Govt seeks proposals to improve PSM’s financials for privatisation

ISLAMABAD: Government on Friday sought proposals from financial advisors of Pakistan Steel Mills’ (PSM) privatisation to improve commercial viability of the cash-bleeding entity in order to attract prospective investors.

“The FA (financial advisors of PSM) should develop a plan in which the liabilities of PSMC should be settled over a period by devising a payment plan supported with an effective cash flow model,” Minister for Privatisation Daniyal Aziz said in a meeting with representatives from China Investment Bank and financial advisors of PSM’s privatisation.

The meeting was a series of meetings held by the federal minister to proceed with PSMC transaction.

“The minister reviewed the proposed transaction and also discussed the proposed key components of PSM’s liability settlement plan to ensure that all liabilities of PSM workers and other stakeholders are addressed,” a government statement said. “Two models were discussed which include zero coupon bonds.”

PSM is one of the 68 state-owned entities the government planned to put on sale when it was elected in 2013. But, the privatisation plan largely remained unfruitful as the political opposition against the proposed sell-offs frustrated all such attempts.

Currently, PSM incurs a loss of Rs509 million a month as production in the country’s biggest industrial complex came almost to halt. The present government took a number of measures to revive profitability of PSM, which remained profitable till 2008. The government announced multiple bailout packages of at least Rs20 billion in the past four years to pay salaries of the mills’ employees, which are more than 12,000, while it also provided financial assistance for the procurement of iron ore and settlement of outstanding gas utility’s dues. The financial advisors agreed to review the additional payment and financial options.

“Minister Daniyal Aziz directed the FAs to update all data on PSM and prepare the liability settlement plan on priority,” the statement added. “He also directed the FA team to prepare a five to seven year revenue plan as part of the transaction structure to ensure the financial viability of PSM.”

The advisers were also told to settle their outstanding payments with the privatisation commission and to move ahead with the transactional work.

The minister asked them to complete the work within four months.

In January 2017, the privatisation commission board had already approved a 30-year transaction structure proposed by the financial advisors for the PSM’s restructuring.

The proposed structure includes a tripartite concession agreement between the government, PSMC and the investor for a period of 30-year on the basis of revenue sharing.

According to the structure plan, PSM’s land will remain with the government while the plant and machinery will be leased, invested and then transferred back to government for 30 years, while no asset of PSMC will be sold under the plan.

Ballooning losses of PSM, Pakistan International Airlines (PIA) and Pakistan Railways are draining away treasury of the country that is already facing a widening fiscal deficit due to growing current expenditures. In three years alone, the cumulative losses of the three loss-making entities surged to more than Rs700 billion. Privatisation ministry has already announced PIA’s privatisation by the mid of April under a legal obligation. “The government will have to privatise the PIA by 15 April this year under a law,” Aziz told a press conference early this week. In 2016, an amendment was unanimously made into the PIA Corporation Act 1956 and according to which the airline has to be privatised by April 15.

But, he said the government couldn’t divest more than 49 percent shares of PIA to a third party under the law, thus keeping the management control with the federal government

The government planned to privatise only the air transport business of the PIA, while giving the remaining business units on contract basis.