Iran shows interest in PSM after Chinese company’s ‘silence’

A security guard sits in front of a wall with signs and slogans at the operation building at the Pakistan Steel Mills (PSM) on the outskirts of Karachi, Pakistan, February 8, 2016. To match Insight story PAKISTAN-STEEL/PRIVATISATION REUTERS/Akhtar Soomro

A 10-member delegation of Mobarakeh Steel Company of Iran has reached Karachi to examine possibilities of acquiring Pakistan Steel Mills (PSM) as China’s Boa Steel Group is almost “silent” after showing interest in the entity.

Secretary Industries and Production, Khizer Hayat Gondal informed a parliamentary panel last week that the government is determined to privatise the PSM but it is facing difficulties in finding prospective buyers in the market.

Well-informed sources told Business Recorder that the accounts of PSM have not been audited for the last three years and it is difficult for auditors to evaluate the actual price of the national asset. The auditors have also not decided that PSM should be privatised as a going concern.

“How can the government privatise or lease out Mills before finalisation of accounts for the year 2014-15, 2015-16 and 2016-17? PSM equity was wiped out as on 30-6-2009 and accounts of the Mills were audited up to 30-6-2014 after the revaluation of assets,” the sources added.

According to the secretary industries and production, the accumulated loss up to September30, 2016 has been calculated at Rs167.317 billion. Total liabilities of the Corporation up to September 30, 2016 reached Rs177.778 billion which include overdue amount of SSGC , NBP interest and loans , whereas total assets are amounting to Rs220 billion. However, according to unconfirmed estimates, the external auditors evaluated the worth of PSM assets around Rs260 billion.

The PSM’s auditors had observed in August 2016 that the PC can conveniently give representation, which would ultimately resolve the issue of going concern. It was suggested that the going concern should be resolved to complete audit for the years ended on June 30, 2015 and Jun 30, 2016 without which privatisation and due diligence would affect.

An insider said that the government had saved Rs28.5 billion in 2013 by saying that the Mill can be revived but added Rs215 billion in the name of losses and liability and the Board members witnessed PSMs financial destruction and just pocketed meetings fees, stayed in five-star hotels and ate dry fruit of hundreds and thousands of rupees.

Privatisation process of PSM has been restarted after decision on it was made in the CCOP meeting presided over by Finance Minister Senator Ishaq Dar on July 4, 2016. The auditors are of the view that for the purpose of PSM’s privatisation, financial due diligence should be completed first.

The auditors had suggested in August 2016 that completion of audit of 2014-15 and 2015-16 by October 2016 is necessary to satisfy the external auditors on the issue of going concern. The auditors have sought the following assurances from the PC: (i) as decided by the CCoP, the privatisation of PSM will be finalised up to December 2016 and the GoP will pay net cash salaries to the employees up till sell-off; (ii) and the GoP has neither the intention nor it is necessary for materially curtailing its area of operation and has no intention to liquidate PSM.

When contacted, Chairman Privatisation Division Muhammad Zubair confirmed that a delegation of Mobarakeh Steel Company Iran is in Pakistan on an 8-10 days visit to review into the possibility of acquiring the PSM. “We have created interest in Iran after hectic efforts. Another Chinese company is also interested in PSM,” he added.

In reply to a question, Chairman Privatisation Division said that as China’s Boa Steel Group adopted lackadaisical attitude in the entity after different quarters, including political parties and media, started criticising the sell-off process.

He said Boa Steel Group was ready to acquire PSM prior to Sindh government’s jumping into it on the condition that they would retain required employees, adding that they can be approached again if the company is allowed to rationalise employees’ strength.

“World wants speed in investment related decisions but we miss such advantageous opportunities due to internal infighting,” he continued. He was of the view that investors have their own timing and investment plans and cannot wait for favourable atmosphere in the concerned country.

Zubair further explained that the government will take both the business growth and business control at one time to achieve goals of economic progress.