Privatising PSM

Back in 2015, the Pakistan Steel Mills essentially became defunct after its unpaid gas bill reached Rs35 billion and its supply was shut off by the Sui Southern Gas Company. The government plan to privatise PSM was put on hold because there seemed no way to make it viable. Now, in a last-ditch effort to revive the PSM, the Privatisation Commission has agreed to a proposal to lease out the PSM for 30 years. This seems like a compromise to stem losses that are estimated at Rs20 billion per year but is likely to be the death knell for a dying industry. Any lease agreement the government reaches with a private entity is still going to keep the taxpayer on the hook for outstanding liabilities – which are over Rs165 billion. The 20,000-strong workforce hasn’t been paid for months and pension payments to retired employees are also long overdue. At least 5000 people will lose their jobs in layoffs if the plan goes ahead. The government is planning to offer tax holidays and duty-free import of machinery to revitalise Pakistan Steel, but that will not be enough to undo years of mismanagement.

Under the PPP government, the PSM was a hotbed of corruption and a Supreme Court suo motu hearing found billions of rupees worth of irregularities. The situation has become even worse under the PML-N government, which has appointed a series of caretaker chairpersons, none of whom implemented a plan to make the PSM profitable again. It is not that the PSM is a white elephant that can never make money. As recently as 2005, the PSM was working near full capacity and made a profit of nearly Rs5 billion. To bring Pakistan Steel back to that level of profitability should not require mass layoffs and operational control given to private entities. According to the proposed lease agreement, the private entity will have to revive 25 percent of the total capacity in its first year, 50 percent in the second year and 85 percent after that. Should it not do so, the government will be able to collect a cash guarantee. This lease agreement seems destined to fail. The only way an outside firm can hope to reach these agreements is if the government pays accumulated dues to Sui Southern and invests even more money in the PSM. Importing steel from China is cheaper than producing it at the PSM and to compete will require upgrading machinery and was described in 2015 by the Privatisation Commission chairman as a “nightmare”. This plan to get the PSM off its books will do little to turn the tide.