KARACHI (November 26 2008): Pakistan's largest public sector organisation, Pak-Steel is faced with the worst financial crunch, which may force the management to close down this gigantic project till such time it overcomes its woes.

According to well informed sources present global meltdown has started showing its effects on Pakistan's economy and after textile sector which is in gloom and banking sector looking towards State Bank of Pakistan for relief, clouds of despondency are looming large on Pak Steel.

The cash starved plant, which is faced with acute liquidity problems, is the third in line grappling with an ugly situation. The severity of its financial difficulties could be judged from the fact that several banks have refused to open letter of credit for import of raw material, required to run the mill, unless 100 percent amount of L/C is deposited by Pak Steel with these banks.

Pak Steel which was privatised by the previous government at a very low price but was later overturned by the Supreme Court of Pakistan, is today at cross roads where the management may not be able to pay next months salaries to the staff.

Sources said Pak Steel is sitting on an inventory of Rs 10-12 billion with no sales insight due to recession in the construction market and high prices being offered to buyers. It is also defaulting in opening letter of credit for its raw materials as well as freight.

A source in Port Qasim said that one vessel loaded with 44,000 metric tons of coal is waiting at anchorage since November 7 as sellers are in dispute with Pak Steel because in-spite of signing legal contract with the suppliers, it has failed to open letter of credit.

Problems of Pak Steel do not end here. It has contract for purchase of coal and iron ore from Australia, Canada, Iran and India and these commodities are to be lifted within prescribed time frame. However due to shortage of funds and infighting amongst various departments of Pak Steel, it may not be able to lift these cargoes resulting in legal battles with suppliers and possible shut down of the Mill.

Sources further said that Pak Steel have also signed a contract of affreightment with foreign shipping companies and due to scarcity of funds, it will not be able to import raw material resulting in these shipping companies going into arbitration for claiming dead freight.

Insiders at Pak Steel said that if urgent steps are not taken by the Government of Pakistan to improve the financial health of Pakistan Steel, there would be closures and about 20,000 people presently working in the Mill would be rendered jobless. The closure of a mega project may lead to further destruction of other public organisations and government may not be able to contain severe unrest in the country, sources said.

Copyright Business Recorder, 2008