industry: Uncertain future
The question is: Would the government bail out
the long financially errant Corporation once again like many times in
the past by pumping in hard cash earned to save the one and only
domestic shipping company?
By Syed M. Aslam
May 21 - Jun 03, 2001
With the accumulated loss surpassing the paid-up
capital and reserves by Rs 105 million and current liabilities
exceeding current assets by Rs 1.5 billion for the half-year ended
December 31, 2000, the state-owned Pakistan National Shipping
Corporation is looking at a bleak future.
The question is: Would the government bail out the
long financially errant Corporation once again like many times in the
past by pumping in hard cash earned to save the one and only domestic
Despite lifting more cargo and bettering the
revenue during half-year under discussion the PNSC and its subsidiary
company, Pakistan Co-operative Ship Stores (Pvt) Limited, suffered an
operating loss of Rs 36.6 million. The failure to improve
profitability despite increase in cargo liftings and revenue was
blamed primarily to the substantial increase in bunker price during
the period which rose to $ 172 per ton over the comparative period the
previous year. The depressed freight market resulting in decreased
freight rate was also blamed as another major set back for the loss.
The notes to the unaudited accounts for the
half-year also say that the Government of Pakistan has restored the
'First Right of Refusal' for the PNSC allowing it to win bulk imports
by the government agencies and public sector organisations by matching
the lowest bid. The restoration of the 'First Right of Refusal' is
seen by the observers as an indication of the government's plans to
help the fledgling PNSC.
The PNSC management has already requested for
support from the Federal Government, which holds 90 per cent of the
shares. A bailout this time around would not be the first for the PNSC
— The Federal Government provided a subsidy of Rs 259 million to the
PNSC in 1984-85 and the Corporation managed to remain in black for the
next two years thereafter generating losses.
In March 1990 the Federal Government once again
financially restructured the troubled Corporation by writing off its
accumulated losses which totalled hundreds of millions and raising its
paid up capital from Rs 500 million to Rs 1,143 million. By 1995-96,
PNSC's accumulated losses totalled Rs 850 million wiping out almost 75
per cent of the enhanced paid up capital.
pnsc attributed the massive operating loss last
year on the unprecedented increase in the international prices of oil
which increased the expenditure on the purchase of bunkers to Rs 606
million, almost double than Rs 319 million over the previous year.
However, a look at PNSC's performance over the years clearly shows
that the Corporation has managed to earn an operating profit only half
the time since 1984s.
During last decade, PNSC's fleet strength has
decreased by almost half from 28 vessels to 15 vessels. The dead
weight tonnage has also declined from 494,956 to 261,836 during the
same period. PNSC's fleet today comprise a total of 15 vessels
including 12 break-bulk and 3 container vessels. All the break-bulk
vessels have long passed their economic lives — the average age
being 18 year. Many of them are on the scrap list and the Corporation
has repeatedly called for tender for one vessel during last few months
for scrap/other purposes.
The conditions of the rest of the break-bulk
vessels are only marginally better requiring frequent repairs and
dry-docking costing an ever increasing sums in maintenance and running
costs. The relevant question is: Would the restoration of the 'First
Right of Refusal' would help PNSC's dilapidated fleet perform or would
the facility be used to pass on the business to the chartered
operators as usual. As is, during the half-year under discussion PNSC
chartering revenues totalled more than its freight revenues.
The PNSC still owes an outstanding balance of $ 30
million from the Bahrain Branch of National Bank of Pakistan for the
three-used container vessels it acquired in 1996. PNSC is negotiating
for the rescheduling of the remaining part of the loan.
The restoration of the 'First Right of Refusal'
should also be seen in the broader context allowing PNSC to enjoy
monopoly on such captive import cargoes as coal, steel, fertiliser,
phosphate, etc. It also means giving power to the PNSC to not to match
a bid to avoid shipment of an import cargo no matter how important.
The importance of having a reliable national
maritime fleet can hardly be over-emphasised, particularly in the
context of Pakistan which faces real threat from its hostile neighbour.
However, turning PNSC in to a lean and efficient commercial
organisation should be made a top priority. Can a shipping company
having a fleet of 15 vessels, the majority of them in dilapidated
state, afford to have 610 executives; including the chairman, 4
directors and 605 other executives.