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PSM board opposes liquidation

Pakistan Steel Mills (PSM) board on Wednesday cleared a new a bailout package of Rs 9.28 billion while opposing liquidation, citing political and legal risks, well informed sources in PSM told Business Recorder. This may raise IMF concerns as the Fund is opposing an expenditure-based spending on those entities which are on the active list of entities to be privatised.

The sources said, Secretary Privatisation Commission was not present in the meeting but the Chief Executive Officer (CEO) PSM, Major General Zaheer Ahmad (retired), who has failed to achieve capacity of 77 per cent despite utilising Rs $18.5 billion of national exchequer, sought his guidance on the telephone. PSM Board comprises 6 members at present, instead of 12 members as in the past, of which four members are from public sector.

As per approved restructuring plan of ECC, CAPU target was to be achieved as follows: May-2014 to June 2015 5% to 77%t and net sales of Rs 469 million per month from May-2014 and Rs 4.4 billion per month up to June 30, 2015. The amount of Rs 18.5 billion package as approved by the ECC has been received and utilised on payment to NBP for retirement of raw material L/C (Rs 9000 million), payment to creditors and other payments (Rs 1400 million), salaries (Rs 4500 million), utilities (Rs 2200 million), payment for capital repair (Rs 400 million) and repayment of GET / PF (Rs 1000 million), in line with ECC approval.

The issue regarding supply of natural gas by SSGC and payment of their outstanding bills has been under consideration for quite some time. Although a series of discussions/ meetings held and correspondences for resolving this issue exchanged with management of SSGC and concerned Ministries but the same could not produce the desired results. The outstanding bills of natural gas upto 30-10-2015 are Rs 36 billion including LPS of Rs 18 billion. Position with regard to supply of natural gas has been prepared.

The management argues that the sales of PSM suffered due to dumping of cheap HR Coils from China which resulted in piling of a huge inventory. PSM took up the matter with Gop for imposion of RD to protect home industry. The main issues are non-payment of salaries , own funds generation, raw material problem and supply of natural gas. The management further stated that in view of a prolonged closure, a lack of clear direction and GoP support, auditors are not ready to consider PSM as a going concern thus jeopardising privatisation process to move forward.

The management argued that the option of liquidation is not workable as it entails serious social, political, legal issues. According to the new business plan, the government will have to inject Rs 8.08 billion of which Rs 1.44 billion will be for salaries from August -October 2015 and Rs 6.64 billion for expenditure including salaries from November 2015.

Another option is that the government should restore gas immediately at the required pressure by paying in advance the amount of Rs 1 billion to ensure plant operation till privatisation tentatively set at June 2016. GoP would have to inject liquidity as per follows: (i) gas bill for two month- Rs 1 billion; (ii) salaries from August -June 2016 Rs 5.28 billion; and (iii) Rs 3 billion to clear NBP default L/c to order raw material in December-15.

PSM''s legal financial responsibilities have touched Rs 350 billion of which Rs 160 billion are losses and Rs 190 billion payable debts liability as on October 31, 2015. This compares with Rs 108.5 billion losses and Rs 114.5 billion liabilities totalling Rs 223 billion as on February 28, 2014. The increase in loss and liability is Rs 127 billion from March 2014 to October 2015 (20 months).

Copyright Business Recorder, 2015