Of embezzlements and scams

The Pakistan Steel Mills (PSM) is yet again in the news for all the wrong reasons. A three-member bench of the Supreme Court (SC) has rejected a report submitted by the Federal Investigation Agency (FIA) on the alleged Rs 22 billion PSM embezzlement scam. The SC has taken suo motu notice of the issue. The three-member bench termed the report unsatisfactory and directed the FIA to recover the money as soon as possible. The FIA has only been able to recover Rs 17 million so far. The SC has dubbed this scam the “largest dacoity” in Pakistan’s history. There are contradictory figures on the exact amount of the embezzled funds. The PSM management estimated the losses to be around Rs 22 billion; the auditor general’s special report said the amount was Rs 9 billion; while Barrister Zafarullah submitted the 2007-08 report of the Auditor General, which showed that around Rs 40 billion were embezzled, but since the report was only for a period of eight months, Mr Zafarullah said that a complete year’s losses could amount to as much as Rs 70 billion. Whatever the exact amount, it is shocking to see that a state-owned enterprise was being plundered so badly. The authorities noticed the scam too late and the sacking of PSM Chairman Moeen Aftab Sheikh by the prime minister did not change much.

The importance of a steel mill for the industrialisation of the economy cannot be emphasised enough. Without it, no developing country can move forward. After running up losses initially, the PSM started generating profits from 2001 till 2008. But it was around that time that our erstwhile premier, Shaukat Aziz, tried to privatise the PSM at a throwaway price. Fortunately, Chief Justice Iftikhar Chaudhry came to the rescue and reversed this ill-intentioned move. Once again, the SC has taken steps to save this state-owned critical enterprise. After 2008, the PSM ran into losses once again, some citing recession as the reason. But recession alone is not responsible for PSM’s rapid downturn. Pakistan has a history of cronyism and nepotism. As with any state-owned enterprise, whenever a new government comes to power, it stuffs the employee rolls with its own supporters. This has led to the decline of management standards in almost all public enterprises. Since the private sector is addicted to high rates of return and short gestation projects, it has never been interested in the steel or engineering industry, which has a relatively low rate of return and long gestation period. If the idea is to milk the PSM for all it is worth and then privatise it cheaply, the previous government’s misdirected privatisation policy should be kept in mind. Instead of privatising sick units that constitute a burden on the national exchequer, the Musharraf regime opted to sell profit-making and strategically important units. This policy failed miserably, prime examples being KESC and PTCL.

The state-owned enterprises are run through a bureaucratic set up instead of under a modern corporate culture. What is needed is to put management in the hands of competent professionals with the mandate to turn around the PSM. The new management should be totally autonomous and free of any political pressure, with a tighter financial regulatory system in place. There should be quick and efficient auditing and accountability to save our steel mills. Extraordinary effort is required to set things straight but we should not let a national asset go to waste just because some unscrupulous interests are looking to make quick bucks.

(my editorial in Daily Times)

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