Pakistan Steel Corporation’s recently published audited annual financial statement for the period ending June 30th, 2023 reveals losses of Rs.23.212 biln
KARACHI, July 24 (SABAH): Pakistan Steel Corporation recently published the audited annual financial statement for the period ending June 30th, 2023. These statements are available from the corporation’s website and also from the Securities and Exchange Commission of Pakistan. Here are some key points to note regarding the losses and liabilities of the corporation. For the reported period, the total losses are Rs.23.212 billion.
According to the statement issued by Chairman of the Board of Governors of Pakistan Steel Mills Aamir Mumtaz, the significant non-operating expenses that contribute to the losses are interest charges on the outstanding liabilities of Rs. 17.565 billion followed by depreciation of Rs. 6.797 billion (as the Mills are not producing this is a book entry). The finance/interest charges can be mostly eliminated if the shareholder carries out a liability settlement exercise that results in a negotiated lower amount, freezing of interest from a date in the past and agreement of a payment plan.
From the operating expenses section, the utilities (Rs 3.449 billion) and labour (Rs. 2.113 billion) are also significant. The workforce has already been reduced considerably as the Mills are closed but a final adjustment will further shrink the labor cost to the skeleton staff (for security, plant, water supply, downstream industry, steel town admin and other infrastructure). The utilities expenses can also be eliminated considerably once the workforce is downsized and the utility providers take over the delivery and billing of the services from PSM which they have hitherto resisted. Against the losses of Rs. 23.212 billion, the inflows from Government’s budget are Rs 2.057 billion (Rs 1.280 billion for net salaries and Rs 0.777 billion for gas for the coke oven battery which has now stopped). The remaining losses are booked on the balance sheet.
Reviewing the liabilities or debts of Pakistan Steel, the four largest creditors in order are GoP, National Bank of Pakistan, SSGC and Employee Retirement Funds. There are a number of smaller
creditors as well but their percentage of the overall debt is minor. The debt on all four largest creditors also accrues interest which makes up the financial charges reflected in the income statement and are contributing heavily to the losses. These are GoP (against a principal amount of Rs 104.823 billion an interest charge of Rs 54.180 billion), National Bank of Pakistan (against a principal amount of Rs 34.462 billion an interest charge of Rs 39.744 billion), SSGC (against a
principal amount of Rs 22,733 a disputed amount of late payment surcharge with SSGC claiming three times of its principal amount) and PSM Employee (approximately Rs 14 billion under various categories). Most of the debts were incurred before the Mills closed in 2015. Due to mismanagement and a variety of other known reasons the Mills were run in a loss for many years before it closed in 2015 and to cover the losses, the Government had to inject funds through bailouts and guarantee loans from Banks. Also, during these loss-making years, the Mills did not pay its gas bills to SSGC or accrue enough funds to cover the employee retirement dues. Since the Mills closed the government has been lending money for funding payroll and gas for the Coke Oven Battery.
In conclusion, if looked at on an annual basis, the main cause of the losses now are not the expenses of the employees but the interest on the liabilities of the corporation which were incurred during the loss-making years before 2015. The biggest creditors of Pakistan Steel, who also charge interest to Pakistan Steel on their debt, are either the Government of Pakistan itself or majority owned government entities.
The Government and the tax payer gave bailouts to PSM to help it survive and the PSM community is grateful to the tax payer for that. The PSM workforce has had to endure job losses and other difficult working conditions due to the Mills being closed, non-payment of retirement dues, retiree suffering, delays in revival and repeated failures of the Government to privatize the Mills which has left them understandably very frustrated.
The Government has provided bailouts, paid for retiree dues and tried to privatize. It is now facing the difficult tasks of doing workouts (loan restructuring and write offs of interest/LPS). Public finances are in a crisis leaving the Government in a tight corner. After repeated failures to privatize and given the state of the public finances, it is natural to feel the desire to shut it down and move on. But shutting it down does not mean the losses and the liabilities go away and it does not serve
the interests of the Country.
Nobody carries all the blame for this unfortunate situation and no one is blameless either. Everyone has to accept some blame for this predicament. It is time to put this behind us and move forward with a positive plan. Difficult work and hard decisions will have to be taken by the Government and the PSM community, but there is no other way. Resources and effort must be applied to bring about some revival of PSM and also new investments and projects from the private sector. The country needs the productive activity, tax revenue, new real and viable jobs and industry that consumes electricity from the national grid, offsetting capacity payments.
It is time to take a positive approach, learn from the past and start the process of rebuilding the economy with both the public and private sector playing their respective role in this national endeavor.