Pak Steel's Rs10 billion loss due to sales below market prices to colluded dealers

[Naveed Yaseen]

Senate body to summon two ex-PSM chiefs
By Ansar Abbasi
ISLAMABAD: Pakistan Steel Mills (PSM) sustained a revenue loss of Rs 9.672 billion in just one year merely because the management fixed its sale price below the market price, the auditor general of Pakistan (AGP) has revealed.

A source in the AGP office while sharing the details of its latest report disclosed that the PSM, during the period of January-September 2008, kept its selling prices lower than the Commonwealth Independent States (CIS) origin landed cost when there was a rising trend in international market.

The PSM, the report said, further reduced its prices by 35 per cent in November 2008 in one stroke, on the rationale of dropping prices in the international market. The product-wise impact of not revising the PSM selling prices despite favorable rise in prices of identical products of the CIS origin caused a revenue loss of Rs 9.67 billion. “Had the management co-related its sale prices with the CIS landed cost during January-September 2008, when there was a favourable trend, by increasing its selling prices with the same parity, the PSM could have generated greater revenue,” the report claimed.

The sale prices of Pakistan Steel Mills (PSM) products are fixed by a Price Review Committee of the PSM on the basis of periodical analysis of prices of steel products in local and international markets. The total share of the PSM in local market during the year 2008-09 was only 16 per cent, which indicated that the local market was controlled by the landed cost of steel products of the Commonwealth Independent States (CIS) origin from where the bulk of imports were being made in the country.

According to the report, the matter was reported to the management in April 2009, which in its reply dated May 18, 2009 stated that prices of the PSM were fixed keeping in view prices of identical products in international market, landed cost of identical steel products (primary and secondary), cost of production and quantum of imports of identical steel products including ship breakers. “They added that published prices of CIS origin cannot be compared with PSM prices; instead imported prices may also be kept in view while comparing the prices of identical iron and steel products. They illustrated that during the period July 2008 to November 2008, the prices of Hot Rolled Coil by PSM were higher than the identical imported prices. They further added that the PSM revised its prices on 22 occasions upward during July 18, 2007 to October 13, 2008.”

The AGP, however, did not find the reply tenable, explaining that the fixing of sale price was not being done by the management on the criteria mentioned in their response. As regards contention of the management that comparison of published prices of the CIS origin cannot be made with the PSM products, but it is made clear that Audit has not taken the published prices of the CIS origin; instead landed cost of the CIS origin (as provided in the “Weekly Price Comparison of iron and steel products” prepared by Marketing Department of the PSM) has been taken into account to compare the difference causing revenue loss to the PSM. Although, the PSM increased its prices during July 2007 to October 2008 on several occasions, yet the impact was not significant and the same was not increased in the same parity as per the increase in the identical CIS origin landed cost items.

“The matter was discussed in the DAC meeting held on July 23, 2009. The management said that there was a recession in the country and despite 18 per cent share of the PSM, the steel market would have gone up had the PSM raised its prices. The DAC observed that since the PSM suffered loss, hence the Para stands,” the report concluded.

APP adds: Meanwhile, the Senate Standing Committee on Industries and Production decided to summon two former chairmen of Pakistan Steel Mills (PSM) to explain their respective positions with regard to the colossal loss of Rs 22 billion it suffered during the last one year.

The committee meeting presided over by Senator Muhammad Ishaq Dar discussed the recent financial losses incurred by the Pakistan Steel Mills. The committee expressed serious reservations on managing the precious national asset in a very unprofessional manner, particularly non-professional handling of matters relating to its finance and accounts.

It took serious exception to practice of borrowing money from employees fund in terms of gratuity and provident fund to temporarily cover the losses and termed it as illegal and unethical. It also expressed surprise over non-inclusion of exit clause in the agreements for raw material purchase contracts due to which its losses multiplied manifold.

The committee instructed the ministry to furnish Letter of Representation from the auditors and also asked for copies of contract pertaining to supply of raw materials. The meeting expressed its dissatisfaction over the presentation made by the Pakistan Steel which, it said, left many significant questions unanswered.

Some senators apprehended non-existence of check and balance in the organization fearing the previous management might have been under selling steel to some particular party even below the production cost, which in turn was making a lot of money.

The committee also asked for providing party-wise sales record of last 3 years. Earlier, senior officials of Pakistan Steels attributed huge losses to global economic recession during 2008-09, which badly affected the demand of steel both in developed and developing countries, including Pakistan and de-stocking of surplus steel in the international markets.

It flooded the Pakistani markets with cheap and inferior steel products, which yielded a serious negative impact on the local sales, they added. They said that they did not advise closing down of the Mills because it would have meant starvation to nearly 17,000 families of the workers.

The meeting was attended by Senators Adnan Khan, Gul Muhammad Lot, Ahmed Ali, Abdul Haseeb Khan, Ilyas Ahmed Bilour, Mir Hasil Khan Bizenjo, Semeen Siddiqui and Haroon Khan besides Minister for Industries and Productions Mian Manzoor Ahmed Wattoo, Secretary Industries and senior officials of the ministry and PSM.

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