The federal government is considering using Thar coal and iron ore of Balochistan and Chinniot (Punjab) to run Pakistan Steel Mills (PSM) aimed at making its products internationally competitive, well-informed sources in Ministry of Industries and Production (MoI&P) told Business Recorder.
Prime Minister's Advisor on Commerce, Textile, Industries and Production and Investment, Abdul Razak Dawood, is scheduled to hold a meeting with the PSM Board members and officials on Thursday (today) aimed at finalizing a summary for the ECC with respect to future strategy.
A detailed study carried out by the Expert Group under the leadership of Khalid Mansoor, CEO, Hubco, to look into technical, financial and organizational aspects of a possible revival of PSM was recently shared with the Economic Coordination Committee (ECC) of the Cabinet.
The sources said, the process followed by the Expert Group to conduct the study included analyzing past consultant reports/ operations and maintenance data, interviewing industry practitioners, engaging with current and retired senior management at PSM, visit to PSM facilities, and looking at relevant international benchmarks.
The findings of the study are follows: (i) PSM should not be privatised or shut down as it is a strategic asset of national interest; (ii) revival of PSM is technically possible through a phased approach targeting first downstream HRC/ CRC milling operations with parallel revamp/ retrofit of upstream equipment to restore 1.1 million tons/ annum capacity followed expansion to 3 million tons/annum; (iii) in order to make PSM profitable and sustainable, the current organisation structure has to be rationalized, i.e., manpower and non-core departments and aligned with international best practices; (iv) the land assets available with PSM could be leveraged to settle the outstanding liabilities of Rs 206 billion and land should be sold exclusively for industrial purposes which will create jobs. However, a detailed review of the applicable regulations needs to be undertaken by the Government of Pakistan; (v) GoP should incentivize development of indigenous iron ore and coal reserves for consumption in PSM by offering a supportive fiscal incentive and regulatory package for mining companies; (vi) GoP should establish a Public Private Partner(s) to raise the necessary capital investment and obtain the requisite technical expertise for successful revival, expansion and subsequent sustainable operations; (vii) a number of international world renowned steel sector companies have expressed their interest in investing and the revival of PSM; and (viii) GoP should appoint Transaction Advisory Consortium (TAC) to design appropriate PPP structure followed by leading a transparent International Competitive Bidding (ICB) process to select the preferred bidder and propose/implement the liability plan.
According to sources, the meeting was informed about the challenges for the revival plan, which are outdated technology (key equipment and instrument and control systems) & non-economic scale, lack of requisite management and technical experts and bloated fixed costs.
It was stated that revival plan of PSM requires induction of technically and financially qualified PPP. Moreover, there is a need to invest in enhancing PMS's capacity and induct a core team of an experienced international party and hire and train local labour force (involvement of local labour force must be made mandatory).
The proposed revival mechanism of Pakistan Steel Mills was as follows: (i) carve out liabilities from PSM and land assets could be used for liability settlement; (ii) induct TAC and invite bids for PPP from prequalified bidders; (iii) GoP and selected bidders to agree on profit sharing mechanism (GoP equity to be value of land, infrastructure, and salvaged facilities); and (iv) propose appropriate severance to employees not selected to continue service.
During ensuing discussion, the meeting observed that revival of PSM through PPP is a good option. However, there is a need to analyse legal aspect for its viability. Chinese and Russian companies had already shown their interest in PSM acquisition.
It was suggested that industrial park may be set up at the land of PSM for establishment of steel related industries to generate income for PSM. It was pointed out that Government of Sindh has some reservation on the ownership of PSM land, therefore, proposal for sale of land for industrial purpose for clearance of liabilities needs further deliberation. It was further pointed out that the Chinese are running a steel mill of same capacity as PSM with half the workforce. It was also pointed out that the operation of PSM was based on imported coal and iron ore, which made PSM products costly as compared to imported steel products.
It was suggested that Thar coal is now being used successfully for power generation; therefore, this coal may be used in PSM. Moreover, local iron reservoirs in Kalabagh Chinniot and Balochistan can be utilized for PSM. It was suggested that steel products of PSM should be internationally competitive. Regional countries like Iran and Turkey have also same type of steel mills, however, they have substantially increased their steel mills capacity during the last ten years, resultantly, their steel production has increased manifold. It was also suggested that Financial Advisor may be appointed for the proposed revival plan on PPP basis.
Finance Minister, Asad Umar expressed displeasure at the slow place of appointing personnel for enhancing capabilities of Privatisation Commission.
Meanwhile, Razi ud Din, who replaced Engineer Memon Abdul Jabbar, as Chairman PSM Board for just one meeting, has resigned as member PSM Board from March 29, 2019, citing his other national and international engagements.
PSM's stakeholders group, headed by Mumrez Khan, in a letter to the Prime Minister asserted that the proposal to revive PSM on PPP mode proposed by M/S Hubco has been tabled before the ECC without taking PSM's board into confidence.
The Group has submitted the following proposals to the Prime Minister: (i) reconstitution of PSM BoD comprising members understanding the technical and commercial functions of metallurgical industry; (ii) appointment of professional management capable of discussing intelligently with the local and foreign companies who may be eventually appointed for the revival of PSM; (iii) injection of funds required for revival of existing plant and expansion up to 3 million ton per annum production capacity; (iv) import tariff rationalization will enhance FBR revenue by more than Rs 100 billion per annum, and will provide a level playing field to all players in the market, including PSM; and (v) initiation of transparent accountability process for financial recovery from persons at fault.
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