PSMC Stakeholders Group (PSM employees serving/retired, contractors, dealers, suppliers and creditors) want to record very strong protest and draw the attention of the Prime Minister towards the recent non-transparent move by Privatization Commission (PC) for privatization of PSM by inviting Expression of Interests (EOI) from the interested private parties/ investors for acquisition of 51%-74% issued share capital together with management control of the Steel Corp (Pvt) Limited, a wholly owned subsidiary of PSMC (Annex-A).
This action of PC inviting “EOI & Road Show” are without deriving any lessons from previously attempted ‘PSM Privatization scam-2006’ which was annulled by the Supreme Court of Pakistan through historic verdict in CP 9/2006. The present similar attempt by PC is full of flaws, irregularities and without protecting the interests of stakeholders/nation will further lead to financial disaster and losses to the national exchequer. In this regard, the following facts are submitted for kind consideration, to review the non-transparent privatization of Pakistan Steel Mills (PSM).
In a letter to Prime Minister Imran Khan, Stakeholders Group said that PSMC is the only integrated Steel Plant of the country, which is also a strategic asset of the nation. It is capable of producing 1.1 million tons per year (MTPY) of raw steel with diversified output product mix of long (Billets, Blooms, Slabs) and flat (Hot Rolled, Cold Rolled and Galvanized coils/ sheets) steel products, which is expandable up to 3 MTPY as per initial detailed project report. It was established with techno-economic collaboration of former USSR and came into operation in phases during period of 1981-85.
Although having a sub-economic installed capacity of 1.1 MTPY, the Mill earned operating profit for 23 years from 1985 to 2008 and registered a net profit in 13 financial years out of these 23 years. The Mill started registering losses after FY 2008-09 due to massive corruption and mismanagement, which was also noticed by the apex court of the country but the successive governments failed to investigate factors leading to losses and bring the culprits responsible to justice and the plundered money could not be recovered. Recently, Minister MOI&P Mukhdoom Khusro Bakhtair visited PSM but not met with employees, requested meeting in presence of BOD/Management.
The previous privatization process of the Mill in 2006, after being challenged by Watan Party, vide CP 9/2006 was declared void by the Hon’ble Supreme Court of Pakistan, due to violation of mandatory provisions of law, detailed in the verdict. This ‘process’ negatively cost the country economy/exchequer more than $ 12 Billion from 2005 to 2021, on three accounts (Losses to PSM + Loss of Revenue to FBR due to steel import discriminatory SROs & DTREs + Additional Import Bill due to closure of Mills) but alleged accused public office holders and their counter-part private sector beneficiaries persons at fault remained unaccountable as yet.
In June 2015, further damage to PSMC was done in a pre-planned manner by the previous Government by reducing the required natural gas pressure to furnaces/ plant from M/s SSGC, which resulted in complete halt of its production activities. It is to be brought on record here that at that time the defaulted amount of M/s K-Electric natural gas bill arrears to M/s SSGC was more than that of PSMC but there was no disconnection for K-Electric and PSMC was victimized by SSGC on the designs of the previous Government.
When PTI government came into power in August 2018, PSMC was having accumulated losses of Rs173 bn and liabilities of Rs210.5 bn as on June 30, 2018. PTI promised in its election campaign to revive the Mill in Public/ Government sector with job protection of employees but changed its stance in 2019 by placing again PSM in privatization list. For this purpose, initial consultancy services were assigned to M/s HUBCO without any tendering/ competitive bidding by MOIP but their report was not endorsed by PSMC Board. Resultantly, MOIP illegally removed the previous Chairman PSMC Board.
Abdul Razzaq Dawood appointed a US citizen Mr. Aamir Mumtaz as Chairman PSM Board in 2019, whereas prior to this he had never served as Board member of any Public or Private company of Pakistan nor he fulfilled the requirements of SECP to be appointed as Board member of a big Public Sector company like PSMC. Further he also didn’t have any experience of integrated steel plants and steel industry.
Afterward, PSM key management positions like CEO, PEO(A&P) and GM(Security) were filled through tailor-made advertisements with pre-determined personnel by relaxing criteria of qualification, experience and age in violation of PSM officers service rules, Federal government Establishment Division rules, Supreme Court rulings/ directives regarding age appointments after superannuation on contract in government organizations/ corporations and non-compliance to Pakistan Engineering Council PEC Act 1976, Securities & Exchange Commission of Pakistan (SECP) Rules, wherever applicable. These illegal appointments have already been challenged in Hon’ble High Court of Sindh vide CP 4699/ 2020 and is pending for adjudication. The Auditor General of Pakistan in its Audit Report of FY 2019-20 for the PSEs has also raised objection on irregular appointment of CEO in PSM. These top executives further appointed several officers on high salaries and perks on nepotism without advertisement and inviting competition thereby over-burdening already financially crippled organization.
During the tenure of present management, the events of theft and pilferages of PSM inventories and scrap substantially increased and despite of having several DSG and Tiger Force guards, PSM had lost valuable inventories of millions in these events but the concerned officials remained unaccountable.
This Management failed to protect the critical databases of the corporation as central servers gone out of order in March-2021 due to deliberately abolished maintenance contract for the previously existing servers and databases. The databases related to Stores inventories, Marketing/ Sales, HR, Pay Roll, Financial ledgers/ transactions, Accounts records, Procurement and materials management, Gratuity & Provident Fund data and several other types of databases became offline/ not accessible since then. Reportedly, till to date none of these databases were completely restored/ rebuilt.
The present management has forcefully retrenched the trained, experienced and skilled manpower of around 5,500 employees without any lawful authority and is further planning to retrench the remaining manpower without any Golden Handshake scheme as offered in privatization of other organizations/ entities in the past. Such a large-scale retrenchment of thousands of skilled and experienced employees of PSM prior to its revival is unprecedented in the history of the country. On the other hand, PC and MOIP officials are constantly misguiding the Standing Committees, CCOP and ECC that this retrenchment is voluntary/ golden handshake, whereas the forcefully retrenched employees are only offered with their retirement dues without any extra benefits and retrenched employees are still without receiving their dues awaiting release of funds by the Government.
Due to above actions, during two and half years of present PTI Government from July 1, 2018 to December 31, 2020 the losses of around Rs44.5 bn and liabilities of around Rs96.64 bn have been added to the Corporations balance sheet as per reported audited accounts, for which no accountability of the present PSM management has been made by the Government. The audited financial statements of PSM show accumulated losses of Rs217.5 bn and total liabilities of Rs307 bn as on December 31, 2020 i.e., after completion of 2½ years of PTI government and next six months accounts are not yet audited.
In the past, on these matters PSMC Stakeholders Group written letter Ref No. PSMCSH/5/2/2021 dated May 31, 2021 to Minister & Secretary MOIP and letter Ref No. PSMCSH/7/1/2021 dated July 7, 2021 to Minister & Secretary PC, which both remained unnoticed and un-replied. Afterward, letter Ref No. PSMCSH/8/1/2021 dated August 10, 2021 with subject “Appeal for review to Revive PSM through Privatization/Public Private Partnership is Non-transparent and Leading to Further Financial Disaster” was sent jointly to Ministers and Secretaries of PC and MOIP both but no action was taken.
Now, PC through advertisement dated August 31, 2021 has invited Expression of Interests from the interested parties/ investors for acquisition of 51%-74% issued share capital together with management control of the Steel Corp (private) Limited, a wholly owned subsidiary of PSMC with last date for submission of EOIs on or before 30th September 2021. According to reports published in the media, as suggested by Financial Advisors (M/s PCICL & M/s BOCI) of Privatization Commission, the core assets of the Corporation along with 1229 acres of land have been decided to be transferred to a newly formed subsidiary company Steel Corp (Pvt) Ltd, after valuation being done by M/s Joseph Lobo, a local firm. PC have decided that a clean balance sheet will be given to Steel Corp that will have assets of Rs134bn and deferred tax liabilities of Rs38bn (which actually become an asset in case of loss-making enterprise like PSM). The worth/ valuation of 1229 acres of core land is not included in the assets of subsidiary and planned to be leased through land lease deed on arms-length basis to the bidder, which is objectionable as the present market value of such developed industrial land in Port Qasim Town is not less than 70 to 90 million Rupees per acre and NOC from Sindh Government is not there for transfer of this land from PSMC to Steel Corp (Pvt) Ltd. The 51-74% shares of this subsidiary company have been decided by PC to be divested to the private bidder with transfer of management control to the strategic buyer after completion of Scheme of Arrangements (SOA) with SECP by PSMC & MOIP. After transferring assets to Steel Corp, PSMC will retain Rs 426bn assets and Rs269.5bn liabilities. But what will be the future of PSMC after divestment of its subsidiary Steel Corp, is still unknown. Without clearing the complete liabilities (local and foreign) of PSMC, forming a new subsidiary will open a new Pandora box and may engage PSMC and Steel Corp in new litigations. The flaw is there because if the purpose of privatization is to minimize losses to national exchequer, then why liabilities of Rs 269.5 bn are retained with Government/ PSMC and not transferred to the prospective buyer of subsidiary Steel Corp (pvt) Ltd. The motives of PC are clear to give a liability free steel plant to the prospective buyer and keep the nation overburdened and weeping with debts and liabilities, whereas these liabilities of PSMC will continue to increase because mark-up on debts/ payables are not yet freezed by the Government although PSMC is in losses after 2008. This is the story behind the so-called privatization process designed by PC and its FA to benefit the prospective buyer with a liability-free plant and to keep the nation engaged with PSMC debts and liabilities.
PSMC-SG believe that this method of Privatization adopted by PC is non-transparent and unlawful due to the following reasons:
The Financial Advisors (Consortium of Companies) appointed by PC for Due Diligence and the Valuator firm to assess the Fair Market Value (FMV) of PSM core assets did not have the experience of any such exercise for any integrated Steel plant of the world, so the assets of PSMC are not being properly valued.
The matter of privatization of PSMC or its any subsidiary with core plant assets has not yet been decided by the Council of Common Interest (CCI), which is a constitutional obligation, as this mistake was also observed in PSM privatization in 2005 which was annulled by SC of Pakistan.
The Review petition (C.M.A. No. 1979/2006) of one of the previous bidders’ private groups (M/s Arif Habib) against previously annulled privatization by Hon’ble Supreme Court decision in CP 9/2006, is still pending for decision, so how can PC proceed for further privatization.
PC has announced for 1229 acres of core land to be transferred/ leased to subsidiary through local lease deed but its third party recent fair market valuation has not been done and not included in the value of core assets, which is not fair.
The PSMC inventories of billions of Rupees for items available in Stores, its transactions (payables and receivables) of billions have become inaccessible/ non-traceable due to its online databases and servers went non-operational due to incompetence and non-seriousness of the present management.
Why a liability-free subsidiary company Steel Corp (Pvt) Ltd. with core assets of plant and 1229 acres of land is being offered to prospective buyers and PSMC with heavy debts and liabilities is retained with Government/ nation? Is it not unfair and equivalent to giving undue favour to the prospective buyers, which is contradictory to the mandate of PC?
Therefore, PSMC-SG demand to stop this illegal and malafidely designed privatization process immediately through this sale of 51%-74% issued share capital together with management control of the Steel Corp (Private) Limited, a wholly owned subsidiary of PSMC.
Investigation for the factors leading to the losses and initiation of accountability process of financial recoveries of tax payers’ plundered money from the alleged accused from 2005 to 2021.
Reconstitution of PSMC Board of Directors and appointment of honest and professional management after removing the present irregular appointees through their performance audit.
The technical, professional, trained and skilled manpower of PSM should be retained/re-employed and the forced retrenchment process should be immediately stopped to revive the plant.
PSMC as a whole should be revived under Government/ Public sector according to PTI pre-election commitment with the help of local Human Resources and funding.
In the end, it is requested to review this ‘process’ to stop further financial bleeding of PSM, initiated by the PC’s ill-planned and unworkable roadmap. Most regrettably, this path is leading to further financial disaster and is in direct contrast to the admirable vision of Prime Minister Imran Khan as chairman PTI, prior to election 2018, which was for the uncomplicated revival of PSM.
Now, it is proposed that a tripartite meeting between Government/PC/MOI&P, Government of Sindh and Stakeholders be held to resolve the long-pending issues related to ‘Privatization’ from 2005 to 2021. This ‘process’ from 2005 to 2021, negatively cost PSM/exchequer more than $ 12 billion in a period of 16 years, whereas PSM required around $300 Million for revival of existing 1.1 MTPY plant and around $600 million were required to enhance PSM plant production capacity from 1.1 MTPY to 3 MTPY.
PSMC Stakeholders Group representative’s delegation would be available to assist the Government in reviving PSM (as envisioned by Hon’ble Mr. Imran Khan, chairman PTI, prior to election 2018) with local human resource and funding. It would also help in resolving the pending issues through negotiation with frustrated employees, creditors to save the government from the blunders (misleading information & incorrect financial data was submitted to cabinet and in courts) committed by MOI&P/PC/Ministry of Finance, created private sector “Steel Mafia” monopoly in steel market without any fear of accountability.
