Officials at the Pakistan Steel Mills (PSM) have warned that the Rs 80 billion state-owned steel giant could be completely shut down by next month if the newly-elected PML-N-led government did not bail it out with at least Rs 3 billion for the import of raw material.
“It is feared that the PSM may be completely shut in August this year if Rs 3 billion are not provided immediately for the opening of LC for import of iron ore and coal,” a statement issued on Saturday quoted the PSM officials telling a group of journalists who visited the mill.
They said the previous PPP government had approved a bailout package of Rs 14.6 billion that could not put positive impact on the mill due to delay in release of funds. In addition, of the total bailout package, only Rs 3 billion were provided for import of raw material, while the remaining amount was adjusted in the other heads such as bank loans and other liabilities.
The PSM officials said the country’s largest steel plant immediately required Rs 3 billion for the import of raw material to keep it operational. Presently, the mill was functioning at 16 percent capacity utilization (CAPU), they said.
Per standard, the PSM is required to maintain minimum three months’ stock of raw materials, including iron ore and metallurgical coal to run at full capacity and make it profitable.
However, presently it is facing a severe financial crisis and shortage of raw material and has only some 40 days’ raw material to keep the mill functioning.
“Import of raw material requires about one and half months to reach Pakistan and as per current raw material stocks, there is urgent need to establish more LCs for import of iron ore and coal,” said the PSM officials.
On the occasion, PEO BMR&E Pervaiz Iqbal informed the newsmen that during first 10 months (July-April) of the current fiscal year. the mill faced a loss of Rs 16 billion. Accumulated losses of the PSM surged to Rs 81.839 billion, however, despite losses it paid Rs 1.9 billion to the government on account of taxes and duties, he added.
He said despite all odds, the mill maintained a production capacity of more than 14 percent, which could be enhanced with sufficient supply of raw material.
He said the mill was operational per business plan committed to the previous government as its production was 20 percent in May this year, but now the PSM production capacity was decreasing instead of increasing, since the required funds had not been received from the government. Iqbal said the Ministry of Finance had already released a Letter of Comfort for the release of Rs 3 billion for LC. However, despite government’s guarantee the banks were not releasing this amount.
“If the LC for the import of raw materials, iron ore and coal, is not released immediately, Pak Steel production may be severely affected as the mill has only about 30-40 days’ stock to keep itself operational,” he said.
Consultant Qaiser Saleem said the raw material prices in the world market were on the decline presently and it was a golden opportunity for PSM to procure cheap raw material from the world market. He said the price of iron ore was constantly on the decline and according to latest report, the price of iron ore stood $120 per ton.
As far as the long-term agreements are concerned, the PSM did not sign long-term raw material supply agreement due to volatility in the price in the world market. “Experts are of the view that this is high time that the mill purchases raw iron and metallurgical coal since at present the prices of these items are hitting lowest level,” he said.
He said PSM had also explored local iron ore markets and during the last few years, about Rs 8 billion worth of iron ore had been procured from domestic market, mainly Balochistan. In a statement, PSM Chief Executive Officer Major General (r) Muhammad Javed said despite crisis, the PSM still had great potential and was in a position to become a profitable entity.
“The government should follow China, where large industrial units are functioning on public private partnership to make them profitable,” he added.
The recent audit shows that PSM has assets worth Rs 80 billion, Rs 62 billion of land and Rs 17 billion of plant.
Although, presently the workforce is more than enough, however, in spite of downsizing, the expansion was a better option to adjust the labor.
“We earned remarkable profit with the same workforce in the past and paid Rs 1 billion to the federal government as a dividend,” he said. The system of ad-hocism had badly affected the performance of the mill, Javed said.
Raw material shortage could force PSM closure, officials warn
