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Privatization or Throwing Away

National Assets
A Case of Pakistan Steel Mills
Case study
Reference no 309-148-1

This case was written by Khalid Jamil and Asim Ali Dogar, under the direction
of Muhammad Ismail Ramay, International Islamic University Islamabad. It is
intended to be used as the basis for class discussion rather than to illustrate
either effective or ineffective handling of a management situation. The case was
compiled from published sources and generalised experience.

2009, International Islamic University Islamabad.


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309-148-1

Privatization or Throwing Away


National Assets

(A Case of Pakistan Steel Mills)

Corruption or throwing away national assets...?

(This case study is about the privatization of state owned steel mill and the issues of mishandling in that process. The government sold
over $4 billion worth structure for just $362 million. It became a much publicized issue in the media and in public circles. In the end,
Supreme Court of Pakistan intervened and annulled the whole privatization process because of massive corruption and hence saved
the Pakistani nation of this great loss. This study highlights biasness and favoritism in the whole process of privatization, and how the
public servants manipulate their positions to get their undue benefits by selling precious public sector enterprises at throwaway
prices). Authors

Introduction

The Government of Pakistan decided in 1968 that the Karachi Steel Project should be sponsored in the
public sector, for which a separate Corporation, under the Companies Act 1913, be formed. In pursuance of
this decision, Pakistan Steel Mills Corporation Limited was incorporated as a private limited company to
establish and run steel mills at Karachi. Pakistan Steel Mills Corporation concluded an agreement with V/o
Tyaz Promexport of the USSR in January, 1969 for the preparation of a feasibility report for the
establishment of a coastal-based integrated steel mill at Karachi. In January 1971 Pakistan and the USSR
signed an agreement under which the latter agreed to provide technical and financial assistance for the
construction of a coastal-based integrated steel mill at Karachi, the largest and the southern port city of
Pakistan. The foundation stone of this vital and gigantic project was laid by the then Prime Minister of
Pakistan Zulfikar Ali Bhutto on November 30, 1973. The construction work of this integrated steel mill,
never experienced before in the country, was carried out by a consortium of Pakistani construction
companies under the overall supervision of Soviet experts. Pakistan Steel not only had to construct the
main production units, but also a host of infrastructure facilities involving unprecedented volumes of work
and expertise. The project was estimated to cost $165.9 million but was completed at a cost of $497.6
million and took ten years to finish. Component units of the steel mills numbering over twenty, and each a
big enough factory in its own, were commissioned as they were completed between 1981 to 1985, with the
Coke Oven and Byproduct Plant coming on stream first and the Galvanizing Unit last. Commissioning of
Blast Furnace No.1 on 14th August, 1981 marked Pakistan's entry into the elite club of iron and steel
producing nations. The completion of the steel mill was formally launched by the then President of

This case was written by Khalid Jamil and Asim Ali Dogar under the direction of Muhammad Ismail Ramay, International Islamic
University Islamabad. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective
handling of a management situation.

The case was compiled from published resources. 2


309-148-1

Pakistan Gen. Zia-ul-Haq on 15th January, 1985. Pakistan Steel today is the country's largest industrial
undertaking, having annual production capacity of 1.1 million tones of steel. The real founders of Pakistan
Steel Mills are Prof. Niaz Muhammad, Wahab siddiqui and Russian scientist Mickhail Koltokof. It was the
hard work of Prof Niaz that thousands of scientists and technical staff got trained by him. His inspirations
and innovations got him the highest award from president of Pakistan, and also from Russian Govt. The
Govt. of Pakistan has given him Pride of Performance. His nomination for Nobel Prize was biggest respect
what Pakistan achieved.

Being the only integrated plant in Pakistan, Pakistan Steel Mills Corporation (PSMC) enjoys a dominant
position in the domestic market. Furthermore, the fragmented nature of the steel industry in Pakistan
ensures Pakistan steel mills competitive advantage going forward, as the other operators are not only
much smaller in size (i.e. do not benefit from economies of scale) but also lack the financial flexibility to
undertake large scale capacity expansion projects.

Pakistan Steel is located at a distance of 40 km Southeast of Karachi at Bin Qasim near Port Muhammad
Bin Qasim. It was found to be an ecologically preferable location, alongside a tidal creek and having a
wind direction away from the city of Karachi. Pakistan Steel is spread out over an area of 18,660 acres
(about 29 square miles (75 km2)) including 10,390 acres (42 km2) for the main plant, 8,070 acres (33 km2)
for the township and 200 acres (0.8 km2) for the 110 MG water reservoir. In addition it has leasehold rights
over an area of 7520acres for the quarries of limestone and dolomite in the Makli and Jhimpir areas of
Thatta district.

Because the bulk of steel mills key raw materials (i.e. coal, iron ore, etc.) are imported, the location of the
company is of strategic value as the mill is near the port that reduces raw material transportation costs
considerably. Imported raw material is transported from the jetty at the port to the plant through two 4.3km
long conveyor belts. Port Bin Qasim Authority maintains an exclusive jetty for handling the Companys
raw materials. Primary raw materials such as coal and iron ore are imported, whereas fluxes are procured
locally. In order to ensure a smooth supply of main raw materials, the steel mill enters into long-term
contracts (usually 5 years) with its suppliers. Due to a progressing domestic market, steel mills entire
product mix is sold locally with no export sales. The steel mill has a diversified customer base, with the top
10 customers (with respect to quantity sold) accounting for approximately 23% of total sales in 2004-05.
The steel mill is the biggest producer of steel in Pakistan and the only major manufacturer of flat and long
bars and billet.

Pakistan Steel Mills Corporation started commercial operations in phases over the period 1981 to 1984.
Since the company started operations, due to various reasons the company faced financial difficulties. As a
result, the company lacked the financial resources needed to upgrade and modernize the facilities.

Background

Privatization is a philosophy that stems from the role of state in the economic life of its citizens. The
thinking of the free market economists is that, as in USA and many capitalistic states, the state should
confine itself to regulation only and the operation and ownership of enterprises and utilities should be left
to the private sector. However economic historian Gerschenkrons argument is that in those states which
start late in the race of development, the public sector has to play a vital role in accelerating the pace of
economic growth. Pakistan along with other developing countries followed the activist role for the state in
industrialization and the rate of industrial growth in Pakistan has been very high in the past. The second
main argument for privatization is the belief that private sector units are more efficient than public sector
units. This is not true always, however. In a study which made a comparison between public industrial
enterprises and private firms producing similar goods, the conclusion was that changing the ownership of
industry from public to private is neither a necessary nor a sufficient condition for more efficient operation

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of specific industrial enterprises. However, on the other hand it is often correctly claimed that due to
political interference and over-staffing, the efficiency of the public sector units is reduced. The third
argument for privatization is its fiscal impact. The favorable fiscal impact of privatization is expected from
the sale proceeds being used to repay national debt, as well as elimination of losses of the public sector
units as the losses were being financed from the budget. The opposite view is that the public enterprises
after nationalization in Pakistan in 1973 doubled the payment of their taxes as compared to the pre-
nationalization period. Hence this argument does not hold for profitable public sector enterprises.

The fourth argument for privatization is to encourage competition and to strengthen capital markets. If all
the units in certain sectors like cement are owned by the state and these are sold to different parties, there
would be healthy competition. However, if the market situation is such that there are public sector units as
well as private sector units for the same commodity there will be no further fostering of competition by
privatization. Capital market is strengthened, if the government share holdings are sold in the market as
was done in case of PTCL and more recently in the case of Muslim Commercial Bank and Al-Falah Bank.
Capital market is not strengthened at all, if one public sector unit is handed over to the private party
without some of its shares being offered to the public, like in the case of Pakistan Steel Mills. Hence it is
necessary for strengthening and deepening of capital market that some percentage of the shares of public
enterprises is sold to the public through stock exchange. Another objective of privatization is to encourage
direct foreign investment. The direct foreign investment in profitable public units is not likely to be
beneficial for the economy. Direct foreign investment should be attracted by policy and design into new
and risky ventures rather than through the purchase of profitable enterprises. In fact purchase of existing
operational units by foreign buyers is not an addition to the capital stock of the country.

Privatization is a complex exercise with multifaceted implications and has to be conducted under some
careful measures. The first is that it should be absolutely transparent process with full legal safeguards and
transparent procedures; otherwise the valuable public assets may be sold at throw away prices thus causing
a huge loss to the national assets. The second imperative of privatization is sequencing and timing. It is
essential that all the assets should not be sold in a short period, because in the short period the buying
power of private sector may not be adequate to offer the correct prices for all the privatized assets. The
third essential condition for the success of privatization is that the economy should be deregulated and
unnecessary restrictions and procedures for industrial enterprises should be eliminated. Privatization should
therefore be part of a process to strengthen private sector by giving it assets as well as improving
regulatory framework for their operations. Fourthly there should be a preference to privatize first the loss
making assets, then the less profitable and finally the more profitable. In case the loss making units could
not be sold independently these could be paired with a profitable public enterprise. Fifthly the investment
climate must also be kept into view. Privatization after 11th September, 2001 was not a feasible time
because the international stock markets slumped and the investors confidence fell sharply after that tragic
event. Finally it must be ensured that the party which is buying the industrial units does not use it for
stripping the assets and selling the real state because if the party does this, there will be a serious loss of out
put, employment and taxes to the national economy.

There are the following four main objectives that the Government of Pakistan claims to have in their
policy;

Improvements in the level of efficiency in the production processes;


Reduction in the debt burden of the government and fiscal deficit;
Broad-basing equity capital; and
Releasing resources for the physical and social infrastructures.

Government of Pakistan during 1990s after being hit by economic crisis was forced to adopt Structural
Adjustment Program (SAP) under IMF to reform economy that was suffering from macroeconomic
instability. Under the SAP, it adopted the policy of market liberalization, privatization and deregulation.
Pakistan, since then seems to have indulged in privatization under which plans have been set to sell off a
number of profitable public sector institutions in sheer hurry, without realizing the negative consequences
on the socially marginalized classes. There have been two tides of privatization in Pakistan. The first tide is
from 1992 to 1994 and the second tide from July 2001 to October 15, 2002. In the first period assets worth
$1.99 billion were divested and in the second period assets worth $1.08 billion were divested. Since 1991
till April 2006, Government of Pakistan had completed or approved 160 transactions at gross sale price of

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$6.55 billion. The sale of 26 per cent PTCL shares in 2006 alone fetched $2.5 billion. 130 privatized
enterprises out of total 160 have been collapsed. Only 22% of the privatized units were performing better
than in the pre-privatization period, 44% approximately the same and about the third i.e. 34% worse than
before.

According to the Privatization Commission Ordinance 2000, 90 percent of the proceeds are spent for debt
servicing and 10 percent go to poverty alleviation programs. But the privatization proceeds are reportedly
misused by successive governments. Since 1990, about 0.6 millions workers have been rendered jobless as
a result of implementation of ruthless and thoughtless privatization policy in Pakistan. 64 percent of the
workers in privatized units were forced to take golden hand shake in the name of voluntary separation
scheme (VSS). The closure of privatized units has played havoc with the national economy and the first
phase of privatization contributed to the lower rate of industrial and economic growth. The GDP growth,
which was above 6% in 1980s declined to around 4% in the post privatization period. Assets strippers buy,
pay one installment, remove the machinery, sell the real state and then walk away. All the engineering
units except Millat and Al-Ghazi Tractors were closed after privatization, as their buyers had no intention
of running them. On 12 November 2007, the former Prime Minister Shaukat Aziz claimed that we have
earned 417 billion Rupees ($6.41 billions) through privatization, a record amount according to him. While,
only 57 Billion Rupees ($.870million) were fetched altogether from 1991 until 1999 by the civilian
governments.

The anti-trade union measures by successive governments resulted in decrease of trade unions and union
memberships. The number of registered unions increased from 708 in 60s to 2,522 in 70s and 6,551 in 80s
respectively. Similarly their declared membership rose from 350,000 in 60s to 736,000 in 70s and 870,000
in 80s.But after the process of privatization trade union membership decreased from 870,000 in 80s to
296,257 in 1999. In 1986 the notorious Zia-ul-haq dictatorship began a series of brutal political assaults in
Pakistan. The tactic of divide and rule also affected Pakistan Steel. In 1988 the trade unions were divided
on racial grounds which resulted in bloody hatred and ended the traditional revolutionary unity of the
unions. The labor movement was constantly harassed and its leadership became demoralized.

The roller coaster of privatization in Pakistan was suddenly halted when Supreme Court of Pakistan,
through suo moto notice, struck down the privatization of Pakistan Steel Mills in 2006. General Musharraf
led regime had sold out the only steel mills of Pakistan to his cronies at a throw away prices.

Issues/Problem

Government of Pakistan (GOP) owns 100% in Pakistan Steel Mills Corporation (PSMC), through the
President of Pakistan. As per GOP policy, Privatization Commission (PC) follows a transparent
privatization process; key steps involved in this process are summarized below:

1. PC will shortly invite EOIs through advertisements in newspapers and other publications; interested
parties would be required to submit their EOI within a specified date.

2. PC would issue a Request for Statement of Qualification (RSOQ); the interested parties will be pre-
qualified based on the criteria laid down in the RSOQ.

3. Upon pre-qualification the PC and the bidders would enter into a confidentiality agreement; the PC
would subsequently issue a detailed Information Memorandum and draft Share Purchase Agreement to the
pre-qualified bidders.

4. The bidders would be given access to the data room to enable them to carry out their due diligence.

5. Bidding procedures will be intimated to qualified bidders.

6. After bidding, PC would proceed with completing the sale formalities (which would include signing of
Share Purchase Agreement and the transfer of funds) with the successful bidder.

The decision to privatize Pakistan Steel Mills Corporation was taken in mid 90s. But in 2005 military
dictator Gen. Musharraf led regime announced to privatize it. The over $4 billion worth concern had been

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handed over to the private sector at a throw-away price of $362 million. Under a pre-planned conspiracy, it
had been handed over to some favorite parties. The conspiracy had been hatched over the past six years
leading to the privatization deal. It is alleged that it had already been decided to hand over the Pakistan
Steel Mills Corporation (PSMC) to a consortium of Russias Magnitogorsk Iron & Steel Works Open JSC,
Saudi Arabia-based Al-Tuwairqi Group of Companies and a local firm Arif Habib Securities whereas the
bidding process for its privatization on March 31, 2006 was just an eyewash. Everyone wondered that the
auction, which the Privatization Commission had taken one whole year to prepare for, lasted just 30
minutes. Ex-chairman of mills, Haq Nawaz Akhtar, said that the PSMC would have fetched a higher price
even if sold as scrape.

It was only a day before the auction was held, that a $130 million steel factory, Al-Tuwairqi Steel Mills,
was inaugurated and a piece of 220-acre land was obtained on rent from the PSMC for the new concern. 45
million cubic feet gas and 180 megawatt electricity was also sanctioned for the group. Only two days
before the auction, the Al-Tuwairqi Group had signed Head of Terms (HoT) with the Sui Southern Gas
Company for the supply of 45 million cubic feet natural gas for 10 years and the contract was extendable
for another 10 years. With the Pakistan Steel Mills in its ownership, the group might have established its
monopoly on the whole steel industry in Pakistan which would have ultimately resulted in a sharp increase
in the prices of iron and steel products, dealing a blow to a large number of local industrial concerns. Also,
before the privatization of the steel mills, all bank loans outstanding against the mills had been paid off so
that the new owners did not have any liability. In this regard the last installment of $ 41.4 million Habib
Bank loan was cleared by the government just days before the deal. Until 1999, the mill was burdened
under $315 million loans and its annual loss stood at $154 million. Later, it was administratively handed
over to retired military officers who started sacking workers to curtail the losses. In 2000, the steel mill had
a workforce of 20,533 which had shrunk to 13,080 in 2006.

The present value of the steel mill land at that time, at the rate of $0.03 million per acre, was around $1.526
billion whereas the mills other assets had been estimated at more than $2.49 billion. Furthermore the new
owners had been given an inventory of $116 million kept ready in stores, besides finished products worth
more or less the same amount.

Besides the precious land on the coastal belt near Port Qasim, the other assets of the mills include Steel Ore
Plant in Thatta district, water supply plant of 110-mgd, thermal power plant, oxygen power plant, 72-km
railway line, 14 locomotives of 800 horsepower each and more than 100 railway wagons. Only these assets
were worth more than $2.49 billion. The thermal power plant of the steel mills supplied electricity to the
mills and its township while selling the surplus power to the Karachi Electric City Corporation (KESC),
which supplies electricity to the port city of Karachi. Its oxygen plant supplied oxygen to various industrial
units and hospitals. It is deplorable that the steel mills had been sold for an amount which made just two
and half years tax it paid annually. The mills had a cash and bank balance of $ 199 million at that time.
Just one month before of the privatization, as many as 80 brand new vehicles were purchased for the mills.
The steel mill was maintaining a production capacity of 98 per cent and its profit was on the increase every
year. There is a question on the justification for the sale of the steel mill when the factory was functioning
well, its workers making no major demand and the mills paying over $149 million per year tax. On April
28, 2006, the Privatization Commission announced a package of $275 million for Pakistan Steel workers.
Considering the package and the cash in hand amounting to $ 165 million, it could be determined that the
mills had actually been sold at a loss of $82 million.

Public Reaction

After completing all the formalities of the privatization of steel mill, the government circles celebrated this
deal. The military dictator Gen. Musharraf and key members of his team including Shaukat Aziz, Awais
Leghari and others celebrated their silent success. However, media leaked the news of this massive
corruption. A wave of anger and uneasiness was spread among general public. Public openly questioned
the suspicious privatization deal of steel mills. Then the Supreme Court of Pakistan took suo moto notice to
look into the matter.

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Suo-Moto Notice of Supreme Court

On June 23, a nine-member bench of the Supreme Court annulled the sale of the countrys largest
industrial unit to a three-party consortium and directed the government to refer the matter to the Council of
Common Interests within six weeks. It had declared the $362 million transaction with the Russian-Saudi-
Pakistan investors as null and void.

The judgment said the entire exercise reflected haste by the Privatization Commission (PC) and the Cabinet
Committee on Privatization (CCOP). The PC had processed the March 30 final report of the financial
adviser the same day and a meeting of the PC board and a summary had also been prepared the same day
when a six week time was mandatory to examine and fix a fair reference price for approval by the CCOP.

This unexplained haste caste reasonable doubt on the transparency of the whole exercise and reflects
CCOPs disregard towards mandatory rules and materials, essential for arriving at a fair reference price,
the judgment said.

The Board of Privatization Commission had proposed to value the share of steel mills at Rs17.43 but it was
reduced to Rs16.18 without assigning any reason. The verdict said that keeping in view the annual net
profit of the mill, its shares value should have been ascertained by offering 10 per cent equity of the mills
on the stock exchange.

A constitutional court would be failing in its duty if it does not interfere to rectify the wrong, more so
when valuable assets of the nation are at stake, the judgment said.

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Despite the above mentioned financial position of steel mill, Privatization Commission on 4th March 2005
moved a summary to the Board of Privatization Commission suggesting that steel mill may be included in
the privatization programmed. Before inviting EOI the valuers were appointed to carry out a valuation. As
per record, M/s City Group were appointed. The Group was assisted by Advisors namely M/s CORUS to
provide technical, including plant mechanical integrity assessment and technical inputs to the valuation
model and environmental and M/s A.F. Ferguson & Co. (an affiliate firm of Price Waterhouse Coopers) for
the purpose of Accounting, Tax, HR and IT along with M/s ORR, Dignam & Co. Advocates for legal. It is
relevant to point out that Financial Advisors/Valuers prepared the Valuation Report on the basis of the
report submitted by A.F. Ferguson, CORUS and ORR, Dignam & Co. without undertaking independent
exercise in respect of accounting, tax, etc and other aspects of the matter. A.F. Ferguson had also relied
upon the Statement of Accounts furnished by steel mill. These reports were prepared on historical value of
assets i.e. according to the book value which is always based on depreciated price of the unit.

In pursuance to the publication of EOI, 19 parties had shown their interest. As such, Privatization
Commission issued them Request for Statement of Qualifications (RSOQ) out of which nine prospective
bidders were approved. In the meanwhile on 28th October 2005, the Financial Advisor (F.A.) City Group
submitted the interim report of Valuation of Shares followed by the final report on 30th March 2006.

It is very important to mention here that at the time of the issuance of the EOI, the Privatization
Commission intended to sell 51 to 74% out of 100% equity stake in steel mill. But at the time of bidding
total 75% shares were put on sale. The profile of steel mill published in the newspapers indicates that

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nothing was mentioned there in respect of the incentives which were provided later on to the successful
bidder by the Privatization Commission including the exclusion of the price of land on which unit/project
is situated i.e. 4457 acres and goodwill of the steel mill. The incentives not advertised but extended to
successful bidder included:--

(i) The stock in trade contained in the Unit worth about $165 million.

(ii) The commitment of the Government of Pakistan to clear the loan liability of PSMC which was due for
the year 2013 to 2019, amounting to about $126 million from the cash of $141 million lying with the Mills
as per the Statement of Account.

(iii) Refund of $16 million paid in advance as tax to Government of Pakistan.

(iv) Responsibility accepted by Government of Pakistan to satisfy the claim of the workers opting for
Voluntary Separation Scheme (VSS) up to $248 million.

According to the report of Valuer (City Group) the value of the land had not been added in calculating the
share price. In the final Evaluation Report dated 30th March, 2006 submitted by the Financial Advisor
(FA) to the Board Of Privatization Commission, it was observed by the latter as follows:---

The Board of Privatization Commission considered the valuation carried out by the Financial Advisor as
well as the replacement cost of plant and recommended total value of steel mill at US $500 Million. Based
on this, the Reference price for 75% strategic stake would be $375 Million i.e. PKR 17.43 per share
calculated at the rate of Rs.60.28 per US $ (total shares being divested are 1,290,487,275). On 31st
March, 2006, the matter was placed before the Cabinet Committee on Privatization (CCOP). The CCOP
however did not accede to the proposal of the Privatization Board with regard to the inclusion of the value
of total assets as also the per share price worked out by it on the basis of Financial advisor valuation and
the replacement cost (Rs. 17.43 per share). The Cabinet Committee on Privatization (CCOP) considered
the summary dated 30th March 2006, submitted by the Privatization & Investment Division on
Privatization of Pakistan Steel Mills Corporation and approved the valuation of US$ 464 million for
privatization of the Pakistan Steel Mills Corporation Limited (PSMC) for its 100% equity stake. On the
basis of above, 75% equity stake (1,290,487,275 shares) works out to US$ 348 million i.e. Rs. 16.18 per
share. In view of this decision of CCOP, the consortium comprising M/s Arif Habib Group of Companies,
M/s Al-Tuwairqi Group of Companies and M/s Magnitogorsk Iron and Steel Works, Russia was declared
successful bidder at the rate of Rs.16.80 per share. Then the matter was not again placed before the CCOP
and the Letter of Acceptance (LoA) was issued on the same date.

The Supreme Court ruled that the above decision of the CCOP not only reflects disregard of the mandatory
rules but also all material which was essential for arriving at a fair reference price. Rule 4(2) of the
Privatization (Modes & Procedure) Rules, 2001 states that, Upon selection of a highest ranked bidder as
specified in sub-rule (1) the Board shall refer the matter for approval, or rejection of such highest ranked
bidder with full justification, to the Cabinet. While approving the summary the Cabinet Committee totally
ignored this rule. Secondly the Cabinet Committee totally ignored the proposal of the Board of
Privatization Commission that the net assets should also be included while valuing the project. Thirdly the
decision that the Government of Pakistan shall bear the liability of the entire VSS of the employees of the
steel mill was neither part of the summary submitted by the Privatization Commission nor was it included
in the initial public offering given to the bidders through advertisement. Fourthly for the proposal of the
Board of Privatization Commission to value the share of steel mill at the rate of Rs.17.43 it reduced it to
Rs. 16.18 without assigning any reason. The Court said that this transaction is outcome of a process
reflecting serious violation of law and gross irregularities in the whole process of privatization of the
largest industrial unit in the country.

Current Situation

The current situation of steel mill is very bright, as it is improving every year. It was in loss few years
before, but now it is making profits and paying huge amount of taxes to the national exchequer.

Operating & Financial Restructuring


As of June 30, 2005 steel mill had total long term debt of Rs. 9.2 billion (US $153 million). Strong
earnings growth, along with the financial restructuring has also helped in significantly improving the

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leverage position and as of June 30, 2005, steel mill had negative Net Debt. The underleveraged balance
sheet of the Company provides adequate flexibility to finance further capacity expansion.

Long Term Raw Material Contracts


Pakistan Steels Mills has long term raw material contracts from around the world that makes it more
valuable. It has capacity to enter in long term contracts, and hence protect its supply side.

Expansion Possibility
The steel mill facilities are spread over an area of 19,088 acres (approximately 29 square miles). The main
plant area is spread over 10,381 acres, whereas an area of 8,071 acres has been designated for the Steel
Mills Township, which is the housing complex for steel mills workers. Pakistan steel mill also has
leasehold rights over 74 acres of limestone quarries in Makli (80kms east of steel mill) and 45 acres of
dolomite quarries in Jhimpir (30kms North of Makli). The expansive plant layout is expected to be
adequate for accommodating future capacity expansions. Furthermore the plant has been designed such
that the basic infrastructure is already present to cater for plant expansions.

Ideal Location
The steel mill is located at a distance of 40kms South East of Karachi in close proximity to Port
Muhammad Bin Qasim (Port). Considering that the bulk of steel mills key raw materials (i.e. coal, iron
ore, etc.) are imported, the location of the Company is of strategic value as the proximity to the Port
reduces raw material transportation costs considerably.

Competitive Positioning
Being the only integrated plant in Pakistan, Pakistan steel mill enjoys a dominant position in the domestic
market. Furthermore, the fragmented nature of the steel industry in Pakistan ensures steel mills
competitive advantage going forward, as the other operators are not only much smaller in size (i.e. do not
benefit from economies of scale) but also lack the financial flexibility to undertake large scale capacity
expansion projects.

Experienced Management and Workforce


Pakistan steel mills total employee strength as of June 30, 2005 was 15,853; comprising:
Senior Management: 26
Middle Management: 358
Junior Management: 7,132
Non-management: 5,488
Temporary and Contractual staff: 2,849
The Company enjoys an experienced and proficient technical management, supported by an equally
experienced workforce. Most of the key personnel have been with the Company for a number of years.
Unionized staff accounted for approximately 35% of the total workforce as of June 30, 2005.

Questions

1. If privatization would have taken place, what effect would it be having on steel prices in the
country? And what impact it would be having on overall economy?

2. Can we call reversing of Pakistan Steel Mills privatization by the Supreme Court of Pakistan a
case of judicial activism or interference in the role of executive?

3. In case the privatization would have been taken place, what effects this deal would have on steel
industry in Pakistan?

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References
1. Corruption in Privatization by Anti-Privatization Alliance (Lahore), Monday 23 June 2008,
published by Alternatives International (http://www.alterinter.org/article2239.html)

2. Privatization in Pakistan by Dr. A. R. Kemal, Ex. Chief Economist, Planning Commission,


Pakistan, published by Pakistan Institute of Development Economics.
3. Naqvi, Syed Nawab Haider and A. R. Kemal (1991): The Privatization Experience of Public
Industrial
Enterprises in Pakistan, The Pakistan Development Review (1991).
4. Supreme Court of Pakistans detailed verdict on Pakistan Steel Mills case on June 23, 2006
(http://www.supremecourt.gov.pk/web/page.asp?id=281).
5. Privatisation of Pakistan Steel termed biggest scam, Daily The Dawn, May 29, 2006.
6. Is Privatization in Pakistan Successful? By Dr. Akhtar Hasan Khan, published by Pakistan
Institute of Development Economics.
7. Gershenkron, Alexander, Economic Backwardness in Historical Perspective, Praeger, London,
1962.
8. Privatization of Pakistan Steel Mills, by Naveed Aftab, published by Pakistan Trade Union
Defence Campaign (www.ptudc.org).
9. Sale of Strategic Assets in Pakistan Steel Mills Corporation (Pvt.) Limited, Summary Information
by Citi Group, September 2005.
10. Plundering of Public Assets in Pakistan A Chronology of Privatization (1991-2006),
by Abdul Khaliq (CADTM-Pakistan), January 30, 2008.
11. The corruption in Privatization: Pakistan Steel Mills case, Tariq Farooq, May 28, 2006,
published by Europe Solidaire Sans Frontires (www.europe-solidaire.org).

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