ECC AXE FALLS ON 9,350 STEEL MILLS EMPLOYEES
Khaleeq KianiUpdated 04 Jun, 2020
ISLAMABAD: The government on Wednesday approved retrenchment of all the 9,350 remaining employees of the Pakistan Steel Mills (PSM) with a one-time severance cost of about Rs20bn.
A decision to this effect was taken at a meeting of the Economic Coordination Committee (ECC) of the cabinet presided over by Adviser to the Prime Minister on Finance and Revenue Dr Abdul Hafeez Shaikh.
“The meeting gave a go-ahead to a ‘full and final’ human resource rationalisation plan for the PSM employees in accordance with the judgements and observations of the Supreme Court of Pakistan and other courts hearing the cases involving the PSM,” said an official announcement.
The decision was taken on the revised summary of the Ministry of Industries and Production on the basis of an updated “human resource rationalisation plan” in line with the instructions issued by Dr Shaikh on May 13. The previous plan envisaged laying off 8,000 employees with a cost of Rs18.74bn.
Decision taken on industries ministry’s summary in line with instruction of PM’s aide
Under the decision, the government would retrench 100 per cent workforce that currently stood at 9,350. Out of total, only 250 employees would be retained for a period of 120 days for the execution of the plan and other necessary work. All other employees would be issued termination notices after the endorsement of the ECC decision by the federal cabinet in its forthcoming meeting. The financial impact of the plan works out at Rs19.657bn to be released in a single tranche to pay gratuity and provident funds.
In addition to this, one month salary would be paid to PSM employees from the approved supplementary grant on account of salaries of PSM employees. Thus, the average payment per employee comes to Rs2.3 million.
The Ministry of Industries and Production reported in its summary to the ECC that due to poor financial condition of the Steel Mills, the government has been paying net monthly salaries to employees since 2013. The PSM stopped its commercial operations in June 2015 without formulating any human resource plan of its 14,753 employees which has since come down to 9,350 in 2019.
Presently, the monthly net salary bill of PSM employees roughly stands at about Rs350 million, adjusted as loan in the financial accounts of the PSM. Since 2013, an aggregate loan of Rs34bn has been extended to the PSM by the federal government on account of net salary payment.
The PSM’s total expense on its employees for the financial year 2018-19 was recorded at Rs9.54bn that was 75.7pc of total production and operating expense, while local manufacturers engaged in iron and steel business spend approximately 3pc on their human resource. The average age of PSM employees was now 47 years, well above the average age of the employees working in the private steel sector at 36 years, the summary claimed, adding that 48pc of PSM employees were in the age bracket of 51 to 60 years.
Through a privatisation process, the government wanted to revive the PSM, the ministry said, adding that an oversized and aged human resource was one of the main obstacles. Technical Advisory Consortium was carrying out due diligence on different aspects including human resource of PSM before suggesting suitable mode of transaction.
Earlier on May 13, the ECC had agreed in principle for retrenchment of maximum staff in the light of Supreme Court verdicts and observations under the civil petition (326-K & 513-K of 2018) and had asked the Ministry of Industries to resubmit a proposal after reformulating the scope to all employees.
The failure of the country’s “mother industry is an unending story of unchecked corruption, inefficiency, and over-employment”, according to an earlier summary submitted to the ECC. The PSM has been closed since June 2015 when its gas supply was drastically curtailed for non-payment of bills which were significantly lower than the default of a private sector entity at the same time.
The Pak-China Investment Bank had declared in 2015 that with an initial investment of $289m (about Rs29bn), provision of uninterrupted electricity supply and a new management, the PSM had the potential of becoming a profitable enterprise given its ideal location, market and facilities.
Not only this, the country’s largest industrial complex could generate the funds required for expanding its production capacity to three million tonnes, the bank said and proposed a development and expansion plan with a capital investment of $288.77m in the first phase, $300.4m in the second and $296.62m in the third phase. The total investment required was $885.8m, or approximately Rs100bn.
On the basis of field surveys, extensive data and in-depth discussions, the financial advisers had concluded that the PSM was a steel enterprise which had a high starting point, complete process chain and the advantages of resource acquisition and regional market.
The advisers were of the opinion that because it was located near a coastal city with over 20m population and close to the 50,000-tonne bulk cargo wharf relying on raw material and fuels import, the PSM owned rare logistic cost advantages. With the expansion of its production capacity in future, its harbour could also be used to ship products to the rest of the market.
Published in Dawn, June 4th, 2020
MINISTER DEFENDS STEEL MILLS RETRENCHMENT DECISION
Kalbe Ali Updated 05 Jun, 2020
ISLAMABAD: Federal Industries Minister Hammad Azhar has defended the government’s decision to terminate the services of over 9,300 workers of the Pakistan Steel Mills (PSM), saying that revamping was necessary to revive production there.
Speaking at a press conference on Thursday, the minister slammed the opposition for opposing the government’s revamping plan.
He was flanked by Amir Mumtaz, the PSM board’s chairman, and Sher Alam, its chief executive officer (CEO).
Mr Azhar said 15 investors had shown interest in the core business of steel production at the PSM.
“If we want to revive this industrial unit, it is essential for the government to move away from an ‘owner and operator’ mode to that of ‘owner and policymaker’ and include the private sector in the challenging task of reviving the Steel Mills,” the minister said.
Hammad says those opposing government’s plan are only playing politics
“It is unfortunate that those opposing our plan are only playing politics, even though it was during their tenure that the PSM became a loss-making unit and was shut down.”
Hammad Azhar said the two main opposition parties, a reference to the PML-N and the PPP, should “accept their mistakes and let the nation move on”.
He said the PTI-led government’s decision to release the sugar inquiry report indicated that it wanted to resolve all lingering issues either in the private sector or in the public sector.
The minister said a summary of the PSM’s revival plan would be presented to the federal cabinet for approval soon.
Mr Azhar tried to dispel an impression that some elements wanted to grab the PSM land, saying the privatisation plan included the lease of 1,800 acres. It would take in its fold the existing plant and machinery, while around 18,000 acres of adjoining land would continue to be under the PSM Corporation.
The issue has been lingering for over a decade and all governments have failed to do anything as the once industrial behemoth turned from a profitable entity in 2008-09 into a loss-making unit during the 2008-13 tenure of PPP. It was eventually closed down by the PML-N government.
At one time there were 30,000 employees at the mills, whereas recurring retrenchments, resignation and retirement have whittled down the staff strength to just 9,300.
“In the last five-and-a-half years, Rs55 billion has been spent on the salaries of workers despite the fact the Steel Mills has been non-functional,” Mr Azhar said.
“Since 2008, Rs90bn has been spent on bailout packages and other steps to make it viable.”
The minister said the PSM’s losses had ballooned to Rs176bn by the time the present government took charge and bank loans amounted to more than Rs210bn, while the monthly expenditure was Rs700 million.
“We formed a panel of experts to determine the future of the PSM as we did not want to repeat the mistakes committed by the previous governments.”
He said the PSM liabilities amounted to Rs230bn over and above the Rs55bn given as grants by the government during the last five years.
The total cost of the retrenchment package has been estimated at Rs20bn while the average benefit for each employee will be Rs2.3m.
Dr Abdul Malik, president of the National Party and a former chief minister of Balochistan, has condemned the decision to lay off over 9,000 PSM workers and said he would resist the move at all forums.
In his statement Dr Malik said: “I remind Prime Minister Imran Khan of his promise to turn the Steel Mills and other loss-making entities into profit-making units. As with his other promises, he is reneging on this as well.”
He said some elements seemed to be hatching conspiracies against the largest industrial unit of the country because they had their greedy eyes on the prime land of the mills. “I fear this land will be sold away at ridiculously low prices to please some people close to the power corridors.”
Published in Dawn, June 5th, 2020
AIRPORTS MAY BE OUTSOURCED ON COMPETITIVE BIDDING BASIS
Mushtaq Ghumman 05 Jun, 2020
ISLAMABAD: The government is likely to outsource major airports on competitive bidding basis instead of to any specific country, well-informed sources told Business Recorder..
On Thursday, Advisor to the Prime Minister on Commerce & Investment, Abdul Razak Dawood chaired the first meeting of the committee formed by the cabinet on outsourcing of major airports of Pakistan. The meeting was attended by the Advisor to PM on Parliamentary Affairs, Zaheer-ud-din Babar Awan, SAPM on OP&HRD, Sayed Zulfikar Abbas Bukhari, and Secretary Aviation Division. The Chairman Board of Investment, Atif Riaz Bokhari, also attended the meeting through a video link.
Last month, during a cabinet meeting, Prime Minister Imran Khan enquired about the fate of the offer made by Qatar for participating in the outsourcing effort. It was explained that the Qatari side was not interested in airport operations and instead desired shareholding in all of the three major airports. So far no serious offer had been made by the Qatari side.
One of the members pointed out that during Prime Minister’s visit to Qatar, the hosts had expressed genuine investment interest in Pakistan’s major airports, however, necessary efforts were not made in that direction. The cabinet has directed the committee to finalize recommendations to outsource major airports by June 30, 2020.
The committee deliberated upon two aspects of airport operations namely regulatory part of Civil Aviation Authority and the commercial part of operations. During the meeting, various options, along with the associated legal aspects, were discussed in detail, keeping in view the segregation of regulatory and commercial sides.
Representatives from the Privatization Commission were also consulted during the meeting on their perspective regarding the available options for outsourcing of airport operations.
Referring to the importance of outsourcing of commercial operations of airports in Pakistan, Razak Dawood said that there is a big potential in the airport-related commercial activities, which can be exploited by bringing in knowledge and experience from major international experts in the aviation industry. He added that the gap in non-aeronautical activities at major airports of Pakistan, including duty free shops, restaurants and commercial outlets, can be efficiently filled by such expertise, thereby bringing our airports at par with leading airports globally.
Razak Dawood also said that interest was being shown by different global investors in Pakistani airports. He underscored that international best practices would be ensured in overall operation and management of various activities by bringing in international investors and generating overall goodwill of Pakistan among various stakeholders as well as in the aviation industry around the world.
Underlining the significance of bringing in foreign investment, Razak Dawood said that the foreign direct investment always acts as a catalyst to socio-economic development in the country, as it results in creating thousands of jobs in the country. He further said that the move would restore the confidence of private sector of Pakistan as well, which, in turn, will also invest in airport related industry
After deliberations, the Committee decided to meet again after one week to finalize proposals for the Cabinet.
The sources said, the government will approach the Qatari government to remind it about previous commitments at high level meetings. The committee will also recommend different options to outsource airports and segregation of operational and regulatory functions.
Copyright Business Recorder, 2020
PSM MOVES SC FOR EMPLOYEES RETRENCHMENT
Terence J Sigamony 06 Jun, 2020
ISLAMABAD: Pakistan Steel Mills (PSM) has approached the Supreme Court for retrenchment of its employees and direction to the federal government to appoint full-time Chief Executive Officer (CEO).
“We intend to terminate 7,884 out of 8,884 employees,” said a report submitted by the PSM management, Friday.
A three-judge bench, headed by Chief Justice Gulzar Ahmed, will resume hearing petition of PSM chairman and others vs Muhammad Zardad Abbasi and others from June 9. The Economic Coordination Committee (ECC) Wednesday approved firing all the employees of the PSM, reasoning that the mills have not been functioning for years and the employees have not been doing anything.
The report said that the PSM Board approved the plan as described by the Board Human Resource Committee (BHRC) minutes dated 15 April 2020 to rationalise the PSM workforce.
The board has also requested the Ministry of Industries and Production to send a summary to the ECC on behalf of the federal government to make arrangements to pay the retirement and termination dues of the employees.
It has requested the court to direct the government to immediately appoint CEO in order to look after day-to-day affairs of the mills as well as to oversee the execution of the employee rationalization plan.
The report stated that for more than a year, the mills was run without a CEO.
However, an additional charge was given to a ministry official.
It has also asked the apex court that the illegal occupants in the Steel Town may kindly be vacated immediately under the supervision of the Supreme Court with the help of police and Rangers.
It further requested that all pending litigation for and against PSM may kindly be decided within one to two months.
According to the PSM management till March 25, 2020, the mills is involved in around 671 case pending in various judicial and quasi-judicial forums, which includes 29 cases in Supreme Court, 320 in high courts, and 181 cases in civil and District and Sessions Courts, National Industrial Relations Commission in 112 cases.
According to the report, the BHRC has discussed the situation in all aspects and also proposed to amend summaries, to figure out the savings and opportunity cost, towards rationalization plan to be finalized by adding more material, explaining the rational and the benefits to privatization.
The BHRC suggested to make changes for more clarity, such as monthly impact that provides the full picture i.e. including retirement liability and other monthly costs, like, transport, electricity etc.
In addition, the BHRC asked for payback period to be calculated and detail of opportunity cost arising out of re-renting of residential units of Steel Town at prevailing market rates.
The expenditure incurred on the monthly salary bill of employees as well as accrued against various integrated heads of accounts has sky-rocketed and spiraled out of control, though way to late, serious consideration are required to bring about a semblance of rationality to the wages and other expenditures of the PSM.
The current proposal from the government is to proffered for consideration by the board to cut down on the mills’ expenditures through rationalization of the grossly overstaffed mill, and in the process also rid the facility of unsuitable employees.
The PSM was established for manufacturing and sale of iron and steel products.
It is situated on 18,642 acres, out which 10,000 acres were retained for Steel Mills inclusive other industries, while 8,000 acres allocated for Steel Town.
The PSM had accumulated profits in excess of Rs26.2 billion and operated at over 75 percent capacity utilization during 2004-2008.
However, since 2008 the mills has been running losses every year.
At present the PSM is in a shutdown state bearing heavy losses, which has resulted in accumulated liabilities, thus causing huge deficit issue for both the government and the organisation.
The mills was completely shutdown in 2015 and remain closed to date.
At the time of shutdown, the mills had approximately 15,000 employees. The salaries of these employees have been paid by the federal government as an interest bearing loan, resulting in total accumulated debt of Rs229 billion by end of 2019.
According to the report submitted in 1990, the mills had 23,873 regular and 3,700 contract/daily wages workers, which in 2019 reduced to 9,151 regular and 199 contract/daily wage workers.
The report says that a typical mill of this size never has more than 500 to 1,000 employees.
Till today, approximately Rs30 billion from the date of closure has been paid to the employees for net salaries (excluding benefits and retirement dues etc).
The balance/debt of in service employees’ liabilities related to retirement dues (provident fund, gratuity and leave encashment) is approximately Rs20 billion, and employees liabilities of already retired people is Rs20 billion.
Since 2008, the federal government has paid to the PSM Rs92 billion for all liabilities in the form of employees’ salaries, bailouts etc.
“The projected losses to the national exchequer are Rs229 billion as per the PSMC balance sheet,” says the report.
Copyright Business Recorder, 2020
POTHOLES ON THE ROAD TO PRIVATISATION
15 Jun, 2020
EDITORIAL: Now that the federal government has approached the privatisation of Pakistan Steels Mills (PSM) in a somewhat unorthodox manner – sending all employees packing in one fell swoop – it must also overcome all the usual headwinds, restructure the entity’s giant debt, and also find the right buyer(s) at the right price to make the exercise a success. One of the biggest problems that any privatisation effort in this country is always going to run into is opposition from trade unions. Indeed it was so when banks were being privatised and also when KESC (Karachi Electric Supply Corporation) and PTCL were put on the market. And already labour rights groups have demanded that the government “stop privatisation of the steel mills and other public enterprises on the dictates of the International Monetary Fund (IMF)” and duly submitted their case, against the dismissal of PSM employees, before the honourable Supreme Court of Pakistan. The two main opposition parties that rotated in power for much of the time when PSM was being run to the ground, will now move their own pieces on the board since they wrote the book on using State Owned Enterprises (SOEs) for political gains. Yet even among all SOEs that haemorrhage billions of rupees every year, PSM is rightly considered the flagship and is the only entity that can be classified as a manufacturer of basic raw material.
It is precisely for this reason – production of raw material for a host of other industries – that steel is a key industry for any country. In Pakistan, though, the steel mills is simply unable to function for all the reasons that afflict the state-owned sector. That is why various administrations have been considering ways to sell it off since at least the late 1990s. The closest it came to privatisation was of course in General Musharraf’s tenure, when the matter also graced the halls of the Supreme Court for the first time. The case is so well known because it made history with the highest court in the land nullifying a done deal involving multinational parties. It is therefore absolutely essential to take all the care needed to avoid mistakes made in the last round to make sure the process is not aborted yet again. Chief among them, if experience is any guide, will be the manner in which land and other assets are priced. Since the land as well as the machinery in question is quite substantial, privatisation must only proceed with the condition that it must be done so as a going concern. That is because valuation models for going concerns are carried out in a different manner than when something is being cannibalised. The government must also retain at least 25 percent equity in the initial stages to ensure that the asset is run as a steel mill, albeit after all the measures for modernisation that are required have been executed. And if a likely investor insists on more than a 75 percent stake, then there should be a clear condition in the privatisation document that the land is only meant for running a steel manufacturing unit.
There is, of course, the matter of getting an NOC (no objection certificate) from the Sindh government, without which the matter cannot go any further. That’s a problem because not only is the PPP (Pakistan People’s Party) principally opposed to privatisation, it is particularly upset this time because of the retrenchment of all the PSM workers. But since SOEs are a financial black hole that cripple the budget-making process every year, and really must be privatised, perhaps the Sindh government can overcome its own objections by buying PSM and then running it. This matter has already been discussed sometime in the past, and seems as plausible an idea as any if such a wide set of differences is to be overcome; not just in the interest of industry but also all the taxpayers who foot the bill for the mismanagement. Removing the losses of SOEs from the government’s books has become necessary as it looks for all the fiscal breathing space it can get.
How distant that fateful day in December 1973 seems now, when Zulfiqar Ali Bhutto laid PSM’s foundation stone and the nation celebrated the prospects of self-sufficiency in steel production and considerable foreign exchange savings on the road ahead. Regrettably, neither happened. Instead, PSM led public sector enterprises in an epic tale of political opportunism, inefficiency and a lot of corruption. Hopefully, this time the privatisation process will go ahead successfully and put this horror story behind us once and for all.
Copyright Business Recorder, 2020
PSM RETRENCHMENT PLAN: CABINET TOLD CHINESE UNLIKELY TO RETAIN EXISTING EMPLOYEES
Mushtaq Ghumman 16 Jun, 2020
ISLAMABAD: The federal cabinet has reportedly approved the retrenchment plan of Pakistan Steel Mills (PSM) approved by the Economic Coordination Committee (ECC) after the Chairman PSM Board argued Chinese are unlikely to retain existing employees, well-informed sources told Business Recorder.
The Cabinet ratified the ECC’s decision of June 3, 2020, after a heated debate as some of the members were unhappy at this decision.
Official documents reveal that due to the poor financial condition of Pakistan Steel Mills (PSM), Government of Pakistan has been paying net monthly salaries to PSM’s employees since 2013. PSM stopped its commercial operations in June, 2015 without formulating any Human Resource (HR) plan for its 14,753 employees.
The number of PSM employees declined to 9,350 in 2019. Presently, the per month net salary bill of PSM employees is approximately Rs.350 million, adjusted as a loan in the financial accounts of PSM. Since 2013, aggregate loan of Rs.34 billion has been extended to PSM by Government of Pakistan on account of net salary payment.
Ministry of Industries and Production further informed that in line with the ECC’s decision, PSM has formulated a Revised Human Resource Rationalization Plan with the approval of its PSM Board of Directors to retrench 100% workforce of PSM. Out of the total only 250 employees would be retained for a period of 120 days for the execution of the plan and other necessary work.
All other employees would be issued termination notices once the plan is approved by the Federal Government. The financial impact of the plan would be Rs 19.656 billion that would be needed in a single tranche to pay the gratuity and provident funds of PSM employees. In addition to this, one month salary would be paid to PSM employees from the approved Supplementary Grant on account of salaries of PSM employees. Thus, the average payment per employee comes to Rs 2.3 million in case the proposed scheme is implemented.
In the ECC, the Chairman ECC inquired about vacation of houses occupied by employees of PSM in Steel Town. The Chairman PSM assured the forum that payment will be made only after the employees vacate their premises.
The Minister for Privatization advised to also coordinate with Government of Sindh for vacation of these houses to avoid any untoward incident. Secretary, Finance Division opined that any payments to the employees should be contingent upon the decision of Supreme Court. The payment should be final once and for all and should not accrue any further liability against the Government of Pakistan/PSM.
According to sources, Additional Secretary Cabinet Division informed the forum that on May 18, 2020 a Double Bench of Sindh High Court (SHC) decided on payment to all retired employees which is around Rs 20 billion before August 31, 2020.
The SHC directed the Government of Pakistan to earmark these funds in the budget of 2020-21. The court informed the representative of Finance Division that in case the amount is not earmarked/paid the Government’s accounts will be attached.
On June 9, 2020, during a discussion, some of the cabinet members vehemently opposed the manner in which the employees were being terminated and were skeptical about the timing of the decision.
The members debated at length various options available to avoid termination of employees of PSM employees which included entering into G 2 G arrangement with China which it was informed, was still possible in field, and Voluntary Separation Scheme (VSS). However, Chairman, Pakistan Steel Mills, Board of Directors, Aamir Mumtaz informed that there was little possibility of the Chinese accepting the offer.
The Cabinet was informed that Rs 350 million in wages was being given despite the fact that PSM was closed in 2015. The PSM was incurring a loss of Rs 1.25 billion per month and since 2015, Rs 35 billion had been paid in wages to idle labour.
There was consensus among the members that immediate steps needed to be taken to stop the hemorrhaging of funds. It was further explained that through the retrenchment plan on average, handsome amount of Rs 2.3 million per employee would have to be paid as severance package to the PSM employees.
Copyright Business Recorder, 2020
THE FATE OF SOES
Farhat Ali 27 Jun, 2020
ARTICLE: The enthusiasm to turn around State-Owned Enterprises (SOEs) through a newly-established entity Sarmaya-i-Pakistan Ltd (SPL) appears to be fading away.
The government is reported to be now considering moving ahead with recommendations of institutional and governance reforms proposed by Adviser Dr Ishrat Husain to manage PSEs under a close monitoring mechanism.
The government is also reported to be considering reconstituting the dysfunctional board of directors of SPL.
The concept of SPL and restructuring of SOEs may have worked if the government had deep pockets along with some level of competence and political will to bring about effective changes within the SOEs. None of these is available and in the present scenario both the initiatives are mere exercises in futility and devoid of ground realities.
Previous governments, too, tried to salvage the SOEs with multiple recipes, but finally walked out leaving the problem unsolved, conveniently bequeathing to the incumbent government. If the SOE problem is not realistically managed by the incumbent government this cycle will surely continue.
There are around 85 commercial SOEs working under the administrative control of 19 federal ministries. During the fiscal year 2017-18, an amount of Rs143 billion was provided to various SOEs in subsidy, Rs204 billion in cash development loan, Rs27 billion in equity injection and Rs318 billion in the shape of sovereign guarantees. Despite provision of Rs692 billion in one year, the SOE sector, as a whole, registered net losses of Rs265 billion in 2017-18, according to the finance ministry.
Latest figures of losses incurred by SOEs are not yet available but in all probability they have registered a significant increase in losses. Reportedly, the sovereign guarantees that stood at Rs1.55 trillion by the end of June 2019, surged to a record Rs1.9 trillion by the end of March 2020, an increase of 21.5% in nine months. These aimless financial injections into the ailing SOEs lead us to two broad conclusions:
1) That, the SOEs are financially, technologically and human resource wise – totally bankrupt.
2) That the competence or political will to turn around the SOEs within the ranks of the SOEs and the government machinery is nowhere in sight while vested interests are very much there, like always, to frustrate all such attempts.
The reality is that the government does not have deep pockets to massively invest in the financial stability, human resource and technological development of sick SOEs, nor is there competence nor political will within the government ranks to implement reforms and make things happen. Further, the fragile political setup limits the government’s outreach, if any, to go for drastic steps – which is what that may be really needed to turn them around.
The decision makers are left with two viable options either privatise the SOEs that are saleable or liquidate the SOEs that are redundant and dormant. If the incumbent government could comprehend this reality the process of decision-making may assume realism. The sooner government comprehends this reality, the better it will be for the nation.
(The writer is former President of Overseas Investors Chambers of Commerce and Industry)
Copyright Business Recorder, 2020