The Ministry of Industries and Production (MoI&P) has sought Rs 10.6 billion immediate relief package for Pakistan Steel Mills (PSM), sources in MoI&P told Business Recorder. The Federal Investigation Agency (FIA) has prepared a report on PSM affairs. However, the Supreme Court expressed its dissatisfaction with the report, as the influential beneficiaries were not queried.
Pakistan Steel Mills Corporation (PSMC) was incorporated as a private limited company on July 2, 1968 in the public sector, with production capacity of 1.1 million tons per year. The recent global market depression and economic meltdown have had a debilitating effect on steel trade throughout the world, resulting in plummeting steel prices, while price of iron ore has remained high.
The then PSM management could not rise to the occasion to take timely decision as warranted by the situation which led to a massive loss of Rs 26 billion during 2008-09; whereas PSM had been running a profit since 2001.
Sources said that as interim measure, against Rs 22.261 billion demand of PSM on May 28, 2009, a package of Rs 10 billion (Rs 8 billion Term Finance Facility plus Rs 2 billion Running Finance Facility) was approved and released by the federal government to Pakistan Steel during 2008-09 which helped in bringing the monthly losses down from Rs 2.3 billion to Rs 950 million. However, the cash-starved PSM again started making requests from December 2009 to save the national asset from disaster.
The Ministry of Industries and Production, in consultation with Finance Ministry and with the approval of Prime Minister Yousaf Raza Gilani, took some remedial steps, including reconstitution of Board of Directors of PSM and separation of position of Chairman PSM from the CEO. Consequently, the new board and new management have taken a number of measures for improvement of the mills. Currently, the PSM is running at an average of 43 percent capacity as compared to 25 percent in June 2010.
In pursuance of the meeting held with the Advisor to Prime Minister on Finance on May 04, 2010, a summary was submitted to the Prime Minister on May 14, 2010, through Finance Division, for approval of a bailout package of Rs 25 billion to save the mills from irreparable loss.
Another meeting was held on May 22, 2010 in Finance Ministry and after detailed discussion it was decided that closure of the PSM was not an option at that point of time and, the mills be kept afloat, both through cash infusion and through arranging a bank guarantee, sources said. Subsequently, in a meeting on May 25, 2010, Finance Ministry agreed to a pre-budget bailout of Rs 10.608 billion including Rs 3 billion subordinated loan.
On receipt of an SOS message on June 2 and 3, 2010 from the CEO PSM, the Prime Minister, after receiving briefing on the financial crisis of PSM on June 11, 2010, directed the Finance Division to release Rs 3 billion to meet the urgent liquidity requirement of the entity.
Accordingly, Finance Division released the amount in June , 2010 which helped PSM in clearing its outstanding amount of Rs 1.3 billion to the suppliers, restoring raw material supply chain and improving production capacity of the mills from Rs 18 to 35/40 per cent.
According to the restructuring plan approved by PSMs'' consultant and approved by its board, the cost of complete revival of PSM has been worked out to be Rs 25.113 billion. The Prime Minister, while approving the immediate relief to the PSM, directed that the bailout package as jointly recommended by the MoI&P and Finance Ministry may be submitted to the Cabinet.
The Cabinet has been requested to approve immediate relief package of Rs 10.608 billion (Rs 3 billion cash as subordinated loans + Rs 7.608 billion as term loan for five years) already sanctioned to PSM by the government, sources added.