EghtesadOnline: After the decision of the government to go for a long-term lease plan instead of privatizing Pakistan Steel Mill, an Iranian firm and some other local companies finally agreed to get the mill on lease.
Reliable sources at the Privatization Commission of Pakistan told Pakistan Today that an Iranian firm and two local companies (steel group) formed a consortium to run the mill as per the decision of the PC Board.
PC Board, last month, had in principal decided to lease the PSM out for 30 years as foreign firms had backfired from purchasing the mill mainly owing to the huge losses and payable dues of the mill, Pakistani business, economic and financial news outlet Profit reported.
According to the sources, the consortium is in negotiations with the PC and other concerned authorities.
As per the agreed plan, so far, there will be international bidding/tender for the process. The successful bidder will run the plant at 25% capacity utilization in the first year and then raise it to 50% in the second year, Financial Tribune reported.
The plant will be running at 75% by the third year of the lease. The government will retain the right to encash the investor’s bank guarantee, if the private firms fail to achieve 50% capacity utilization by the end of two years or 75% capacity utilization in three to five years.
According to proposals made by the Iranian-led consortium, during the lease period, the lease will upgrade the technology at the mill.
The Iranian firm, which is experienced in running the same mill of Russian design, has also spare parts and other required material to run the mill.
The consortium, sources believe, has the capability of fulfilling commitment regarding the revival of the country’s largest industrial complex.
A team from the Iranian firm had visited the mill last year after Chinese firms, including Boa Steel Group, had lost interest in PSM. Struggling with financial crisis, the Pakistan Steel Mill received bailout packages worth 38 billion rupees ($362 million) during Pakistan Peoples Party’s tenure.
The condition of PSM got worst with every coming year as the liabilities kept on increasing, which brought the production level to zero in the last one and a half years. Payments of the mills have increased to a record 178 billion rupees ($1.7 billion).
According to sources, after the decision of PC Board for leasing out PSM for 30 years last month, the proposal was yet to be discussed and approved in a session of Cabinet Committee on Privatization.
The privatization board had decided that the entire land of PSM would remain with the government while its plant and machinery would be handed over to the new company for 30 years.
The board decided that no asset of the country’s largest industrial complex would be sold. It may be recalled that then prime minister Shaukat Aziz had tried to sell PSM to a Saudi-led consortium for 21.6 billion rupees ($362 million) but his plan was struck down by a landmark Supreme Court ruling in June 2006, which practically led to a halt of the privatization program for almost eight years.
PSM’s accumulated losses and liabilities, which stood at 26 billion rupees ($248 million) at the end of 2008, have increased to over 400 billion rupees ($3.8 billion), including 178 billion rupees ($1.7 billion) in payable liabilities.