Pakistan Steel Mills located 40km south east of Karachi came under some serious controversies after reports continued to appear in the media in early 2009 of some serious financial problems that may have effectively left this organization in some serious debt which may actually extend to well beyond a substantial few billions, reportedly upto the tune of Rs 22 billion, if not more. The first set of reports emerged during middle half of February 2009 following which the Competition Commission of Pakistan undertook a detailed investigation and came up with some very alarming discoveries which place the Abbas Steel Group, owned by Riaz Lalji, also a close associate of Asif Ali Zardari, being interincisly involved in some serious corruption issue in the previous PPP tenures and has been labelled as “fugitives from law” in turn was a close associate of Asif Ali Zardari being solely responsible for recent recent Steel Mill debacle.
The initial set of accusations generally started off with accusing the, then Chairman of Pakistan Steel having a strong bias towards the Abbas Steel Group [ASG] accusing them of allocating all the billets being produced by Pakistan Steel Mill to be exclusively sold to the Abbas Steel Group at well below the market price while other competing vendors, who had actually made full advance payments at official market price, were left stranded and starved literally running their own factories into debt and ultimate closure.
It must be recalled that in May 2008, Moeen Aftab Sheikh was appointed as the Chairman of Pakistan Steel by the PPP to “achieve optimum level of production and making Pakistan Steel cost-effective”. Ever since the appointment of Moeen Aftab Sheikh, as the Chairman of Pakistan Steel, a strong favoritism was extended to Abbas Steel Group giving them exclusive rights to all the production coming out from the factory at well reduced and discounted prices
THE DISPUTED PRODUCT – LOW CARBON STEEL
It may help us to understand which product is under question. Pakistan Steel being the largest and the only large scale blast furnace in Pakistan has generally a monopoly on the raw materials coming out for the steel industry. It produces a wide ranging of products depending on the market requirements. The product that is being disputed in this case is a specific type of steel product known as low carbon steel billets. These billets are generally produced in blast furnaces that have the ability to produce low carbon steel from iron ore and air. This product has a carbon content of 0.1 percent or lower, which gives the steel malleability and ductility enabling it to be shaped into wire rods which are then used to make end products such as screws, nails, buckles, fan covers and welding rods. The international classification for this item is SAE 1008 and SAE 1010
Other comparable products are high carbon steel billets with a content of more than 0.1 percent carbon naturally labelled as high carbon steel is brittle and is considered an extremely inferior quality.
STRONG BIAS TOWARDS SELLING ALL GOODS TO ABBAS STEEL
The Pakistan Steel Mills shares all its market data, production and selling data, also known as Product Allocation (NOR) [Notice of Readiness] data publicly on its website. The data stream showed some alarming irregularities in 2008. The Low-carbon steel SAE 1008 and the SAE 1010 billets, in the first half of 2008, were allocated at a higher level then the usual norm to the Abbas Group, but since June 2008 [after the new Chairman assumed office] there was a considerable spike in the allocation to ASG and the increase topped the charts in October and November 2008 where 100% of the steel being produced in Pakistan Steel Mill was given to ASG. It was observed that to help cater to the much sought after low-carbon steel and also fulfilling the requirements of Abbas Steel Group production to other higher end carbon stel categories was stopped and all the mills resources were allocated to the low carbon steel
A chart is reproduced from the Competition Commission investigative report shows the alarming trend seen in 2008, it compares the low-carbon steel supply to two other randomly selected steel vendors as compared to Abbas Steel Group
If you notice in there is no data publicly available on Pakistan Steel Mills website for December 2008 and the trend continued into January 2009, even Transparency International is on record to have complained for this irregularity. The NOR data started reappearing in February 2009 and even then the same identical pattern was noted where again Abbas Steel Group was on the recieveing end of almost 100% of all the billets emerging from the Pakistan Steel production line which had now become exclusively for low carbon steel
PAKISTAN STEEL RE-ROLLING MILLS RESPOND
Having noticed this strong bias and favoritism towards Abbas Steel Group the Pakistan Steel Re-rolling Mills Association wrote to the Chairman objecting of many irregularities, the pleas were generally left unheard until the Re-Rolling mills association to approach the Ministry of Industries and Production who summoned a high-level meeting in December 2008 chaired by in the documented minuted they “drastic reduction in prices of billets (from Rs 63,000 per ton to Rs 41,000) cleared the inventory of PSM in a week to 10 days but the major share of the billets was sold to a few parties.”
Following the meeting in December where the Ministry asked for comprehensive answers from the Steel Mill, the requests were left ignored, in turn, Pakistan Steel on the night of 9-10th February actually sold off the remaining stock of 4,500 tons, at again a below the cost price to “favorites.” resulting in a loss of over Rs 34,000 per ton. While the traders then re-sold these billets to the market at a premium of between Rs 7,000 and Rs 8, 000 per ton resulting in a mammoth potential loss of Rs 153M to Pakistan Steel while these favorite middlemen pocketed a handsome commission of over Rs 35M.
The scarcity of low-carbon steel in the market being hoarded by a select group of traders had the on-demand price fluctuating anywhere from Rs 5,000 ‘on’ to even a reported premium of around Rs 100,000 over and above the market price. An advantage which Abbas Steel expertly exploited to make millions, despite having purchased the steel at a significant below the market price discount from Pakistan Steel.
Even Transparency International Pakistan (TIP) had expressed concern over the fact that Pakistan Steel Mill was “not selling its products in a transparent way and is unnecessarily delaying rise in the prices of billets” According to the news item, TIP “Some Pakistan Steel Mill officials are favouring a company by supplying and allocating extraordinary quantity of billets. As a result, other dealers and re-rolling mills are deprived of getting billets.”
In addition there were numerous confirmed reports where Abbas Steel Group was given extra ordinary procedural advantages, an example quoted in the investigative period is of November 2008, a tender contract was awarded to Abbas Steel Group for 4,000 M/Tons of Billets valuing at over Rs 194 million, which included an extra ordinary interest-free credit facility of Rs 76M for 90 days on November 25, 2008 even before the company [ASG] completed any proper registration procedures or did the Steel Mill await the proper clearance of the security deposits submitted by ASG on Nov 27th [checks were cleared on 3rd Dec 2008]. but the steel was shipped out of the factory floor on the 26th of November. Complicating this uncharacteristic “interest-free” policy was the fact that the prices of steel products was also reduced by over 35% of the market price on November 26, 2008 and 100% of the Pakistan Steel production was handed over to Abbas Steel Group, surely such favoritism helped the group make millions over night
There is so much evidence to suggest that there was a seriously issue of favoritism and corruption, it seems that towards Riaz Lalji who is a close aide of Mr. Asif Ali Zardari. The exact implications of this entire scam has already run into well over Rs 22 Billion but if we factor in the 180M population of Pakistan it is as if Mr. Asif Ali Zardari in cohoots with Riaz Lalji swindled approximately Rs 150 from each Pakistani in a short span of one year. How long are we going to keep silent while the menace runs this entire country to the ground. It must be noted that all facts reported in this article were presented as a summary from the investigative report by the Competition Commission of Pakistan and are authentic to my best understanding. The question that remains to be answered who is willing to take these corrupt to the bleachers.