The Pakistan Senate Standing Committee on Industries and Production has recommended outsourcing the management of Pakistan Steel Mills (PSM) through a public-private partnership.

Speaking in a committee meeting in Islamabad, with Raja Muhammad Zafarul Haq in the chair, Sardar Fateh Muhammad Hassani commented that the experience of privatization in the past, particularly that of the Karachi Electric Supply Company (KESC), did not produce good results.

"It will be better to opt for outsourcing the PSM management through public-private partnership on the basis of 51-49% share".

PSM cannot become a profit-oriented company, unless local mining is encouraged, which would provide iron ore at lower rates than imports.

Sardar Hassani said that importing ore was costly and whatever the profit earned by the company it was spent on ore. Moreover, dual taxation on the ore also increases the cost, he added.

He urged the government to encourage local mining and introduce single taxation on ore which would bring down the cost by 40%.

Besides domestic factors, international crises in 2002 and 2008 caused losses of about Rs 50bn ($509M) to the PSM. Handing over PSM management to the private sector could make the mill a profitable organization, believes Sardar Hassani.

Raja Zafarul Haq said the dual taxation was not only impeding the growth of PSM but was also the main problem for all industries.

PSM Chief Executive Officer, Major Gen (retd) Muhammad Javed told thecommittee that PSM was in an improving position as it had paid Rs10bn ($102bn) debt during the last three months, with a remaining Rs 4bn ($40.7M) outstanding.

A memorandum of understanding has been signed with Russia to enhance production capacity up to 1.5Mt/y from 1.1Mt/y current capacity, which will also help improve the financial position of the company, he added. He said only Rs 9bn ($91.6bn) was needed for the restructuring of company. "Due to 2008 international recession and steep rise in coal prices, the practice of entering into long-term procurement contracts led to substantial increase in the production cost in 2008-9", he said.

Source: Daily ‘Business Recorder’, Karachi; 7 Feb 2013