Tearing apart Pakistan Steel
By Imtiaz Gul
Express Tribune, Nov 19, 2014
The mouth-watering Pakistan Steel Mills (PSM) is again up for sale. Mouth-watering because for potential investors with inside knowledge, it contains much more than what the doctored balance sheets say. The stench of the inherent malicious motives of a few individuals is already vitiating the air.
In this context, an encounter with an industry lobbyist offers an instructive insight into the reasons behind the scramble for the PSM. After a tour of the massive premises in July 2005, a then German member of parliament, Klaus-Werner Jonas, was ecstatic with the expanse of the country’s largest steel producing entity. Jonas, at the time, headed one of the economic affairs committees of the German parliament, Bundestag, and left the PSM overwhelmed, recalls an engineer who worked there.
“Jonas could not withhold his appreciation over what he called a fantastic piece of land — 19,200 acres in all,” the engineer had told me. “The landmass alone is priceless, it’s like a gold mine”, an excited Jonas later told me during an encounter in Islamabad. He believed that the PSM’s property had turned the fortunes of the city as well.
A few months later, on March 31, 2006, the Privatisation Commission (PC), then headed by Awais Ahmed Khan Laghari, decided to sell 75 per cent shares of the PSM, for Rs21.68 billion i.e., $362 million, to a consortium comprising Arif Habib Securities (Pakistan), Al-Tuwairqi (Saudi Arabia) and Magnitogorsk Iron & Steel Works Open JSC (Russia). The cost per share was calculated at Rs16.80.
In August, the Supreme Court scrapped the deal, contesting that the fundamental evaluations and the shares’ values did not reflect the real assets and their market value. The Court said it did not mean to interfere in business transactions, but would be concerned if such a transaction lacked transparency.
The PSM, in fact, stands out as a classic case of managerial fraud, willful bureaucratic deception, political patronage of professional incompetence, and blatant abuse of governmental authority to appoint cronies. In the mid-1990s, a spate of press reports pointed to negligence, political interference and corruption as the root causes behind working the enterprise unviable.
Then, a former federal secretary and the PPP-appointed chairman, Usman Faruqui, was implicated in corruption cases worth Rs1.6 billion, involving deals at the PSM. The government recovered only about Rs500 million of this amount.
During the last PPP government, the FIA tried in vain to uncover corruption worth Rs22 billion. This scandal surfaced on the heels of staggering losses worth Rs46 billion that the PSM suffered during 2010-12.
A presentation to the prime minister in April 2013 put monthly losses at a whopping Rs1.5 billion, and inside sources say its cumulative liabilities currently stand over Rs260 billion.
What is then so tantalising about the PSM? When, under the Musharraf-led government, the PC put it up for sale, the Expression of Interests (EoI) had stated 19,600 acres of land among the PSM’s assets. But interestingly, the latest EoI for the appointment of the financial adviser (October 25, 2014) lists 18,600 acres of land as one of the assets of the enterprise. Where is the missing 1,000 acres of land then?
In fact, it was on my personal request that the then minister of privatisation, Dr Hafeez Shaikh, had agreed to a revision of the initial EoI, whereby, the potential buyer would be awarded only about 4,547 acres of land on which the actual plant is located. Critics say, even this revision contained a catch: there is no balance sheet for the 4,547 acres since the entire landmass is legally one piece and belongs to the federal government. And had the 2006 deal gone through, the buyers would have ended up with the entire land of the PSM.
Insiders smell a rat. They say that at the moment, up to 2,000 acres of PSM land with a market value of about Rs50 billion, along the National Highway, is currently in the possession of vested commercial interests. Imagine the price of 19,600 acres. This reflects the collusion between businesses and successive corrupt managements. The land-grabber mafia, with the connivance of the PSM’s management and the revenue department, has raised or is raising housing societies on this precious land. Critics say that the PML-N government and the PPP are all apparently in cahoots in this case, and the PSM management is playing the role of a willing facilitator.
The facility must be privatised. Why should the poor taxpayers’ money be used for bailing out a bleeding PSM every year? This, however, must not happen under the cover of deception. Parliament needs to take this up to ensure transparency and prevent appropriation of land that is worth a billion dollars, by a few powerful quarters.
Imtiaz Gul is the executive director of the independent Centre for Research and Security Studies