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How National Fibres was closed?

  1. How National Fibres closed
  2. Thal Engg. launches a new project
  3. The importance of Kalabagh Dam
  4. Impact of globalisation on Pakistan
  5. Withdrawal of export re-financing on yarn
  6. Federal Budget 2000-2001

A perfect case study of white collar crime

Jul 24 - 30, 2000

This story does not contain the point of view of NDFC. PAGE tried its best, for three weeks, to seek interview with Chairman, National Development Corporation but all in vain. Since the issue is of national interest PAGE could not delay the story for an indefinite period.

And finally National Fibres Limited (NFL) has been closed. The major role has been played by National Development Finance Corporation (NDFC) which was supported by the poor legal system and the apathy of all concerned. Even the institutions like National Accountability Bureau (NAB), State Bank of Pakistan and Ministry of Production, etc. cannot absolve themselves from the responsibility. All these institutions were fully aware of the mismanagement, corruption and nepotism of the NDFC appointed management team.

NDFC was given the management control of NFL under an order of Sindh High Court on December 4, 1997. The Corporation was given two years time frame to revive the unit which expired in December 1999. During the management control of NDFC the plant never operated fully, funds were misappropriated and salary payment to employees were delayed for months. The result is that liabilities of NFL touches almost a billion rupee. NDFC appointed team announced a temporary lay-off on June 14, this year which still continues. The reason for this lay-off was said to an acute shortage of funds.

One may ask a question, why NDFC should be blamed for the closure of NFL? Only one fact is enough to support this accusation — Riaz Niazi's convenient departure from Pakistan. Niazi, an employee of NDFC, was nominated chief executive officer of NFL in October 1998 — his appointment was endorsed by the Sindh High Court also. He was accused of misappropriation and NDFC issued him a show-cause notice and another employee was lately appointed the CEO. Despite the fact, his name was not put on ECL..

Another question arises, why the management control of NFL was given to NDFC? NFL was the first ever polyester staple fibre (PSF) manufacturing unit established in Pakistan in 1982. Till its privatization in 1992, NFL was the most profitable unit of Federal Chemical & Ceramics Corporation (FCCL). At an average its pre-tax profit was used to support other units under the management of FCCL. The economic welfare of at least 1,100 families was linked with NFL — directly or indirectly. However, the economic assassination of employees started with the takeover of management control of NFL in early 1992 by the Schon Group. The unit was closed down for the first time after the takeover in 1995 and then interruptions in production became a norm.

The story of privatization of NFL itself is very interesting. The unit has an installed capacity to produce 12,400 tonnes of PSF and 3,000 tonnes of filament yarn per annum. At the time of bidding the value of NFL was estimated at Rs 756.64 million. However, 51 per cent shares of the Company alongwith management control were transferred to Schon Group against a cash payment of Rs 196.72 million and for the remaining amount bank guarantee was submitted. Some analysts say that while determining the networth of NFL, spares worth Rs 400 million, 42 acres of land, at least 52 cars and glycol storage tank were not taken into account. That enabled the new management to sell glycol storage tank facility to ICI Pakistan and pocket the amount. Schon Group subsequently filed cases against the GoP and did not pay the balance amount. Surprisingly its bank guarantee was not encashed. However, once problems aggravated lenders consortium asked the Sindh High Court to allow them to takeover NFL. Since NDFC had the largest outstanding amount all other lenders agreed to give NFL under NDFC control.

Another point to ponder is that NFL has been under NDFC control since October 1998 but during this period no serious effort was made to revive the unit. Interruptions in production were frequent and got prolonged. Liquidity crunch was said to be the reason for interruptions. However, the cow was milked till it went dry. While the regular employees were not paid salaries for months, their fringe benefits were curtailed, the blue-eyed kids of NDFC appointed management were paid handsome salaries. Many employees with long years of service were relieved on the ground that NFL was running in loss.

In the name of production of black fibre a drama was staged. It was the dirtiest joke of Riaz Niazi and his associates. Some analysts say that after the production of black fibre at NFL plant, most of the equipment is no longer usable without complete refurbishing by the original plant and machinery suppliers.

Whatever may be the circumstances or reasons at least one point is very clear — management team appointed by NDFC failed in reviving the unit. They were on a holiday trip, making good money for doing hardly any thing. Their act has put at least one billion rupees at stake, employees of NFL have not been paid salary for months and the same will happen to assets of NFL which has happened in case of other public sector units which were closed.

Some sources say that NDFC has already started asking people to submit bids in case they are interested in buying the plant. Another, information is that NDFC wants immediate liquidation of unit to recover its outstanding amount. The aim is to prove that NFL is an unviable unit. But the visit of people interested in taking over the unit, at a throw away price, clearly indicates the viability of the unit.

Way out

What has happened at NFL, after its privatization, is history which no one change. Crying on spilled milk will not change its fate. NFL is a national asset and it should not be allowed to go waste. There is no option but to restart commercial production, make it economically viable, ensure continuity of services of its employees restore inflow of revenue to the GoP and recover debts extended by financial institutions.

Some financial analysts suggest immediate liquidation of NFL. This is the worst proposal because with the commencement of liquidation proceedings the people responsible for its closure will not be identified and punished. Besides, liquidation tantamount to killing an ailing patient who is in coma but has all the probability of recovery. It needs right diagnosis, proper prescription and timely treatment. What should be the proposed plan?

Immediate classification of NFL as sick unit, preparation of revival plan and implementation of programme without wasting further time. The strategy includes following measures:

The Sindh High Court order, which put NFL under NDFC management control has expired in December 1999. The Court can be asked not to extend the time frame and appoint an operation and management (O&M) company to manage NFL. Appointment of an O&M company is a common practice in corporate world,

Since the GoP is responsible for the closure of NFL after its privatization/sale to Schon Group, it must play the key role. The measures include, restructuring of NFL debt, writing off all the accrued interest from the date the unit was handed over to Schon Group and writing off loans extended by NDFC to NFL while it was under its management control,

Bankers consortium, mostly comprising of state owned banks and DFIs should be asked to extend fresh loans and GoP should provide the guarantee. On the basis of existing balance sheet, profit and loss account and cashflow no financial institution will be willing to extend fresh funds to NFL.

One may say that all the above suggested steps put the GoP at an odd position. It was the GoP which was cheated by a few and the efforts being made to recover funds, who have misappropriated, has proved to be the right step. The GoP has the will and resources to recover the looted amount and it will be the ultimate beneficiary when the money is recovered financial institutions will get their due share. Besides it will enhance industrial activity in the country, provide direct and indirect employment and ensure additional revenue to national exchequer. However, the success largely depends on the strategy to recover the looted amount. The possible measures are:

     Putting the names of senior management team of NFL, particularly those appointed by NDFC, on exit control list and bringing back Riaz Niazi to Pakistan,

     Immediate arrest of all those who have been alleged for misappropriation and corruption at NFL. This responsibility can be assigned to NAB,

     Recovery of outstanding amounts from Schon Group by confiscation of their assets and subsequent sale.

The closure of NFL is a smug on the face of present government. One may say that they were not fully aware of the affairs of NFL. However, it is never too late to mend. The NAB can undertake investigations without wasting time. NFL is a clear example of white collar crime where ample evidence are available. Please do not waste time to take corrupt and looters to task. Simultaneously efforts should also be made to commence commercial production at NFL.