Govt works on two-pronged strategy for PSM sell-off

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ISLAMABAD: The caretaker government has kicked off work on a two-pronged strategy for the privatisation of Pakistan Steel Mills (PSM), which comes in the backdrop of a payment dispute with Sui Southern Gas Company (SSGC) over gas supplies.

A major outstanding issue before sell-off is the requirement of no-objection certificate (NOC) and the vacation of charge by SSGC from core operating assets, including the core land, plant, machinery and building.

The matter is pending resolution between the Ministry of Industries and Production, PSM and SSGC.

The Cabinet Committee on Privatisation (CCOP) has recently directed the Privatisation Commission to take all measures for resolving the pending issues and develop a clean plan of action for privatisation of the steel mill.

During the CCOP meeting, it was pointed out that PSM was Pakistan’s largest integrated steel manufacturing plant with a designed production capacity of 1.1 million tons per annum and the potential to expand production up to 3 million tons.

However, the mill has been closed since 2015 because of the dispute over gas supply. In compliance with the federal government decisions, PSM incorporated a wholly owned subsidiary named Steel Corp (Private) Limited.

The Securities and Exchange Commission of Pakistan has granted conditional approval for the Scheme of Arrangement under Sections 279-282 of the Companies Act 2017 for the transfer of core operating assets to Steel Corp.

The CCOP was further informed that Expressions of Interest (EOIs) for acquiring stakes of 51-74% in Steel Corp were published in newspapers in August 2021, in response to which eight foreign investors/ consortia expressed interest and six submitted the Statement of Qualification by the due date.

The Privatisation Commission board in January 2021 had designated four potential investors – BaoSteel Group Xinjiang Bayi Iron and Steel Co Ltd, Tangshan Donghua Iron and Steel Enterprise Group Co Ltd, Tazianjin Jianlong Iron and Steel Industry Co Ltd and MCC International Incorporation Ltd, and Maanshan Iron and Steel Co Ltd – as prequalified bidders.

All bidders were from the mainland China. BaoSteel and Maanshan are subsidiaries of China Baowu Steel Group Corp Limited, a Chinese state-owned iron and steel company. The prequalified bidders initiated due diligence in March 2022. However, Jianlong and MCC expressed no further interest in purchasing the mill. BaoSteel and Donghua showed interest and came to Pakistan in 2022 for on-site visit of the steel mill’s plant and also held meetings.

As a result, the draft of the key transactional agreements, pertaining to land lease, use of jetty and right of way, water and gas supply, and containing the commercial terms and conditions, was uploaded on the Virtual Data Room, which was required to be finalised before bidding. Two plans were submitted to the CCOP for further consideration.

According to Plan A, four Chinese companies including BaoSteel and Maanshan pre-qualified as potential investors. The cabinet body was told that both BaoSteel and Maanshan expressed no further interest in the transaction owing to the global downward trend in steel demand and the local foreign exchange policy.

It was proposed that the federal government may engage with Baowu Group at the government-to-government (G2G) level to revive their interest in the transaction.

Under Plan B, it was proposed that the Privatisation Commission may continue to engage with the sole bidder, Donghua, and submit a case to the federal government for initiating and negotiating the sale of the mill. Secondly, it was suggested that the Privatisation Commission may invite fresh EOIs from potential investors.

The CCOP directed the Privatisation Commission to take all measures to resolve the pending issues, including the NOC from SSGC, and formulate a clean plan of action for privatisation.

SSGC has to receive payments from PSM on account of gas supply, therefore, its NOC is required before pressing ahead with privatisation of the steel mill.

Sources said that after receiving the plan of action, the CCOP would decide on the fate of PSM.

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