-making enterprise like PSM).
The worth/ valuation of 1229 acres of core land is not included in the assets of subsidiary and planned to be leased through land lease deed on arms-length basis to the bidder, which is objectionable as the present market value of such developed industrial land in Port Qasim Town is not less than 70 to 90 million rupees per acre and the NOC from the Sindh government is not there for transfer of this land from the PSMC to Steel Corp (Pvt) Ltd. The 51-74pc shares of this subsidiary company have been decided by the Privatisation Commission to be divested to the private bidder with transfer of management control to the strategic buyer after completion of Scheme of Arrangements (SOA) with SECP by PSMC & MOIP. After transferring assets to the Steel Corp, the PSMC will retain Rs 426bn assets and Rs269.5bn liabilities. But what will be the future of the PSMC after divestment of its subsidiary Steel Corp, is still unknown.
Without clearing the complete liabilities (local and foreign) of PSMC, forming a new subsidiary will open a new Pandora’s box and may engage the PSMC and Steel Corp in new litigations. The flaw is there because if the purpose of privatisation is to minimise losses to the national exchequer, then why liabilities of Rs 269.5 bn are retained with government/ PSMC and not transferred to the prospective buyer of subsidiary Steel Corp (pvt) Ltd, he added.
Mumrez Khan alleged that the motives of Privatisation Commission are clear to give a liability free steel plant to the prospective buyer and keep the nation overburdened and weeping with debts and liabilities, whereas these liabilities of the PSMC will continue to increase because markup on debts/ payables is not yet frozen by the government although the PSMC is in losses after 2008. This is the story behind the so-called privatisation process designed by the Privatisation Commission and its FA to benefit the prospective buyer with a liability-free plant and to keep the nation engaged with the PSMC debts and liabilities.
The PSMC-SG believes that this method of Privatisation adopted by the Privatisation Commission is non-transparent and unlawful due to the following reasons:
i. The Financial Advisors (Consortium of Companies) appointed by the Privatisation Commission for due diligence and the Valuator firm to assess the Fair Market Value (FMV) of PSM core assets did not have the experience of any such exercise for any integrated Steel plant of the world, so the assets of PSMC are not being properly valued.
ii. The matter of privatisation of the PSMC or its any subsidiary with core plant assets has not yet been decided by the Council of Common Interest (CCI), which is a constitutional obligation, as this mistake was also observed in the PSM privatisation in 2005 which was annulled by the Supreme Court of Pakistan.
iii. The review petition (C.M.A. No. 1979/2006) of one of the previous bidders’ private groups (M/s Arif Habib) against previously annulled privatisation by the Supreme Court decision in CP 9/2006, is still pending for decision, so how can the Privatisation Commission proceed for further privatization?.
iv. The Privatisation Commission has announced for 1229 acres of core land to be transferred/ leased to subsidiaries through local lease deed but its third party recent fair market valuation has not been done and not included in the value of core assets, which is not fair.
v. The PSMC inventories of billions of rupees for items available in stores, its transactions (payables and receivables) of billions have become inaccessible/ non-traceable due to its online databases and servers went non-operational due to incompetence and non-seriousness of the present management.
vi. Why a liability-free subsidiary company Steel Corp (Pvt) Ltd. with core assets of plant and 1229 acres of land is being offered to prospective buyers and the PSMC with heavy debts and liabilities is retained with the government/ nation? Is it not unfair and equivalent to giving undue favor to the prospective buyers and is it not contradictory to the mandate of Privatisation Commission?
Therefore, the PSMC-SG made following demands:
i. To stop this illegal process with malafide intentions that designed privatisation process immediately through this sale of 51-74pc issued share capital together with management control of the Steel Corp (Private) Limited, a wholly-owned subsidiary of PSMC.
ii. Investigation for the factors leading to the losses and initiation of accountability process of financial recoveries of taxpayers’ plundered money from the alleged accused from 2005 to 2021.
iii. Reconstitution of PSMC Board of Directors and appointment of honest and professional management after removing the present irregular appointees through their performance audit.
iv. The technical, professional, trained and skilled manpower of PSM should be retained/re-employed and the forced retrenchment process should immediately be stopped to revive the plant.