Cabinet Committee on Restructuring (CCOR) has recommended enhancement of credit limit of Pakistan Machine Tool Factory (PMTF) Karachi by Rs1,000 million under Government of Pakistan's (GOP's) sovereign guarantee for its rehabilitation to address the immediate financial constraints of the PMTF.

Sources told Business Recorder that the CCOR had moved a summary to the Economic Coordination Committee (ECC) of the Cabinet for enhancing credit limit by Rs1,000 million under sovereign guarantee for rehabilitation of the PMTF Karachi. The CCOR has recommended the enhancement of Credit Limit of PMTF by Rs.1000 million under GOP's sovereign guarantee to enable it to actualize, execute orders in hand worth Rs923 million, address the immediate financial constraints and wipeout the meager accumulated loss of Rs50 million subject to the condition that releases out the enhanced credit limit will be made in consultation with MoP.

Sources said that a summary for a bailout package of Rs2000 million for PMTF was sent for the consideration of Economic Coordination Committee (ECC) of the Cabinet by Ministry of Production (MoP) to Cabinet division onSeptember 28, 2011. The Cabinet Division, however, vide letter No.199/S/2011-Com dated October 4, 2011 advised to consult Finance Division in the matter. The Finance Division vide letter No.F.1(3)CF-III/2009-849 dated 26.10.2011 advised that the summary may be placed before Cabinet Committee on Restructuring (CCOR) which was accordingly taken up with Economic Reforms Unit (ERU) working as secretariat to the CCOR on November 11, 2011 by MOP. Concurrently, the Finance Division advised to submit a Restructuring and Business Plan alongwith the Utilization Plan of the demanded amount. The attached presentation on the business, utilization, and restructuring plans was sent to the finance division as well as to CCOR secretariat.

The PMTF, a unit of State Engineering Corporation under the administrative control of MoP, was established with technical collaboration of M/s Oerilkon Buhrle & Co. Switzerland in 1968 and commenced its commercial production in 1971 for manufacturing a range of machine tools. Its products' range was later diversified to meet the demand of domestic automotive sector, die castings and armaments for Pak Army. PMTF formed a nucleus in development of local engineering industry and has contributed significantly in technology advancement and foreign exchange savings through import substitution.

Sources said that the PMTF has played an important role in supply of high value added components for auto sector and enabled tractor assemblers to achieve deletion target of around 90 percent. The PMTF is the only integrated set up in the country having capability to manufacture auto components, machine tools and die-castings for number of industries such as auto (cars/tractors/motorcycles etc), gas companies and other engineering goods manufacturing industries. At present, import of Car's CKD is huge financial burden on government exchequer and PMTF, with some up-gradation, can achieve 80-85 percent deletion level in cars as well. PMTF has a unique type of infrastructure that can excel for undertaking other high value-added items which the country still lacks and imports against huge cost in foreign exchange. PMTF has prepared a proper PC-I for its up-gradation and diversification.

According to sources, the PMTF has always relied upon its own resources and never received any governmental grant since its inception. It has paid-off all of its loans (local & foreign) vis-à-vis undertaken the Balancing Modernization Rehabilitation (BMREs) of its facilities entirely from its own resources.

In the last 42 years, it has mostly remained in profit and has not required any assistance from Government. However, due to global recession, establishment of organized and un-organized competitors during last two decades and high labour cost, PMTF is facing serious financial crisis. This extraordinary situation has led to a point where it is almost at the verge of total collapse, the sources said.

It is pertinent to mention that the finance division earlier on the request of the MOP had agreed to enhance the credit limit facility of PMTF by Rs400 million vide, letter No. F.1(3)CF-III/2009-778 dated 20.09.2011. This, however, could not be materialized despite several persuasions by Finance Division and subsequent Letter of Comfort (LOC) in favour of National Bank of Pakistan (NBP) dated 04.11.2011.

The NBP after lengthy deliberation, negotiation and contacts by PMTF management, MOP and Finance Division demanded sovereign guarantees of the Government of Pakistan vide their letter No. MBK/CPD/PMTF/2011/953 dated 16.11.2011 realizing the enhanced credited limit in favour of PMTF. In this context, the Secretary MOP also called on the President of NBP on 24.11.2011 in his office for soliciting the support needed for the PMTF.

The presentation forwarded to CCOR secretariat was taken up on November 25, 2011 in its meeting held in Finance Division wherein following two options were presented:

The first option is the grant of Rs1000 million in shape of equity alongwith increase in credit limit by Rs1000 million under sovereign guarantee from GOP. The second option is the Soft Term Loan of Rs1000 million along with increase in credit limit by Rs1000 million under sovereign guarantee from GOP.

After deliberation and discussion, the CCOR recommended the enhancement of Credit Limit of PMTF by Rs1000 million under GOP's sovereign guarantee to enable it to actualize, execute orders in hand worth Rs923 million, address the immediate financial constraints and wipeout the meager accumulated loss of Rs50 million subject to the condition that releases out the enhanced credit limit will be made in consultation with MOP.

In view of the foregoing, the recommendation of CCOR has been submitted to ECC for approval, sources added.