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Industrial restructuring corporation

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Efforts to revive the sick units

From Shamim Ahmed Rizvi, Islamabad
Feb 07 - 13, 2000

The government is planning to set up an Industrial restructuring corporation to deal with the question of revival or otherwise of over 4000 sick units which are out of operations for the past many years holding up large capital mainly obtained from Nationalised Commercial Banks. The government is seeking foreign assistance of about 400 million US dollars (about Rs. 30 billion) to enable the Corporation to revive the units which had the potential for revival.

Various stiudies conducted in the past by the State Bank and Ministry of Industries have concluded that about 900 industries could easily be revived through balancing, modernisation and replacement (BMR) process while over 500 had no chance of revival where capital over Rs. 100 billion was stuck. The Banker Committee which looked into these cases have recommended their outright auction. Ministry of Industries has identified over 150 major sick industrial units and advised the government to arrange revival of these units on priority basis to augment industrial activity in the country.

Official sources confided with this correspondent that all these reports will be checked and reexamined by the experts of the proposed corporation which will decide modalities of revival or their sale through public. To arrange necessary funds for the corporation, decision has been taken to seek foreign Official Development Assistance (ODA), and bilateral funding for reviving 900 units, out of total of 4000 sick units, some of which were offered some funds by the previous government but without any result.

According to details, the government would undertake Balancing, Modernization and Replacement (BMR) of genuine sick industrial units for which it planned to contact the authorities of the ODA to start the work within next few weeks times. Also the World Bank and the Asian Development Bank (ADB) will be contacted for this purpose.

"We plan to maintain government-to-government contact to have considerable assistance for reviving over 900 major sick industrial units", said a high official of the Ministry of Finance. He told this correspondent that some of the industrialized countries including Italy was being approached to also offer their industrial machinery for reviving these units.

The initial contact with the government of Italy was encouraging as it has decided to look into the request of providing machinery to address the issue. The government, believed that Pakistan could not increase its exports unless it has surplus for exports and that this job could not be done without reviving at least 900 major sick units. "Without boosting the industrial sector, nothing could be achieved to put the economy back on the track", said another official. He said that the State Bank of Pakistan has also been asked to give a fresh report over the issue by providing details as to what happened during the previous government for reviving sick units. "How much money has been offered for various units for their revival and with what results, has also been asked from the central bank", he added.

The present government was banking on a previous study conducted by the Federation of Chambers of Commerce and Industry (FPCCI) that the government should revive only 877 sick industrial units. Out of 4000, many of the sick units were over capitalized, and in many cases people got the bank loans and never established any industry. In that case value of real estate was being only considered for their selling by the government. While in some cases, the machinery has turned obsolete.

"We are trying our best to arrange some working capital for those units which could be revived and eventually will have certain significance in increasing the overall industrial growth in Pakistan", said an official adding that the owners of the genuine units will certainly be helped out.

The Ministry of Industries and Production has advised the government to revive 150 major sick industrial units on priority basis to augment industrial activity in the country. Sources told that in a recent meeting, the Ministry has pointed out that without reviving these viable sick units, the overall improvement in local industry would be difficult.

Out of 1000 viable major sick industrial units, we have identified 150 projects which can be revived by putting into more equity in a short period through the newly proposed 'micro credit bank'.

The Banker Committee headed by the former Chief of Habib Bank, Mr. Shaukat Tareen set up by the ousted PML government had recommended that over 500 units be sold through public auction and thereby the government could recover about one third of its stuck up loans of about Rs. 100 billion outstanding against these units as a large number of the units are reduced to mere junk and only value they offer is in terms of real estate which has certainly appreciated in the meanwhile.

Bankers are setting their eyes on the overseas Pakistanis for taking over a large number of these units and injecting the much needed liquidity and hard cash in the national economy. Bankers are proposing the government to allow the overseas Pakistanis to buy the revivable sick industrial units at the original principal loan amount. They want complete write off of the accumulated mark-up on the loan and total exemption from payment of government liabilities by way of taxes and utilities.

Shaukat Tareen, who headed the Bankers Committee, had prepared a detailed report with recommendations on revival of sick industries in 1999. He wanted the State Bank to authorize the punitive steps against the wilful defaulters. These measures can be by way of recommending arrests and putting the names of defaulters on exit control list. Bankers explain that the SBP intervention for punitive measures have been sought to spare the inventors, industrialists and the bankers from the harassment at the hands of the Federal Investigation Agency (FIA) and other law enforcement agencies.

In 1998, Shaukat Tareen with the help of bankers and legal experts had proposed a set of measures to eradicate what he called the "default culture" in the country. While proposing "draconian laws" to deal with the wilful defaulters it was also suggested to take "product based solutions" in cases where loan default was because of recession, inconsistent government policies and factors beyond the control of the sponsors. Nonetheless, the bankers associated with Shaukat Tareen in 1998 exercises were more than certain that out of Rs. 130.5 billion unpaid loans, only an amount of Rs. 73.5 billion or 56 per cent of total sick portfolio was recoverable while Rs. 57 billion was not recoverable.

Even then, many stock brokers had then considered the bankers expectations of Rs. 73.5 billion recovery as " too optimistic" as they pointed out that scare cash flow and political uncertainty inhibit investors to come in a big way for putting such a huge amount in industrial units which are sick, partially operational and closed. The latest drive of the present government against the loan defaulters in which only Rs. 11 billion could be recovered has proved that these estimates were correct.