The Steel Mills case

By Ayesha Siddiqa

(Courtesy Daily Dawn)

Interestingly, Moeen Aftab Sheikh was removed even before an inquiry was instituted or a report submitted about his supposed wrongdoings.

Legally, this hurried action would be considered mala fide since no charge-sheet was brought against the gentleman and the decision was taken before the inquiry report. The case raises two fundamental questions: first, does the decision indicate the government’s concern for accountability, or does it indicate its inability to run a business and appreciate the problems caused by economic recession?

Or perhaps the objective was merely to get rid of the chairman, an officer with an unblemished career in government for 35 years. Second, was the media fair in embarking upon a witch-hunt without ascertaining the facts of the case?

The government still does not know the exact losses, as there are varied figures. It’s the PSM management which estimated the concern’s losses at Rs21bn. However, the estimate given in the special report of the auditor-general gives a lower figure of Rs9bn. Also, why did Mr Gilani not wait for the report from the PSM’s auditors?

This was the prime minister’s opportunity to earn kudos from the public for taking someone out without taking the trouble to explain to the media that the huge loss was not caused by individual corruption but was a result of global economic recession.

This is not the first time that PSM has incurred huge losses. The organisation had run an accumulated loss of over Rs20bn for the period 1985-90 and 1993-99, which could have been paid off when the mill started making money from 2001-02 to 2008. Unfortunately, PSM fell on bad times again due to a slump in the international market after April 2008.

Another misfortune was the absence of a national steel policy, which meant that there was no plan to bail out the national steel-making concern. The government did not make any effort to stop the customs department from allowing private importers from importing secondary steel at the lower import price meant for primary steel. This scam meant that the private sector could undercut the PSM as they managed to import and sell low-grade steel at around Rs40,000 per tonne compared to the PSM’s Rs42,000 per tonne, thus earning a mark-up of at least Rs10,000-12,000.

An additional problem was caused by the dumping of 0.5 million tonnes of steel by the ship-breakers and electricity loadshedding, which forced numerous downstream industries dependent on PSM to close down. So, orders for about 300,000 tonnes of steel were cancelled. The Steel Mills’ management was stuck with an inventory of Rs9bn, which it tried to dispose of by altering the marketing strategy.

The decision was taken during a meeting attended by the chairman and members of the finance and accounts, commercial and marketing departments, the minutes of which were duly recorded. Instead of selling according to a quota system, a policy of open sales was introduced. This meant that major investors could pick up large quantities of steel and help PSM stay afloat.

The main beneficiaries of the new policy were five different concerns: Metropolitan, Amreli, Abbas Engineering, Al-Abbas Steel and Abbas Steel. Contrary to the belief that the lowering of prices was meant to benefit one of President Zardari’s close friends, there were a total of 232 beneficiaries. Interestingly, the friend (Riaz Lalji) continues to be a significant buyer even after Aftab Sheikh’s sacking due to his greater production capacity rather than anything else.

The decision to lower prices was meant to save the mill. Industrial experts are of the view that shutting PSM is not a possibility because restarting it would not only be technologically difficult but also cost approximately Rs20bn. Meanwhile, the government would have to foot the bill for PSM’s 17,000 employees, which stands at about Rs600m per month.

In any case, the open sale policy was meant to solve the liquidity problem for which the management also used workers’ gratuity. This is not odd since all public and private sector firms do so. The Karachi shipyard under the navy’s management had also done the same in the mid-1990s to stay afloat. Using funds like gratuity or the contractor’s seed money is a done thing for a business concern, especially for the PSM, which badly needs funds for its modernisation.

The Steel Mills is 25 years old with a limited production capacity of a million tonnes. Its British consultant Corus had advised its increasing capacity to about three million tonnes for the concern to become profitable. Resultantly, the management signed an MoU with the Chinese firm MCC which would not become binding unless approved by the ministry of industries and production. It is a misplaced accusation that the government was being forced to incur a debt of Rs2.2bn since no final agreement was signed and there was nothing binding on the government until MCC produced a feasibility study. Had the media seen the MoU, they would have found that the document was not binding on the government until certain conditions were met. In any case, investment for development purposes is not money lost.

Equally baseless is the accusation about the management making money from a contract with the Railways since nothing was signed.

There is also no evidence of corruption since all procurement was done in accordance with the Public Procurement Regulatory Authority (PPRA) regulations and implemented by the committee formed by the government. The accusation of higher prices being paid for raw material and freight is a fallacy since the price of coal, iron ore and coke varies in the international market and the management had to adapt to the changes, which it could not do all the time being a public-sector organisation.

Perhaps what is needed is an inquiry into what the government achieved with its sudden and artificial show of justice. More importantly, is the media above board and should it be allowed to lynch people without a proper hearing which is the norm in civilised societies?

The writer is an independent strategic and political analyst.