Pakistan's government has arranged an 11 billion rupee (US$200 million - Rs11 billion) bailout for Pakistan Steel Mills (PSM).

Strict conditions attached to this latest in a line of bailouts include letters of credit (L/Cs) and an escrow account.

Transparency

A bank consortium will be formed to finance the bailout, which essentially provides working capital for PSM.

Cash held by the banks can only be used for opening L/Cs, thus ensuring transparency in the purchasing process.

PSM's finance division is tasked with ensuring that L/Cs are opened in a timely manner to ensure a steady flow of raw materials with the aim of avoiding disruptions in the production cycle.

Proceeds and surpluses

Proceeds from sales will be routed through the escrow account.

Any surplus after retaining future working capital requirements will be used for current expenditures such as employee benefits, plant maintenance and payments to utilities.

Bailout history

Bailouts have been a regular feature in the history of PSM, which has also gained a reputation, according to local media, for corruption and mismanagement.

Last year, a government bailout enabled PSM to open two L/Cs for the purchase of much needed coal. (DC World News, 12 September 2012)

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