Money Matters

Risky lease!

Money Matters
By Zeeshan Haider
Mon, 01, 17

FOCUS

With government aiming to leas out Pakistan Steel Mills (PSM) to a foreign firm later this year, the workers’ representatives of the loss-making steel giant said they would resist the move which they claimed was taken without their consultation.

The Privatisation Commission board approved the lease plans for 30 years earlier this month to resuscitate the vast factory which has been lying dormant for over a year and a half, despite injection of huge financial packages by successive governments.

Under the plan, the entire over 19,000 acres of complex land would stay with the government while its plant and machinery would be sold to the leasee. A Chinese firm and an Iranian company have shown interest in taking the factory on lease.

The lease plan was to be discussed by the Cabinet Committee on Privatisation last week, but it was dropped from the agenda until the next meeting, as the government directed the privatisation commission to prepare a comprehensive report on how the big liabilities of the mills would be paid once the lease plan was implemented.

 “We hope to get the approval of the cabinet committee in the next 15 days, which will be followed by expression of interest and bidding process,” Privatisation Minister Muhammad Zubair told The Money Matters.

“If everything goes smooth, then we hope to complete this transaction by July or August.”

Revival of the Soviet-built mills, which is the biggest industrial complex of the country, has been a pain in the neck for successive governments.

The mill is estimated to have accumulated over Rs160 billion of debts and other liabilities of Sui Southern Gas Company (SSGC), Karachi Electric, Water Board, National Bank and many others.

The mill owes over Rs35 billion to the SSGC alone which cut off gas supplies in June 2015 over non-payment and then onwards there has been no production in the mills.

Since then the government has been giving money to the steel giant for the salaries of its employees which number 12,500.

The first serious attempt to privatise the PSM was made during the government of military strongman general Pervez Musharraf, but the then chief justice Iftikhar Chaudhry struck down the deal with a Saudi-led consortium for Rs21.6 billion in a suo moto case. The then government had filed a review petition which is still pending with the apex court. 

The 2006 decision dealt a big blow to the privatisation programme of the country which remained in cold storage for almost the next eight next years.

The present government had included the PSM in the list of its loss-making firms to be privatised and it had committed to do it as part of the $6.6 billion loan it signed with the International Monetary Fund in 2013.

However, it could not keep up its promise - and if the violent reaction of the workers to its plans to sell Pakistan International Airlines (PIA) last year is any guide, then politically it wouldn’t be able to afford it, especially at a time when it is entangled in a political crisis sparked by the Panama Papers leak.

The privatisation minister hinted that the outcome of the Supreme Court decision might affect its plans.

“If the decision goes in our favour, as we expect, then it would strengthen our hands to implement our agenda, but if there is something adverse then it may affect our plans.”

However, he hastened to add that he has not found investors fearful of the political situation in Pakistan as of now.

“I haven’t found any reluctance on the part of investors to put in their money into Pakistan on this count.”

Zubair, who is rumoured to be appointed the governor of Sindh, however, said, the opposition would oppose whatever plans government made to revive the PSM or any other sick entity.

“They are welcome to give any alternate plans and we are ready to consider them,” he said, and added that opposition for the sake of opposition would not serve the interest of the country.

Under the lease plans, nearly 60 percent of the 12,500 employees of the PSM were to be laid off through a golden handshake scheme which has rung alarm bells among its workers.

“These plans were made without any consultations with workers of the Steel Mills who are the real stakeholders of the mills,” Shamshad Qureshi, chairman of the People’s Workers Union (CBA) of the mill said.

He accused some “wealthy vested interests” of trying to sell the PSM at throwaway prices to make money for themselves.

The proposed lease plan, envisages five to 10 year tax holiday and duty-free import of plant and machinery to revive the mills.

It also proposes 35 percent regulatory duty on steel products for five years to promote the local steel industry, and envisages payment of all PSM liabilities by the government before signing of the lease agreement.

Qureshi questioned why the government was not giving such concessions and incentives to the PSM workers to try their luck for the revival of the mills.

“They announce huge financial packages through media, but then release money in small instalments which cannot achieve the objective,” he added.

He warned that there would be “strong resistance” from the employees if the government tried to press ahead with its plans.

“We will strongly oppose it at all available forums,” he added.

Shahid Hasan Siddiqui, a renowned economist, said the government’s plan to restructure PSM through a lease move is “in principle” a good plan.

However, politicisation of the restructuring and privatisation of the state-owned units has turned into a risky affair.

The violent reaction to the plans to privatise the PIA, which led to the death of two PIA employees, forced the government to shelve the plans.

Observers say the government might wait to proceed with the transaction until the decision in the Panama case is announced, as it might give another stance in the hands of the opposition to exploit politically against the current government.

However, they suggest, that it should open talks with the PSM workers and take them into confidence to avoid any showdown.

The writer is a senior journalist based in Islamabad