Big projects

This refers to the news report ‘Better horses to bet’ (Jan 19) by Mansoor Ahmed. The writer has highlighted an important flaw in the project evaluation process, which has serious consequences on the viability of a project in the long run. It relates to the ignorance of indirect or external cost/benefits of the project. Among other things, the writer has indicated that “duties were slapped on different steel qualities to protect Pakistan Steel Mills (PSM)” and “these protections are still on to protect small mini steel mills that entered the market when steel mill was closing”. The resulting increase in the cost of steel was the indirect cost of PSM borne by the economy. The overall demand for steel is close to seven million tonnes a year at Rs100,000 per tonne. Even one percent increase in the cost would amount to a loss of Rs7 billion to the economy. If the average increase in the price of steel was 10 percent , it would have caused the loss of Rs70 billion a year to the economy.

Despite these hidden costs borne by the economy, PSM was unable to survive and has accumulated losses of Rs200 billion. The organisation was established without any proper and independent economic and technical feasibility study and recommendations of experts in the field. To expect that bureaucrats would be able to run the huge industrial complex was a mistake. The lessons that our government should learn from this experience are that the mere construction of buildings and installation of machinery and equipment will not make the industry work; and that an independent economic and technical feasibility study is a prerequisite for major projects.

Abdul Majeed

Islamabad