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November 22, 2020

Government eyes PSM revival post rightsizing

Business

November 22, 2020

ISLAMABAD: The government is all set to start a revival plan for loss-making Pakistan Steel Mills (PSM) to reduce dependency on imports after retrenchment of the company’s employees, it was learnt on Saturday.

PSM revival is critical to reduce dependence on imports, increase steel production and save precious public funds. PSM is heavily overstaffed with over 9,300 employees and the government planned to conduct layoffs after paying Rs20 billion. The government planned to launch a privatization plan after retirement of employees, according to sources.

PSM remained in profit from 2000-01 to 2007-08 and had a profit of over Rs2.3 billion in 2007-08 on record sales of Rs42 billion and payables of only Rs7 billion. However, PSM’s mishandling has resulted in debts of over Rs230 billion whereas losses piled up to over Rs160 billion. Successive governments have spent more than Rs90 billion in different bailout packages for PSM. PSM monthly bill in salaries and retirement dues is over Rs750 million. In addition, thousands of acres of precious lands are lying unutilised as PSM has not undergone any expansion.

Steel’s demand, production and sales have a strong bearing on health of a national economy.

Pakistan’s domestic production has slipped from a recent high of 7 million tons to nearly half of that size as shown in World Steel Report 2020. Due to low development activity, Pakistan consumes less than one percent of global crude steel production of nearly 1,869 million tons in 2019 which is a very low figure for sixth most populous nation on earth. PSM could never increase beyond one million tons of capacity whereas other mills which launched at same time have crossed 10 million tons output and some even higher.

PSM is based on old blast furnace technology and its modernisation, increase in output capacity to minimum 3 million tons per annum and reducing the workforce to required level are needed to make it viable.

This is only likely through a total revamp of PSM and introduction of genuine new investors after clearing existing hurdles.

Senator Raza Rabbani issued statement against the plan to revive PSM. There is a dire need of a bipartisan consensus on state-owned enterprises’ (SOEs) revival and genuine concerns of opposition should be addressed.

Due to dismal state of state owned enterprises, there is undue burden of non-productive manpower and assets on treasury.

Chinese SOEs are so well managed, that they are equal to size of world’s number fifth economy. Pakistan’s SOEs revival is only possible with involvement of genuine investors, quality nominations on board of directors by government and efficient management and business practices.

Pakistan meets nearly one third of its steel demands of 7-9 million tons through imports. The closure of Pakistan Steel Mills for last 5 years has increased Pakistan dependence on imports besides burning over Rs50 billion on a non-productive entity. Pakistan has one of lowest per capita consumption in Asia, which is less than half of 75 kg. The per capita steel consumption in the region is over 275 kilograms on average and the global average is over 225 kilograms.

The sale of steel products world over was over $2.5 trillion and an additional $500 billion are generated through value addition. An additional $1.2 trillion is generated through impact of steel on supply chain of other industries.