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Does privatization of PSM serve public interest?

Pakistan Steel Mills (PSM) suffered a loss of Rs.10 billion due to corrupt practices, mismanagement and negligence caused further damages of Rs 12 billion, and business losses stood at Rs five billion since it was inaugurated on January 15, 1985.

By March 2013, the PSM’s productive capacity had further reduced to 14 percent, and losses amounted to around Rs100 billion. Ironically, Steel Mills was finally closed down on June 10, 2015, when it could not pay its accumulated Rs. 35 billion gas bill to the Sui Southern Gas pipeline and its gas was curtailed.

Short history

The idea of a steel mill was floated in the first five-year plan of 1955-60, although owing to financial constraints, Pakistan was not able to execute it until 1969. That year, Pakistan signed an accord with the former Soviet Union for a feasibility report on the steel mill.

Former Prime Minister Zulfikar Ali Bhutto laid the foundation stone of Pakistan Steel Mills on December 30, 1973. Construction work started in 1974 by a consortium of Pakistani companies under the supervision of Soviet engineers and experts.

The industrial complex was built with a huge investment of around Rs25 billion (or $2 billion according to the rupee-dollar parity at the time). It first produced coke from coke oven batteries in 1981. Later, billets, hot-rolled and cold-rolled products were produced one after another. The mill started commercial operations on December 25, 1984.

The Soviet Union established 35 steel mills in different countries and 1.1 million tons was the standard capacity of those mills. PSM was one of them. However, Pakistan was one of the few countries that failed to expand its steel mill. 

Pakistan’s politics of nepotism continues

By 2015, the Pakistan Muslim League-N (PML-N) government picked up the torch to privatize the state-owned enterprises. After advertising twice in February 2015, for a private financial advisory group, the government finally got one to conduct an analysis and bring forth suggestions.

In April 2015, a consortium of Pak-China Investment Bank along with Price Waterhouse Cooper submitted proposals showing that if $289m was pushed into the PSM in its initial phase along with the provision of electricity and new management, Pakistan Steel Mills could be restarted.

The company would then have required investing further in future periods to bring PSM back to its projected full capacity with $300m in its 2nd phase. A 3rd phase investment of $297 million would permit the company to expand its capacity to three million tons. Any investor would have to put in a total of $900 million at that time.

With high commodity prices during this period, Chinese companies showed interest in buying PSM, as did the Sindh government. However, the provincial government, backed out later, saying the federal government did not give it enough incentives. Chinese company’s interest also waned, and losses and liabilities continued to build up for Pakistan Steel Mills.

Now, once again, the PTI government is showing initiative to help Pakistan Steel Mills to rise from its ashes. However, it still may not be an easy task, as the opposition parties view state-owned enterprises as their vote banks in which they can buy votes through job appointments at the cost of taxpayers.

Court takes notice

The case of PSM may aptly be called a comedy of errors – with copious contribution from the Supreme Court of Pakistan. The state-owned enterprises are one of Pakistan’s several white elephants, destroyed by political nepotism, powerful politically connected trade unions, incompetence, and corruption.

Up to June 2020, in spite of being closed for over 5- years, PSM was still paying salaries to over 9250 workers. Chief Justice Gulzar in March 2020 Ahmed took note and asked why they were still being paid, when PSM had closed down, and asked all workers to be laid off – ironically Supreme Court itself had much to do in bringing the country to this mysterious point.

Economic Coordination Committee

Earlier, the PTI government had approved the Economic Coordination Committee (ECC) plans to lay off all the employees of PSM. On Friday, PSM laid off 4,544 of its employees in the wake of an emergency meeting chaired by the PSM chief executive officer (CEO). In June, the federal government had decided to terminate all 9,350 PSM employees.

The Economic Coordination Committee (ECC) of the federal cabinet also approved a remuneration package with one month salary. According to a PSM spokesperson, the sacked employees belong to Group 2, 3 and 4 and include junior officers, assistant managers, deputy managers, managers, SEDGM and DCO employees.

However, teachers and non-teaching staff of PSM schools and colleges; drivers, firemen, fire tenders operators, public health staff, security guards and watchmen, gardeners, paramedical staff, kitchen staff, office staff and workers of all departments of finance directorate are still on job.

Does privatization serve public interest?

The termination news of 4,544 employees of the Pakistan Steel Mills by the government is indeed a sad state of affairs. It is downhearted that the country’s largest industrial unit has botched so badly in managing its liabilities and losses.

It is expected that the recommending package of about 18 billion alleviates the brunt of termination for the former workers in these harsh times, and final dues of retired employees and pensioners are quickly given to close this chapter.

In fact, employees’ job losses are always a tragic episode; however, this was an essential step by the Economic Coordination Committee (ECC). PSM, which has been closed since 2015, instead of bringing growth and prosperity, was becoming a huge drain on the country’s resources.

The gloomy fact is that the PSM is one of many large government-owned enterprises that are loss-making and in dire need of change. The wheel of the steel mill can be run by making business-friendly policies like in the initial stages, or it is also possible to support the company to some extent through private partnership.

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