The steel mill - which is the countryÆs only integrated steel manufacturing plant and its largest steel producer - had been awarded to a Russian-led consortium made up of Magnitogorsk Iron and Steel Works of Russia; the Saudi Arabia based Al-Tuwairqi Group; and a Pakistani firm. The consortium bid $362 million for a 75% stake earlier this year.
The privatisation was referred to the Supreme Court in a petition which deemed the asset ôstrategic to the countryö and questioned the price at which it had been sold. The Supreme Court commented "the process of privatisation of Pakistan Steel Mills Corporation stands vitiated by acts of omissions and commissions on the part of certain state functionaries reflecting violation of mandatory provisions of law" and further that "the letter of acceptance dated March 31, 2006, and the share purchase agreement dated April 24, 2006, are declared as void and of no legal effect".
Various editorials over the weekend commented that the decision could have the unfortunate fallout of completely derailing the privatisation program in the country. It is not clear whether there were indeed irregularities with respect to the transaction and whether the allegations of corruption which are now rife are indeed correct. However, the precedent set by the court setting aside an award are likely to act as a huge deterrent to strategic investors in the future. Asset disposals which are immediately likely to be affected include the sale of two oil assets.
PakistanÆs privatisation programme has had several road blocks since it was launched. The biggest privatisation to date, the sale of controlling stake in Pakistan Telecommunication, which was announced earlier this year, took five years to complete. At the time investors had hoped it signalled a positive change in the countryÆs approach to privatisation. Indeed, shortly thereafter at the Credit Suisse conference in Hong Kong in March a recurring theme of the speech by Dr Salman Shah (who holds the highest economic portfolio in Pakistan and is adviser to the Prime Minister for Finance, Revenue and Economic Affairs) to investors was how successful the country had been with privatisation. Dr Shah had commented that privatisation had been immensely advantageous to the country by releasing capital and making the companies far more efficient. Obviously, all his compatriots are not quite so convinced.
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