ISLAMABAD: Though closed since June 2015, Pakistan Steel Mills (PSM) is reported to have earned after-tax-profit of about Rs7.45 billion in 2021-22 even though its accumulated losses of Rs206bn went beyond its current assets worth Rs195.5bn.

In the qualified opinion of on financial statements, the independent auditors — Crowe Hussain Chaudhry & Co — said the PSM fully disclosed its dispute with Sui Southern Gas Company Ltd (SSGCL) on late payment surcharge (LPS) worth Rs59.7bn which increased from Rs52bn in FY21.

Yet, the total assets of the country’s largest industrial unit, shut down by the PMLN government in its previous tenure, have been valued at about Rs839bn as of June 30, 2022, up 65pc over Rs549bn a year earlier, according to the company’s audited accounts for the fiscal year ending June 30, 2022. Based on audited accounts, the company paid the salaries for April of its employees from its resources ahead of Eidul Fitr after a gap of more than a decade instead of the federal budget.

Since the closure of the PSM in June 2015, the country is estimated to have lost about $18bn in foreign exchange for import of steel products used to be produced by the PSM. “The state of PSM was due to unchecked corruption, inefficiency, over-employment and government’s lukewarm attitude towards its revival,”, according to a summary to a parliamentary committee.

The financial statement said the PSM management claimed that based on “the decisions of the Economic Coordination Committee (ECC) of the Cabinet, SSGCL should waive LPS which SSGCL did not accede and stopped gas supply during the period and filed a suit against” PSM for recovery of outstanding gas bills and LPS in Sindh High Court. The PSM also filed a counter suit against SSGCL for Rs38.6bn, claiming damages for losses suffered by PSM due to gas supply disruption from June 2015.

Since the PSM management did not recognise the LPS liability in financial statements with expectations that ECC decisions would prevail and ultimately LPS would not be payable, the independent auditors qualified their audit that they were unable to determine as to what amount would ultimately be payable given SSGCL’s suit instead of LPS waiver under ECC decision.

Based on audited accounts, the standing committees of the parliament would be examining this week whether a performance audit of successive governments since 2008 should be ordered to conclude if the company was still an asset or a liability which could be revived without government support or disposed of by doling out its real estate assets to creditors and other stakeholders against liabilities.

The audited accounts have put the company as a ‘going concern’ as the management believed that even after the transfer of its core assets to its corporate entity — Steel Corp — will still be left with assets worth Rs700bn would be more than sufficient to meet all its expenses.

PSM’s total assets valued at Rs838.66bn included Rs751bn worth of property including over 17,000 acres of land, thousands of houses, many hospitals, educational facilities etc, plant and machinery and Rs71bn worth of investment property besides other current assets in the shape of stocks, receivables etc. The auditors pointed out under international audit standards that the current liabilities of the firm on the balance sheet exceeded its current assets by about Rs10bn which indicates “a material uncertainty” which may cast significant doubt on the PSM to continue as a going concern.

The auditors highlighted that the apex court had ordered an investigation through the Federal Investigation Agency (FIA) of the company’s losses in 2008-09 — the losses continued all through these years — and FIA investigated and lodged criminal cases.

Further, an independent professional services firm was appointed to carry out a forensic audit to determine the depth of corruption. The firm’s report confirmed “large-scale corruption and mismanagement and amounts attributable” to corruption. The Supreme Court in 2012 transferred the case to National Accountability Bureau (NAB) where the matter remains pending as of now as the financial bleeding continued.

The auditors also pointed out that about 12pc shares of the company were awarded to the PSM employees in 2009 under Benazir Employees’ Stock Option Scheme (Besos) to provide a cash payment to employees on retirement or termination against the surrender of these shares by employees back to the government. The employees’ rights had been legally created but to administer the scheme, the government was to transfer 12pc shares of its investment in SOEs to a trust fund. The trust fund for PSM was created in January 2010 but the shares have yet not been transferred to the trust fund.

Published in Dawn, May 2nd, 2023