ISLAMABAD, July 24: With its capacity utilisation at a disgraceful 15 per cent, the loss-making Pakistan Steel Mills got another lease of life when the Economic Coordination Committee (ECC) of the cabinet approved a Rs14.6 billion bailout package for it on Tuesday.

Presided over by Finance Minister Dr Abdul Hafeez Shaikh, who is also head of the Cabinet Committee on Restructuring (CCOR), the ECC agreed to pay Rs8.6 billion to the PSM with the understanding that the corporation would achieve 63 per cent capacity utilisation by March 2013. An amount of Rs6 billion has already been paid to the PSM.

A summary on which the ECC took the decision spoke volumes about the mismanagement at the PSM and indecisiveness of the CCOR that led not only to accumulation of PSM losses but multiplication of the losses and interests as either key decisions were never taken or delayed, or not implemented.

According to the summary, the PSM earned a profit of Rs19 billion between 2000 and 2008 when it operated on average at 88 per cent of its capacity and earned on average Rs2 billion profit per year. During the period it paid out Rs11.35 and Rs3.5 billion loans in the next two years (2008-09).

Then the downfall started, leading to Rs26.5 billion losses in three years as its capacity utilisation declined to 40 per cent in 2009-10 and 36 per cent in 2010-11. This included a financial loss of Rs11.5 billion in 2009-10 and Rs12.4 billion in 2010-11.

On reaching the verge of collapse because of record losses amid global economic slowdown and mismanagement and shortage of raw material and working capital, the PSM’s capacity utilisation dropped to just 15 per cent in May and June this year.

The CCOR had its share in the deteriorating situation at the PSM. In December, the CCOR decided to take over a Rs10 billion loss by converting a part into government equity and provide Rs11 billion in one go to the PSM on the basis of its business plan so that it could be turned around.The summary, however, claimed that despite its own decision “it turned out” that only Rs6 billion were released to the PSM, which in reality resulted in accumulation of losses to Rs21.4 billion as on June 30 this year.

The PSM and finance ministry subsequently agreed that as approved under the business plan the PSM should be paid an amount of Rs11 billion, including an additional Rs4 billion loss conversion into GOP guarantee and recovery of Rs4 billion outstanding bills of Sui Southern Gas Company (SSGC) through monthly installments of Rs110 million.

The CCOR also agreed to increase the PSM’s credit ceiling to Rs3 billion to help it procure raw material. The CCOR decided that the mark-up of Rs6 billion on its loans be borne by the federal government for three years. The decisions, however, remained unimplemented.

On June 28, the CCOR agreed to fund the Rs14.6 billion bailout package with the condition that the PSM would make its capacity utilisation to reach 63 per cent by March 2013. By the end of December, the PSM is expected to achieve capacity utilisation of up to 55 per cent. The package included Rs3 billion for raw material, Rs8.5 billion for immediate liabilities and Rs2.1 billion on account of mark-up of Rs17.5 billion and old payables to the SSGC.

The ECC also approved a disbursement schedule formulated by the CCOR.

The committee failed to take a decision on recovery of Rs3.86 billion from four provincial governments, Gilgit Baltistan, AJK and various arms of the armed forces on account of wheat storage charges to the Trading Corporation of Pakistan since 2009.

The cabinet and commerce divisions put up a summary for at-source deduction of these charges from the accounts of relevant governments and agencies by the ministry of finance. However, some provincial governments questioned some of the steps taken towards at-source deductions and hence a committee led by the cabinet secretary was constituted to come up with its recommendations within a week.

The ECC approved a summary for allocation of gas from new sources – Makori field, Tal Block – under which 75MMCFD (million cubic feet per day) gas will be included in the system.

The ECC expressed displeasure over the delay in submission of case for disposal of surplus wheat held by Passco and noted that the case was not processed at an appropriate time resulting in substantial loss to the exchequer.

The cabinet secretary defended the situation by attributing the losses to three reasons: devolution of the ministry of food and agriculture, procedural delays for lack of requisite data and record during interim arrangements, and transfer of Passco from the ministry of commerce to the newly-created ministry of national food security and research. The ECC constituted a committee comprising ministers for law, information and broadcasting and adviser to prime minister on agriculture and water resources to formulate a mechanism to avoid any future loss to the exchequer.