ISLAMIC CITY:
There aren’t many buyers interested in buying the Pakistan Steel Mills (PSM) Corporation, and it would cost a huge $1.4 billion to fix it up. As a result, the caretaker federal government wants to turn the land into an export processing zone (EPZ).
The government recently dropped plans to privatize the PSM, which was losing money, and supported the idea of putting up an EPZ on its land. Sources told The Express Tribune that the technical due diligence report said it would cost $584 million to bring the PSM plant back up to its full capacity of 1.1 million metric tons per year (mmtpa), and that it could cost up to $1.4 billion to increase capacity to 3mmtpa.
Through its decision on June 17, 2019, the cabinet was told that the PSM was on the current list of companies that could be privatized. The Privatisation Commission (PC) Board also approved the appointment of a financial advisory consortium (FAC) on November 12, 2019, which includes the Pak-China Investment Company Ltd (PCICL) and Bank of China International (BOCI) as joint lead financial advisers. This was said at a recent meeting of the cabinet.
The PC signed a financial advice services agreement (FASA) with the PCICL and BOCI on January 10, 2020, after following the right steps. The minister in charge of privatization said that the due diligence reports and the structure of the deal were made by the financial advisers.
It also said that they were shown to the transaction committee and PC Board for a full review.
So, on December 24, 2020, the Cabinet Committee on Privatisation (CCoP) agreed to the deal format based on the PC Board’s suggestion. The federal cabinet signed off on it on December 29, 2020. From the Expression of Interest (EOI) process, four interested parties were chosen by the PC Board at its meeting on January 20, 2022.
The companies that were involved were BaoSteel Group Xinjiang Bayi Iron and Steel Company Ltd (BaoSteel), Donghua Iron and Steel Enterprise Group Company Ltd (Donghua), Jianlong Iron and Steel Industry Company Ltd and Metallurgical Construction Corporation (Jianlong and MCC), and Maanshan Iron and Steel Company Ltd (Maanshan).
The pre-qualified bidders (PQBs) signed a confidentiality agreement, and on March 9, 2022, they were all given entry to the virtual data room to do buy-side due diligence. Soon after, Jianlong and MCC said they weren’t interested in a meeting that was set for May 2022. In June and August 2022, Baosteel and Donghua went to Pakistan to see the PSM plant, the Iron Ore and Coal Berth Jetty (IOCB), and the steel mill’s supporting facilities in person.
However, both BaoSteel and Maanshan withdrew their interest, citing the slowdown in the world economy as a reason. This, along with Pakistan’s weak macroeconomic outlook, including problems importing raw materials and the country’s State Bank’s Foreign Exchange Regulations, had a negative effect on the demand for steel around the world.
Following that, the privatization ministry said that the issue was talked about at the SIFC’s 6th apex committee meeting on October 4, 2023, where the choices were made. According to the PC, the current selling process for privatizing the Steel Corp should be thrown out because there was only one bidder. This suggestion was accepted.
The case was going to be sent to the cabinet and the PC. The working group was going to look into the choices of either shutting down the PSM Corporation and auctioning off its space and tools, or reopening it with any kind of private sector involvement. It was also decided that the next executive group would be given a plan for how to move forward.
The chief minister of Sindh, the ministers of industries and privatization, and others were supposed to form a group and make suggestions on how the PSM land could be best used for business, either as an EPZ or a special economic zone (SEZ). The ministry of Privatization said that the PC Board then talked about the issue in more depth at its meeting on October 6, 2023.
The PC Board thought that even though Donghua said it was still interested, the withdrawal of three other PQBs left them with only one bidder, which not only meant there wasn’t a competitive process but also raised very serious questions about how transparent the deal was. It was also explained that going ahead with the deal would not be a good idea given the current situation, especially the fact that there was only one buyer, which could raise questions about fair market value and openness.
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In addition, the technical due diligence study said that it would cost $584 million to bring the PSM plant back to its original capacity of 1.1mmtpa. If it were to be expanded to 3mmtpa, it would cost up to $1.4 billion.
Recent improvements in the technology used to make steel have had a big impact on the business.
Attention was also paid to the technical due diligence report that Sinosteel (a technical subcontractor of the FAC) sent in and the plant and machinery valuation report that Iqbal Nanjee (a subcontractor company working for the FAC) gave in.
Valuations by the FAC and PSM Corporation showed big differences in the prices of the building, machinery, and plant. This made it harder to set a fair reference price and threw the bidding process into question.
In fiscal year 2022, the PSM Corporation had lost a total of Rs206 billion. It was also made clear that the Sui Southern Gas Company SSGC had yet to issue a “no objection certificate” (NOC) and remove the charges against the PSM Corporation’s assets.
The ministry thought that because of all of these problems, it would be best to end the current privatization process. This would give the government more time to make a better choice, save money, make sure that market prices are fair, and keep things open.
It was also suggested that the ministries of industries and production should be in charge of figuring out what to do next, after consulting with other important parties. The ministry of privatization also said that there might be a chance to build an EPZ on the PSM land, but that this would have to be done through the ministry of industries and production.
The cabinet was told about the PC Board’s choice. There was only one bidder for the sale of Steel Corp (Pvt) Ltd, but the PC Board decided to cancel the present process for bringing PSM back to life.
The ministries of industries, production, and privatization may also look at other good choices for the entity.
According to rule 18(4) of the Rules of Business, 1973, the privatization ministry also asked the industries and production ministry for their thoughts. There was only one buyer for Steel Corp (Pvt) Ltd when the privatization ministry put forward its plan to cancel the current process for bringing back the PSM.
After getting the go-ahead, the PSM Corporation could be taken off the active privatization list, and the PC suggested that an EPZ be built on the land of the steel mill.
The issue is under the control of the Ministries of Industries and Production. These ministries will look at the viable choices for the entity while consulting with the relevant stakeholders. The proposal was accepted by the cabinet after reading the summary called “Pakistan Steel Mills Corporation – Annulment of Bidding Process and Delisting from Privatization Programme.”
