DEPARTING from normal procedure, the Privatization Commission (PC) accepted ‘on the spot’ the bid for 75 per cent stake in and management control of the Pakistan Steel (PS) submitted by a consortium consisting of Tuwairqi Steel Mills of Saudi Arabia, Magnitogorsk Iron and Steel Works of Russia, and Arif Habib Securities of Pakistan, for a mere $362 million (Rs21.68 billion). Thus was finalized the privatization of the country’s largest industrial undertaking.
Critics—including, politicians, independent economists, MNAs, experts from industry and the mill’s workers union—, assert that this is too small a price for such a huge enterprise.
The initial highest bid, by a consortium composed of a Kuwaiti and a Saudi company and the government of Ras al Khaima, was even smaller. So a second bidding was held in which the winning consortium emerged the highest bidder.
Tuwairqi group has already been allocated 220 acres of land adjoining PSMC grounds to set up a steel billet plant, whose foundation stone was laid by General Musharraf himself a day earlier, on March 30, 2006.
The ‘privatized’ PS plant includes 4547 acres of land and all ancillary buildings, infrastructure thereon, plus machinery and inventory of raw materials and finished products. The steel industry is supposed to be the foundation of heavy industry.
Privatization of strategic government assets—certain others such as the heavy mechanical complex are soon to follow—is likely to loosen the government’s grip on the economy and initiative might slip from its hands.
Since almost all such key industries have a captive market within the country, turning them over to private interests could result in creation of near-monopolies, a situation that would benefit neither workers nor consumers. Downstream industries may suffer higher prices and some may be forced to close down, thereby generating more unemployment. Elsewhere, effects of privatization on prices have already started showing.
There are two aspects to the PS’s ‘privatization.’ One, whether such basic industry should be privatized at all, and two, whether the manner in which it was hastily and mercilessly shed at a throwaway price like an unwelcome burden, was proper and transparent. Conditions attached to the sale are unclear: whether the bidders of 75 per cent stake in the plant are free to do what they like with the plant’s assets.
Once they take over, are they bound under the agreement to run it for its original purpose and expand its operations. Transparency demanded that the salient features of the agreement elaborating these points be debated in the public domain before the actual ‘sale’ takes place.
Many questions torment the minds of discerning people who are watching the grand spectacle of ‘sell-out’ of public assets in the name of privatization by the incumbent regime.
Why privatize at such a low prices? The accepted bid is too small a price for such a huge enterprise. The net worth of the PS assets is several times that amount. According to official statements even the government was “expecting $700 million to $1 billion by privatizing the mighty steel mills which mainly includes a plant and 4,547 acres of land attached to it.”
Mercifully, about 14,500 acres of land was separated from the mill before privatization. The price of remaining 4,547 acres of land alone comes to about $251 million at an estimated rate of about Rs2.8 million per acre.
Thus the entire steel mill paraphernalia that includes “the plant and machinery of the country’s largest and only integrated manufacturing plant with a capacity of 1.1 million tons of steel per year” has been sold for a paltry $111 million to the consortium. Some put the land’s real market price as high as Rs20 million per acre. The PSMC Union has declared that the market value of the asset was over Rs90 billion.
What is the guarantee that the remaining land, or a portion of it, would not be handed over to the successful bidders later on at throwaway price? At the current rate of profit of Rs6-7 billion a year (government’s own recent claims), it would take only about three years for the investors to completely recover their investment, since it has a ready and captive market.
Originally, 19,000 acres of land had been earmarked for the mill to cater for future expansion. They have separated 14,500 acres, the government says, for “some other industrial purpose.” But once employee resistance is over, and the matter goes in the background, a case can be made to hand over more land to the party at nominal price for ‘expansion’ of the mill.
It should be noted that the prevailing price per acre of industrial land in SITE and Korangi and Landhi industrial estates, is at least 20 times what officials give as the estimated price of steel mill land.
Why was the reserved price not disclosed before the bid? It is possible that, by not doing so, the authorities wanted to induce the bidders to offer a high price. However, judging from the accepted bid price, it appears that the reserved price was under-estimated by the authorities.
Can it be called a transparent deal, considering that the reserved price was not disclosed. The general public has particularly noted this point. The PSMC Union’s president made a special mention of it in a recent discussion on a TV channel. Obviously, this has not gone down well with observers.
Why was a consensus with employees not arrived at before privatization? The employees’ Union has protested against the privatization of PSMC. The union has dismissed the PSMC chairman, Abdul Qayyum’s statement that a ‘deal’ had been struck with the employees before privatization. If the employees are not happy with this situation, does it augur well for an industry for which trained and skilled people will be hard to come by fr om the market?
Would the management control of the steel mill henceforth be totally in the hands of the new consortium when the government, also holds 25 per cent shares and is also the regulatory authority for all industry in the country?
People wonder whether the new ‘owners’ are bound by any clause in the agreement to continue to run the steel plant for its original purpose? Are they adequately prevented by law from making use of the plant, its machinery and its lands for any other purpose? How far can the government control the fixing of the price of finished products? (The ‘captive local market’ factor should be kept in mind.)
Does it amount to handing over an unfair advantage to them in this respect? We should not forget how private owners have manipulated the prices of cement, automobile and sugar in recent past. A monopoly is bad enough, but it is extremely dangerous if it is in private sector!
The billion-dollar question: why the haste? For a plant reportedly earning profit, and schemes to expand and augment production levels on the anvil, undue haste to privatize without a proper public debate is incomprehensible.
In fact, proposals were invited some time back in which firms based in Russia, China, and some other countries familiar with the (Soviet-aided) plant’s technology had participated.
It may be noted that many of the bidders are government and public sector bodies of other countries. If they can come and run industry for us here, why cannot we do it ourselves in the public sector?
All these developments create misgivings in the minds of citizens. Good intentions are not enough. The government should clarify and elaborate on its actions.
