Efforts to revive the sick
From Shamim Ahmed
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
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
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.