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Saturday, July 17, 2010

Pakistan "Steal" Mills....Fire the management to save PSM.

Pakistan Steel which sould be called Pakistan Steal is in news once again. It is planning to steal, yet again, taxpayers' hard earned cash of billions o rupees. It has been reported that  Industries and Production Ministry has asked the government to inject Rs17.53 billion in Pakistan Steel Mills, saying that the cash-strapped state-run institution stands at the verge of closure. The ministry has submitted a summary to the Economic Coordination Committee (ECC) of the Cabinet. “The mills is in such a state that it will not be able to continue its functions and will be shut down within four weeks if the government does not inject Rs3 billion immediately in the form of government of Pakistan subordinated loan and provide guarantees for rescheduling of past dues and letters of credit (LoCs),” the summary said, a copy of which is available with our sources.
It warned that if further injections of Rs6.64 billion in July and Rs7.885 billion for rescheduling of the raw material loans were not arranged, the Pakistan Steel would be in a serious crisis. The State Bank’s prudential regulations do not allow banks to fund companies with negative equity, it added. The summary has not been sent to the Finance Ministry for comments because of “a shortage of time”, it said. The proposed bailout package of Rs17.53 billion had already been approved by the Finance Ministry in a meeting held on May 25 with the officials of the mills and the National Bank of Pakistan.
A meeting  on May 25 recommended immediate cash injection of Rs3 billion into Pakistan Steel Mills in the form of a subordinated loan. It also suggested the government to provide a letter of comfort to be followed by sovereign guarantees for rescheduling of the existing NBP and other banks’ loans of approximately Rs7.608 billion to a five-year term loan, according to the minutes of the meeting attached with the summary.
Finance Minister Dr Abdul Hafeez Shaikh had advised the Industries and Production Ministry to consider three options regarding Pakistan Steel problems. The ministry said the orderly shut down option would entail a loss of nearly 17,000 jobs and business opportunities to thousands of families across the country. The cost of shutdown would be around Rs47 billion to be paid immediately to the employees, banks and other creditors, it added. It would also result in huge imports of steel products, which would dent the foreign exchange reserves of the country, the summary said.
A sum of Rs47 billion that would be needed include Rs20.5 billion in long-term liabilities, Rs22.01 billion in the current liabilities and Rs3.968 billion in one-time payment to the officers and employees, it added. About serious restructuring option, the Industries Ministry said that it would require a bailout package of Rs25 billion, including Rs3 billion as immediate cash, Rs7.608 billion as bank loan restructuring, Rs6.64 billion cash for July, and Rs7.885 billion for raw material purchase loans restructuring.
Pakistan Steel incurred a cumulative loss of Rs39 billion during the last two years mainly because of corruption, low capacity, shortage of material and fixed financial cost. In order to save taxpayers money, it would be less expensive to fire the Government or at least the PSM management.

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