The government’s apathetic attitude towards the affairs of ailing Pakistan Steel Mills (PSM) in Karachi is a reflection on its poor planning and misplaced priorities. It was expected that the government would take immediate and concrete steps for the revival of the largest industrial complex, which ceased operations abruptly in June 2015 under controversial circumstances on the issue of supply of gas to the plant.
INDUSTRY
The government’s apathetic attitude towards the affairs of ailing Pakistan Steel Mills (PSM) in Karachi is a reflection on its poor planning and misplaced priorities. It was expected that the government would take immediate and concrete steps for the revival of the largest industrial complex, which ceased operations abruptly in June 2015 under controversial circumstances on the issue of supply of gas to the plant.
Unfortunately, even after more than three months, there is no visible headway by the government in this direction. Today, Pakistan spends $500 million per month on steel imports that PSM could produce, and pays the PSM’s monthly salary bill of Rs380 million for nil production.
Finance Minister Asad Umar had promised in July 2017 as Chairman of the Standing Committee on Industries and Production to make functional the strategic steelmaking facilities at the earliest, for which plans were said to be worked out by the Committee. It was however reported in September that the Finance Division was preparing a plan to revive operational activities at the PSM. Nothing happened, seemingly. Instead in October, the Finance Division indicated to appoint a professional management team to turn around the mills. Again, there appears to be no action. It was only in November that the government formally decided not to divest PSM, having approved the creation of Sarmaya-i-Pakistan Company, headed by the Prime Minister, which will decide how to revive as many as 195 sick entities including PSM.
In November, Asad Umar, as the Chairman of the Cabinet Committee on Privatization, passed on his assignment of preparing PSM operational plan to Abdul Razak Dawood, PM’s Advisor for Commerce, Textiles, Industries & Production and Investment, giving him 45 days to complete the assignment. Earlier, on October 10, the Advisor had asked PSM management for options to revive the mills. Ironically, the PSM stakeholders group consisting of its employees, pensioners, suppliers, dealers, and contractors had already presented, in August, a set of workable proposals to the Ministry of Industries & Production. The latest news is that the Advisor, due to his many other official engagements, has been unable to complete this assignment and has now asked an Engro team, headed by the Chief Executive of HUBCO Khalid Mansoor, an ex-employee of Engro, to present different models for recommissioning of PSM. How much more non-serious the government could be about the future of Pakistan’s largest steel mills? It is simply criminal negligence on the part of the government, seen in the backdrop of China’s announcement in December 2016 to set up a large steel mill in Gwadar as part of the China-Pakistan Economic Corridor (CPEC) program.
Once a profitable organization, having earned Rs9.54 billion profit in 2007-08, PSM has accumulated losses and liabilities amounting to Rs465 billion as of August 30, 2018, with over 12,000 serving employees, and without any chief executive and chief financial officer since April. Its retired employees’ liabilities of provident fund and gratuity are worth Rs1,066 million that the past managements had squandered. The National Accountability Bureau (NAB) had decided to conduct a comprehensive inquiry in the case related to closure of PSM in February. Earlier, in December 2017, NAB had announced an inquiry to fix responsibilities of PSM officials involved in plundering billions of rupees of PSM in the past. The status and outcome of these investigations is still not known.
Currently, the PSM is in a state of disrepair, and reviving its existing plant may not be feasible, technically or economically, as the plant remained totally closed for three-and-a-half years. Only after due diligence and assessment of the present condition of plant machinery, the technical experts, preferably foreign, could recommend a well-thought-out plan for implementation.
A delegation from Nippon Steel, the largest steel plant in Japan, which visited PSM in 1990s, had proposed that the only way to make PSM viable was to scrap the whole plant machinery and to build a new steel mill based on modern technology.
This was perhaps an exaggerated expression at that time; however, the fact is that now there is a need to replace the outmoded inefficient plant machinery of 1960s, which employs obsolete technology of blast furnace and converter. Simultaneously, the critical issues of financial constraints, bad management, poor plant maintenance, weak financial control, etc. are to be addressed effectively. Time is of essence, however.
Growth in steel demand is expected to increase worldwide, estimated at 2,400 million tons by the year 2035. Currently, global steel (crude steel) production is 1,691 million tons, whereas Pakistan’s share is nominal at 4.97 million tons compared to Iran’s 21.24 million tons and Vietnam’s 11.47 million tons. Crude steel is defined as ingots, semifinished products (billets, blooms, and slabs) and liquid steel for castings. Demand of steel at national level will increase manifold in coming years, particularly in the wake of implementation of CPEC projects. Development of infrastructure including railways, commercial construction and housing, and manufacture of capital equipment and machinery, automobiles and consumer durable goods is planned in a big way. These sectors will require ingots, semifinished products, angles, shapes, sections, concrete reinforcement bars, steel strips, sheets, coils, plates, bars and rods, drawn wire, steel tubes and fittings, railway track material, wheels and axles, and a variety of products for various industries. Steel demand is projected to increase to about 20 million tons by 2025.
Iron and steel industry holds the key to the sustained growth of national economy.
Steel consumption is thus termed as an indicator of economic and industrial development. Per capita consumption of steel in Pakistan is dismally low – just above 23 kg, compared to over 258 kg in Iran, 256 kg in Vietnam, and 248 kg in Thailand.
The conclusion reached by the Task Force on Pakistan Steel Mills in December 1997 was: “The government in the past had not acted appropriately either as a regulator or as an investor in the PSM. They failed to take note of the declining trend in efficiency of the integrated steelmaking facility, considered as a backbone of infrastructure of any country.”
After two decades, the statement still holds good.
The writer is former chairman of State Engineering Corporation
