Management’s inaction blamed for PS losses worth Rs22bn

ISLAMABAD: Deliberate inaction by the top management of the Pakistan Steel Mills (PS) to safeguard the company’s financial position in view of an abnormal decrease in international prices of raw material and freight charges mainly contributed to a colossal loss of Rs22.1 billion to this public unit, says an enquiry report prepared by an Upper House committee on Pak Steel losses.

Despite clear directions from the board of directors of the PS and a note of general manager (F&A) to the management for corrective measures to overcome the huge losses during 2008-09, the PS management took a lethargic approach in negotiations with international suppliers and freight companies, said the report’s findings submitted to the Senate panel on industries & production the other day. The losses further rose by about 100 per cent under the head of general administration expenses as compared to the last year.

Pre-tax loss suffered by the company during the year 2008-09 came to Rs22.1 billion as compared to profit of Rs3.6 billion in the previous year, it added.

Prime Minister Syed Yousuf Raza Gilani sacked then PS Chairman Moeen Aftab for his inability to control the losses and appointed another bureaucrat to run the affairs of the mill but the company continued to bleed and its losses were reported to have reached Rs4 billion in the first quarter (July-Sept) of FY 2009-10.

The PS board of directors, in its meeting on Nov 26, 2008, had directed the management to form a high-powered committee to negotiate with the foreign raw material suppliers and freight companies to adjust their prices by offering discount equivalent to the differential amount of current prices.

However, the directions of the board were not followed in letter and spirit, the report pointed out. In response to these directions, the management took an interesting stand saying: “PPRA rules do not allow such actions whereas the company’s lawyers Agha Faquir Muhammad & Co rendered their opinion vide their letter dated April 4, 2009 that the PS can negotiate with the international suppliers and freight companies and PPRA rules do not stop the company from this action,” said the report.

The company’s record also showed that the Baltic (Freight) Index dropped almost 80 per cent during the year under review but the management failed to avail of any reduction in freight charges, it added.

“The company can save $170 million (Rs13 billion) by only negotiating with freight companies, but apparently the matter was delayed by the chairman office for reasons best known to him,” one of the authors of the report told The News but requested not to be named.

“An obvious reason for not negotiating with the freight companies is pocketing extra freight charges by the top management of the PS and freight companies,” the official alleged.

Previously, on more than one occasion, the report mentioned that the company had allowed huge upward revision of 50-70 per cent in international freight charges when international market rates increased. The reluctance and non-negotiation of prices of raw material and freight charges on substantial reduction of rates in the international market on the pretext of PPRA rules was criminal act, it added.

Previously the PS chairman was able to get a reduction of 25pc in the prices of coal in 2005-06 when a similar situation was created in international market, the report suggests that the management of PSM deliberately did not avert the losses to the company.

Although under PPRA rules, there is no specific penalty even for violation of any section of the rule. All the products of PSM including pig iron, cast billet, finished slab, rolled billet, H R coil/sheet, C R coil/sheet and galvanized products registered a loss from Rs17,102 to 35,145 per tons during the FY 2008-09.