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Shipping 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 shipping company?

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.