Pakistan Steel Mills (PSM), the country’s largest industrial unit, has been closed since June 2015. Despite this, the company is reported to have earned an after-tax profit of around Rs7.45 billion in 2021-22. However, its accumulated losses of Rs206 billion exceed its current assets worth Rs195.5 billion. The independent auditors, Crowe Hussain Chaudhry & Co, gave a qualified opinion on the financial statements, stating that the PSM fully disclosed its dispute with Sui Southern Gas Company Ltd (SSGCL) on late payment surcharge (LPS) worth Rs59.7 billion, which increased from Rs52 billion in FY21.
The audited accounts for the fiscal year ending June 30, 2022, revealed that the total assets of the PSM have been valued at about Rs839 billion, up 65% from Rs549 billion a year earlier. The company paid the salaries for April of its employees from its resources ahead of Eidul Fitr after a gap of more than a decade, instead of relying on the federal budget.
The closure of the PSM in June 2015 resulted in an estimated loss of about $18 billion in foreign exchange for the import of steel products that were previously produced by the PSM. A parliamentary committee concluded that the state of the PSM was due to unchecked corruption, inefficiency, over-employment, and the government’s lukewarm attitude towards its revival.
The PSM management claimed that SSGCL should waive LPS, which SSGCL did not accede to, and instead stopped gas supply during the period and filed a suit against PSM for the recovery of outstanding gas bills and LPS in Sindh High Court. PSM also filed a counter suit against SSGCL for Rs38.6 billion, claiming damages for losses suffered by PSM due to gas supply disruption from June 2015.
Since the PSM management did not recognize the LPS liability in financial statements, the independent auditors qualified their audit. They were unable to determine the amount that would ultimately be payable given SSGCL’s suit instead of LPS waiver under ECC decision.
The standing committees of the parliament will be examining whether a performance audit of successive governments since 2008 should be ordered to conclude if the company was still an asset or a liability that could be revived without government support or disposed of by doling out its real estate assets to creditors and other stakeholders against liabilities.
PSM’s total assets valued at Rs838.66 billion included Rs751 billion worth of property, including over 17,000 acres of land, thousands of houses, many hospitals, and educational facilities, plant and machinery, and Rs71 billion worth of investment property, besides other current assets in the shape of stocks, receivables, etc. The auditors pointed out that the current liabilities of the firm on the balance sheet exceeded its current assets by about Rs10 billion, which indicates “a material uncertainty” that may cast significant doubt on the PSM to continue as a going concern.
The auditors also highlighted that the apex court had ordered an investigation through the Federal Investigation Agency (FIA) of the company’s losses in 2008-09, which continued through the years, and FIA investigated and lodged criminal cases. An independent professional services firm was appointed to carry out a forensic audit to determine the depth of corruption. The firm’s report confirmed “large-scale corruption and mismanagement and amounts attributable” to corruption. The Supreme Court in 2012 transferred the case to the National Accountability Bureau (NAB), where the matter remains pending as of now, as the financial bleeding continued.
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