Let the bailouts begin

Two things jumped out from the business section for anyone who picked up the paper on Saturday morning. The first was the announcement of the Sindh budget for FY11 while the second marked the first departure from the promises of the federal budget, a bailout for the notorious Pakistan Steel Mills (PSM).
In a high level meeting, Prime Minister Yousuf Raza Gilani approved the federal governments plan to bailout the ever so inefficient steel producer.
Details are expected to be worked out between the Ministry of Finance and Industries in the coming weeks. Initial estimates ratchet up the costs to Rs 25 billion in the long term and an immediate need of Rs10.6 billion as reported in the media.
There are a few questions that the government must take into account before going ahead with an American style bailout of the behemoth steel manufacturer that is notorious for its ability to run into losses, repeatedly.
Is PSM a national strategic asset? PM Gilani definitely thinks so.
Breaking down the numbers, one finds that Pakistan spends about $1.6 billion dollars on average every year for the import of steel. That accounts for a little over a third of the total demand of steel in the country. Mind you, that is against total production of steel in the country, not just PSM.
Therefore, industry in Pakistan cannot progress without importing more steel. If that wasn enough, PSM is currently operating on a 25 percent capacity. Most of the raw material - iron ore - has to be imported, because of the precarious law and order situation. The cherry on the top is the monthly losses of about $12 million.
According to media reports, the Minister of Labour and Manpower has pleaded the case of the 17,000 employees who would lose their jobs at the mill. Firing a bullet on the weak shoulders of the poor labour that toils to keep the fire alight at PSM, demonstrates the governments inability to focus on the core issue.
Public sector enterprises are being managed by individuals who lack the required business acumen. Granted the infrastructure is old and adds a degree of inefficiency, but the levels of inefficiency in these white elephants are beyond token bailouts.
In a populist announcement, Dr. Abdul Hafeez Shaikh announced that PSEs would not benefit from taxpayers money anymore. They must restructure themselves and become commercially viable. Interesting thought, but budget documents reveal that no money is allocated towards restructuring or privatization of publicly owned companies.
US style bailouts are not going to work in Pakistan. Many US firms that were bailed out in 2008 have already paid back most of their drawings. Professional management, non-intervention from "awami" governments and the will to turn around these companies may put the companies back on track - not these bailouts.