ISLAMABAD: Chinese and Iranian state-owned companies are interested in taking over loss-making Pakistan Steel Mills (PSM) as part of a long-term lease deal, Privatisation Commission Chairman Mohammad Zubair said on Wednesday.

Built by the Soviet Union in 1970s, state-owned PSM has become a huge drain on government resources and shuttered steel production in 2015. PSM has accumulated losses worth 163 billion rupees ($1.56 billion) and other outstanding debts.

The government had hoped to sell PSM but has struggled to find buyers and faced opposition to the sale from the provincial Sindh government, as well as a powerful union which represents many of the 14,000 PSM workers.

Zubair said the government was still open to selling PSM but a long-term lease was now likely, with Chinese and Iranian companies showing "interest" in taking over the vast factory on the outskirts of Karachi.

"We will go for a 45-year lease and are targeting foreign investors, as well as local companies," Zubair told Reuters by telephone.

He added the sale and any possible lease would have to be approved by the Privatization Board and the Cabinet Committee.

The commission will hold investor roadshows in Lahore and Karachi next week to gauge local interest in PSM.

Zubair said some local companies had shown interest in the Mills but declined to name them.

Pakistan promised the International Monetary Fund that it would privatise PSM and Pakistan International Airlines (PIA) as part of the $6.7 billion national bailout loan agreed in 2013.

Though the IMF programme finished in September, the government failed to privatise either in time.

While PIA remains operational, PSM has suffered decades of under-investment and would require huge upgrades to be competitive with steel makers in countries such as China.

Zubair said the government was willing to offer a long lease as an incentive for investors to put money into modernising PSM.

"For a company like this, with so many liabilities and this kind of state, you have to make major structural changes, put in a new plant, get new equipment," he said. "It makes sense to have a 45-year lease instead of 30 or less."

Earlier this year the federal government offered the provincial Sindh government a chance to take over PSM, but the Sindh government declined after months of deliberations.

Zubair said this process had delayed privatisation efforts and led to the commission restarting the process. -Reuters