The federal government on Monday could not make definite decisions on taking privatisation plan for Pakistan Steel Mills (PSM) and two LNG-fired power plants to the next stage and set up two separate committees to sort out issues hindering their sale for the past two years.
The Cabinet Committee on Privatisation (CCoP) met to consider approval of the transaction structure for privatisation of PSM and remove hurdles to the sale of two multibillion-dollar power plants along with other privatisation transactions.
Adviser to Prime Minister on Finance and Revenue Dr Abdul Hafeez Shaikh chaired the CCoP meeting.
“The CCoP constituted a committee to improve upon the transaction structure for Pakistan Steel Mills Corporation in consultation with the appointed financial/ transaction adviser for further incorporation of market requirements,” said the Ministry of Finance.
The Privatisation Commission (PC) board had recommended the setting up of a wholly owned subsidiary of PSM to sell majority shares in the subsidiary to the private sector investor. The board recommended offering 51% to 75% shares in the subsidiary.
As per the proposed transaction structure, PSM will sign a land lease agreement with the subsidiary for the sole purpose of steel manufacturing, according to the decision.
The previous Pakistan Muslim League-Nawaz (PML-N) government had closed PSM in June 2015 and since then the federal government has paid Rs33 billion to its employees.
As of June 2019, PSM losses stood at Rs190 billion and its on-balance sheet liabilities were Rs228 billion. There were also off-balance sheet liabilities of Rs73.8 billion, which would take the total liabilities to Rs302 billion.
The Rs67.3 billion worth of liabilities of banks, Rs61.7 billion in liabilities of Sui Southern Gas Company (SSGC), employees’ liabilities of Rs53.6 billion, litigation and land issues were proposed to remain with PSM. There were also Rs33.5 billion worth of contingent liabilities.
The financial adviser, hired for the PSM transaction, has estimated the cost of revival and expansion at $1.4 billion, including $580.4 million in revival cost.
LNG power plants
“The CCoP also constituted a committee to look into various sectoral issues related to the privatisation of National Power Parks Management Company Limited (NPPMCL),” according to the finance ministry.
The committee would include adviser on finance and revenue, minister for privatisation, secretaries of Finance, Power and Petroleum Divisions, SAPM on energy and representatives of the National Electric Power Regulatory Authority (Nepra) and would meet within a week to deliberate on the way forward, it added. The committee will specify issues and set guidelines for addressing all the pending issues with relevant quarters.
The Pakistan Tehreek-e-Insaf (PTI) government had wanted to privatise the LNG-fired power plants by June last year but the transaction, estimated at around $1.5 billion, remains pending. Twenty-three potential investors had shown interest in NPPMCL but 11 submitted statements of qualification.
The CCoP approved the transaction structure for divestment of 96.6% shares in Heavy Electrical Complex (HEC). It also directed the Ministry of Industries and Production for the amicable and earliest resolution of issues related to the regular employees of HEC. The CCoP instructed the Power Division (Ministry of Energy) to consider extending the validity of Type Testing Licence of Heavy Mechanical Complex.
The CCoP approved the transaction structure for privatisation of House Building Finance Company Limited (HBFC). The decision had already been taken in the CCoP meeting of August 21, 2020 but was not ratified by the cabinet for want of some additional information regarding profitability and other issues of the entity.
The PC briefed the CCoP that if the transaction went ahead, the new investor could bring capital, operational expertise, make capacity enhancement and new product development, which would eventually enhance HBFCL’s profitability and market share in housing mortgage for the middle and low-income groups. The CCoP accepted the proposal for pressing ahead with the transaction structure for divestment.