Pak Steel inquiry: Ministry of Industries misinforms Senate body

[Naveed Yaseen]

MUSHTAQ GHUMMAN
ISLAMABAD (October 07 2009): The Ministry of Industries and Production has blatantly misinformed the Senate standing committee on industries, headed by Ishaq Dar, regarding an inquiry report on Pakistan Steel Mills (PSM), as revealed by official documents and sources exclusively to Business Recorder here on Tuesday.

The Ministry of Industries had constituted a three-member committee to conduct an inquiry into the recent massive financial losses incurred by PSM and to examine its audited accounts for the last three years. The committee was headed by the Chief Executive Officer (CEO) of Pakistan Industrial Development Corporation (PIDC), Karachi, and comprised Joint Secretary (CS Wing), Industries Ministry and General Manager (Steel), and Engineering Development Board (EDB).

According to the notification, a copy of which is available with Business Recorder, the committee was to make a presentation to the standing committee of the Senate on industries and production on August 28, 2009 in the committee room of Parliament House.

However, on that day (August 28), the Industries Ministry indicated that the inquiry report was incomplete, and committed to submitting it in a subsequent meeting, which is yet to be scheduled. Official documents show that the Industries Ministry blatantly misinformed the Senate standing committee as to the inquiry committee's report's availability. Documents available with Business Recorder show that the committee's report was completed on August 26, 2009.

The committee's inquiry report states that PSM earned profits from 2000-01 till 2007-08. The company incurred a gross loss of Rs 19.5 billion (59 percent of its net sales) during 2008-09. This loss was further aggravated by a mammoth rise of about 200 percent in general and administrative expenses in comparison to the previous year. Thus pre-tax loss suffered by the company during the year 2008-09 was Rs 22.1 billion as compared to a profit of Rs 3.6 billion during the preceding year.

The main reasons for the colossal loss of PSM for the year ended June 30, 2009 were as follows:

(a) Non-action by the management to safeguard company's financial position in view of abnormal decrease in the international price of raw material and freight charges. In 2005-06 the former chairman had successfully negotiated a 25 percent reduction in the price of coal that led to the dilution of the negative effects of similar international price trends even after signing agreements with international suppliers thus averting a loss;

(b) Pakistan Steel did not adjust its price proportionate to the increase in international prices. For instance, in July 2008, the landed cost of imported billet was Rs 104,873 per ton whereas the price of PSM billet was Rs 60,537 per ton. The price of imported billet were drastically reduced in July 2008 from Rs 99,555 per ton to Rs 47,000 per ton in October 2008, whereas PSM, instead of reducing its price, raised it from Rs 60,537 per ton in July 2008 to Rs 63,036 per ton in October 2008, which resulted in piling up of inventories.

© Record of the PSM Board of Directors meeting on 26th November, 2008, indicate that the Board had directed the management to constitute a high powered committee to negotiate with foreign raw material suppliers and freight companies to adjust their prices by offering a discount equivalent to the differential amount of current prices. These directives were not acted upon in letter and spirit. The stand taken by management was that PPRA rules do not allow such actions. It is interesting that on a reference by PSM at a later stage, the company's lawyers Aga Faquir Muhammad & Co rendered their opinion vide their letter dated 4th April, 2009 that PSM can negotiate with international suppliers and freight companies and PPRA rules need not deter the Company from this action.

(d) It also transpired from the record that the 'Baltic (Freight) Index' was dropped by almost 80 percent during the year 2008-09, but management failed to avail any reduction in freight charges.

(e) If the rates of raw material and freight had been re-negotiated by PSM, then as per calculations made by PSM Finance Department billions of rupees would have been saved. It transpired that a note in this connection was submitted by GM (F&A) of Pakistan Steel on 6th January, 2009 for the Chairman's approval but apparently the matter has lingered on.

(f) Previously, on more than one occasion, the company had allowed huge upward revision of 50 percent to 70 percent in international freight charges when international market rate increased. The reluctance to renegotiate prices of raw material and freight charges on the pretext of PPRA rules was a criminal act. It is interesting to mention here that under PPRA rules, there is no specific penalty for violation of any section of the rule.

The inquiry committee in its findings recommended that as per Articles of Association of Pakistan Steel, the Chairman, being Chief Executive, is accountable for all actions, ie administrative/ operational/ policy matters etc. Since the Chairman of Pakistan Steel enjoys complete operational autonomy, he can be mainly held responsible for colossal losses suffered by the PSM.

http://www.brecorder.com/index.php?id=968476