MUSHTAQ GHUMMAN

ISLAMABAD: Chief Executive Officer (CEO) Pakistan Steel Mills (PSM) Major-General Zaheer Ahmad Khan (retd) is reportedly opposing the sell-off of country’s largest industrial unit until a further investment of Rs 7 billion to revamp and modernise it, well informed sources in PSM told Business Recorder from Karachi.

The federal government had approved PSM’s financial restructuring package of Rs 18.5 billion a few months ago aimed at achieving 77 per cent capacity after January 2015.

“Along with other measures taken to ensure implementation of the business plan as per the agreed targets, an essential repair plan has been prepared within own resources to put the plant in order to meet the given targets. However, to undertake essential revamping for meeting its targets in a sustainable way, approximately Rs 6.84 billion are required to be executed through foreign contractors in 1-2 years. This also includes a light section mill which will bring a value-addition and make PSM more viable.

“PSM is a 40-year-old plant and various stops/units of PSM are in operation for more than 30 years without any major investment and revamping, modernization and up-gradation,” according to a letter written by the CEO PSM to Federal Minister for Industries and Production, a copy of which is available with the newspaper.

The proposed modernization/ revamp plan will be as follows, as per the letter: (i) iron ore and jetty 6-12 months;(ii) raw material handling equipment;(iii) repair of sintering plant (12 months) ;(iv) coke oven batteries I&II and coke oven machines (to be completed in 2014-15);(v) repair of steel making converters boilers and casting machines( 1-2 years) ;(vi) repair of hot strip mill( 12 months) ;(vii) repair of cold rolling reversible mill ;(viii) repair of turbo generators, boilers and blower stations of TPP/TBS ( 6-9 months); and ( ix) repair water net work ( 6-9 months).

CEO’s right hand man Wasif Memood had informed the Board a couple of months prior to the appointment of incumbent CEO that PSM equipment is in okay condition, and blast furnaces and coke oven batteries have undergone revamp with new automation. According to him, blast mills could be put to use by installing 8 stands bar mills for producing wire rod. At some places automation is to be changed.

Through a communication, PSM management stated that it would be more prudent to demonstrate capability of the plant to meet its capacity potential for investors to see before offering their bids. PSM management maintains that without demonstrated capacity utilisation, investors will remain unconvinced of its potential.

“It would be sensible to either carry out essential repair of core equipment at a cost of Rs 7-8 billion in two years for a sustainable and reliable capacity or to upgrade/expand to 1.5 mypy production capacity in three years by spending about Rs 30 billion and then obtain the price of Rs 200-250 billion from its privatisation,” the sources quoted the PSM management as saying in a letter to the Ministry of Industries. 

Finance Ministry recently informed the International Monetary Fund (IMF) during the mandated quarterly review in Dubai that the privatisation process of PSM is on track. The IMF was assured that the government is working towards reforming or privatising Public Sector Enterprises (PSEs) focusing on limiting poor performance and improving public sector resource allocation. 

Analysts who are closely monitoring the performance of PSM fear that the recently approved package of Rs 18.5 billion will be tantamount to throwing good money after bad like the previous package of Rs 50 billion.