The Ministry of Privatization is on the verge of transferring control of Pakistan Steel Mills (PSM) to the Ministry of Industries and Production (MoI&P) after a lapse of approximately four years, resulting in substantial financial losses to the national exchequer under the guise of revival or sell-off plans.
In a recent meeting, the caretaker Federal Cabinet, held on October 30, 2023, approved the recommendations of the Privatization Ministry based on decisions made at the Special Investment Facilitation Council (SIFC) level. Despite this, PSM (Steel Corp Ltd) remains at number 11 on the active list of entities slated for the privatization program.
The Privatization Ministry informed the caretaker Cabinet that PSM had been listed on the active privatization list by the Federal Cabinet in its decision on June 17, 2019. Subsequently, on November 19, 2019, the Privatization Commission (PC) Board approved the appointment of a Financial Advisory Consortium (FAC) for the privatization of PSM. This consortium included Pak China Investment Co Ltd (PCICL) and Bank of China International (BOCI) as Joint Lead Financial Advisors, along with other sub-contractors.
After fulfilling procedural requirements, the Financial Advisory Services Agreement (FASA) was signed with PCICL and BOCI on January 10, 2020. The Financial Advisors prepared due diligence reports and a transaction structure, which underwent thorough discussions at various levels of decision-making bodies.
The transaction structure, approved by the Cabinet Committee on Privatization (CCoP) on December 24, 2020, involved the transfer of identified core operating assets into a wholly-owned subsidiary of PSMC through a Scheme of Arrangement, followed by the sale of a majority of shares of the newly formed subsidiary to a strategic private sector partner. This structure was ratified by the Federal Cabinet on December 29, 2020.
Key activities following the Cabinet approval included the registration of Steel Corp (Pvt) Ltd by MoI&P/PSMC on June 1, 2021, and the approval of key features of the transaction by CCoP on August 10, 2021, ratified by the Federal Cabinet on August 17, 2021. The Scheme of Arrangements (SoA) de-merger was filed with the Securities and Exchange Commission of Pakistan (SECP) on August 27, 2021, followed by the advertisement of Expression of Interest (EoI) by PC on August 31, 2021.
The EoI process resulted in the pre-qualification of four Interested Parties (IPs): BaoSteel Group Xinjiang Bayi Iron & Steel Co. Ltd (BaoSteel), Tangshan Donghua Iron and Steel Enterprise Group Co. Ltd (Donghua), Maanshan Iron and Steel Co. Ltd (Maanshan), and Tianjin Jianlong Iron & Steel Industry Co. Ltd. and MCC (“Jianlong” and MCC).
However, after the signing of Confidentiality Agreements (CAs) with the Pre-Qualified Bidders (PQBs), BaoSteel and Maanshan withdrew their interest due to global economic conditions and challenges related to Pakistan’s macroeconomic outlook.
The Sixth Apex Committee meeting of the SIFC on October 4, 2023, decided to annul the current bidding process for the privatization of Steel Corp, examine options of closing or auctioning the plant and equipment, and recommend the optimum utilization of industrial land.
The Privatization Commission Board, in its meeting on October 6, 2023, expressed concerns about the single-bidder scenario, leading to questions of transparency and fair market value. The Technical Due Diligence report indicated a necessary investment of US $584 million to revive the Steel Mills plant to its existing capacity, with potential further expansion requiring up to $1.4 billion.
The Ministry of Privatization highlighted recent advancements in steel production technology and emphasized the changing dynamics of the industry. In light of these challenges, proceeding further with the transaction was deemed unjustified.
