Pakistan and Russia have reached almost an agreement
on the expansion of Russian built Pakistan Steel Mills besides closer
cooperation in other economic areas.
Recently, a large Russian delegation led by Foreign
Minister Igor Ivanov had visited Pakistan to explore fresh avenues for
cooperation between the two countries.
Expansion of Pakistan Steel was discussed by the
visiting delegation which had come out with the observation that Moscow
agrees on its participation in the expansion plan. There were a few
minor problems in the final decision on the expansion request which are
likely to resolve soon.
Pakistan had received several offers including from
China for the expansion of the steel mill but it was preferred to work
with Russia which had originally established the project. This
development regarding participation of Russia in expansion plan
obviously seems to be the outcome of President General Pervez
Musharraf's recent visit to Moscow. Promotion of economic ties between
the two countries was the priority area of the discussion between the
heads of the two States.
The proposed expansion plan with Russian assistance
was estimated to cost $95 million. It is interesting to note that China
had also expressed willingness to participate in the expansion plan and
had offered financial and technical support.
Meanwhile, a Memorandum of Understanding (MoU)
between Pakistan and Russian Federation was also signed during the visit
of President Musharraf to Moscow. The MoU with the Russian Federation
was stated to be for a relatively limited expansion to the extent of 40
per cent of the existing capacity or increasing it from the present
capacity of 1.1 million tons to about 1.40 million tons per annum.
The earlier expansion plans aimed at increasing the
production capacity to 3 million tons which is said to be the idea for
financial and economic viability of the project. However, the idea was
dropped probably because of decline in demand for steel products in the
country. Although the steel requirement in the country was three time
more than the actual production of the Pakistan steel, but the remaining
demand is met through other resources such as ship breaking, re-rolling
mills and foundries.
Its, however, re-assuring that the demand for steel
products was on the increase in recent years mainly due to growth in
engineering and automobile sectors.
Currently, the management of Pakistan Steel aims for
expansion which would be focused on diversified products required by
value-added goods. This would improve the PSM market share for these
The present situation is highly supportive for
expansion in the steel complex due to growing strength of the
engineering sector in Pakistan.
Pakistan Steel suffered huge financial losses in the
past due to excessive politicization and overstaffing on political
considerations. Pakistan Steel was inherited a burden of huge loans
amounting to over Rs19 billion when the present management took over in
1999. This back breaking loan was comprised of Rs11.35 billion as the
principal amount with an aggravated interest of Rs7.767 billion piled up
during last 20 years. In order to get out of this debt trap which eroded
the economic viability of this project, the government had decided to
retire the principal amount in 12 equal yearly installments along with
mark-up, while the accumulated interest would be paid in seven
installments after the principal amount was fully paid. Finding a
breathing space as a result of this rescheduling arrangement, Pakistan
Steel has succeeded to retire over Rs4.6 billion to the banks and is
about to retire the second installment as well it is learnt. Certainly
it is a great achievement.
The present management, however, carried out a right
sizing strategy and has succeeded to bring about a turnaround both in
improving profitability as well as reducing overcoming the problem of
surplus and unwilling staff to a great extent. The strong discipline and
financial management has however created an image of hard task master of
the present management.
The profit earned during the recently concluded
financial year is around Rs one billion which also played a moral
boosting factor for going ahead with the expansion plans because the
government has advised the Pakistan Steel to generate funds from its own
resources to meet the expansion plans. The government had expressed its
inability to support financially and asked the mill to arrange money for
its expansion program.
In this regard, the management is active to float at
least 10 per cent of its shares through Karachi Stock Exchange with a
view to develop a strong financial base of the project.
According to plans, the expansion program would be
implemented in phases. In the first stage, the production capacity would
be increased from 1.1 million tons to 1.5 per annum. In the second
stage, the capacity to be enhanced from 1.5 million tons to 3 million
tons and these phases would be completed by 2006-07.