Restructuring Heavy Mechanical Complex

[ajpirzada]

THE federal government has decided to take Heavy Mechanical Complex, Taxila off the privatisation list and major policy measures are in hand to make it viable for a long term.

An ambitious balancing, modernisation, rehabilitation and expansion estimated to cost Rs21.54 billion is under consideration at the Planning Commission, while the Economic Affairs Division is seeking project financing of $156.44 million to cover its foreign exchange component.

The Design Centre of the HMC is to be upgraded at a total cost of Rs665.38 million and the scheme is before the government for necessary financial and administrative approval. Renewed emphasis is being placed on strengthening its human resources that have depleted significantly in past years as the company remained on the divestment list for more than two decades. A large number of engineers belonging to various disciplines are being inducted to be imparted advanced training in selected fields, within the country as well as abroad.

The complex employs more than 1000 professionals, technicians and workers. The company having certification of international standards and qualifications such as ISO, American Boiler Board, ASME and TUV etc, is profitable despite technological and financial constraints. For the fiscal year ending June 30, 2010, the company has achieved record sales of two billion rupees. It has earned gross profit of Rs187 million and orders in hand valuing Rs1,400 million, with additional orders in the pipeline.

HMC, a strategic industrial unit is the largest engineering, designing and manufacturing organisation professionally managed and is spread over an area of 2.31 sq km. It works under two names, Mechanical Division and Foundry and Forge Division established under the Chinese technical and economic assistance. .

Production facilities were established during 1960s-1970s and have become outmoded since no major investment was made in subsequent years to modernise installed machinery. Though rehabilitation of major machines has been done on a regular basis with the help of the Chinese, plant capability is no more compatible. It is planned to upgrade the plant and general purpose machinery and material handling equipment will be refurbished.

Steel melting, casting and forging facilities will be overhauled and upgraded by installing modern instrumentation and by adding an induction furnace and a heavy duty forging press. Heavy duty computer, numerically controlled (CNC) machines, precision welding machines, material preparation equipment and others will also be installed.

HMC has a well-equipped product design and engineering office, with modern computer-based hardware and software facilities. Technology acquisition and assimilation has been successfully done, through technology transfer agreements and under joint ventures with foreign companies. This not only enabled HMC to become market leader in supply of sugar mills and cement plants on turn-key basis domestically, it also placed Pakistan on export map..

The domestic market for sugar and cement having been saturated for quite sometime, the company needed diversification of its production programme. Concerted efforts were made in this direction but plans did not materialise, primarily due to non-availability of requisite foreign technology, lack of government support and inconsistent policies. Thus, the HMC’s competitive edge has eroded over a period of years. The complex now plans to expand and diversify its products range to cover equipment for energy, chemical, petrochemical, agro-based and other industries and infrastructure sector, besides acquiring latest technology for its product line.

A well-conceived business plan, on short and long-term basis is in place, projecting annual sales after initial five years of completion of the BMRE at about Rs15 billion. HMC has firmed up its programme to manufacture, in a big way, major and critical equipment for power generation plants based on various energy resources. The comprehensive product range will include equipment for hydroelectric, coal-based, thermal, wind power, urban and industrial waste power, in line with the projections of the National Security Power Plan 2005-2030. The management aims at supplying small hydropower and wind energy plants on turn-key basis in near future.

The list of thermal power plants for which the company manufactured substantial equipment includes Kesc’s Bin Qasim 2x210 mw, Wapda/Pepco’s Muzaffargarh 1x 320 mw and the IPPs such as Hubco and AES Lalpir power stations. Likewise, HMC has contributed towards supply of machinery and equipment for medium and mega hydropower projects like Malakand III, Ghazi Barotha, Warsak and Tarbela, besides installing a number of small and mini hydropower projects in the Gilgit-Baltistan and the Azad Jammu & Kashmir (AJK). Orders are under execution at HMC workshops for small hydropower projects being constructed in the AJK.

To enlarge its scope of supply of equipment and technical services for energy and industrial sectors, HMC will develop further its design and engineering capabilities. It is now planned to upgrade the Design Centre, with focus on adoption and adaptation of latest technology in the new areas of business. The modern engineering and manufacturing technology related to various industrial sectors has to be acquired from foreign sources. The proposed strengthening and capacity-building of the product design office include additional state-of-the-art facilities for computer-aided design (CAD) and computer-aided engineering (CAE), which will be integrated with computer-aided manufacturing (CAM).

The restructuring plan, consisting of the BMRE of production facilities, strengthening of Design Centre and procurement of technology, is envisaged to be completed in three years after approval. Logically, China would be the best partner for technical and financial assistance required for implementing the plan. In the past, China has helped Pakistan in establishing a strong base for heavy engineering industry, and is again willing to support the government’s roadmap for strengthening the sector. Another determinant factor for partnership with the Chinese will be the continued interest shown by them in the development of a number of hydropower projects.

During the visit of President Zardari to China in the month of July, the Chinese government indicated to support Pakistan’s endeavours to overcome persistent power shortages, extending economic assistance of $10 billion for construction of hydropower and alternate energy (wind farm) projects. HMC can effectively promote joint ventures with the Chinese companies to be involved in construction of the identified projects, for indigenous manufacturing of related equipment, under technology transfer arrangements.

(Engr Hussain Ahmad Siddiqui is retired Chairman of the Heavy Mechanical Complex)

DAWN.COM | Economic & Business | Restructuring Heavy Mechanical Complex

 

[fatman17]

if the govt wants this institute to 'innovate' with the times, privatization is the best option.

 

[fatman17]

old article but it illustrates my point!

BUSINESS
Date Posted: 22-Mar-2002


JANE'S DEFENCE WEEKLY - MARCH 27, 2002


Pakistan's export plans face major hurdles

AYESHA SIDDIQA-AGHA JDW Special Correspondent - Islamabad

Pakistan's military establishment is determined to promote its weapons exports in an effort to make weapons production an engine for economic growth.

The military's top executives are confident they have the manufacturing potential to compete in the international arms market with first- and second-tier producers.

They believe Pakistan is capable of manufacturing a large array of weapon systems ranging from small arms and ammunition to tanks, submarines and ballistic missiles. With these ambitions in mind, Islamabad has hosted two international exhibitions and is planning a third in September. Islamabad has also established a Defence Export Promotion Organisation (DEPO) to provide impetus to its export objectives.

Despite these ambitions, Pakistan's indigenous arms manufacturing and export strategies have some inherent problems that will shackle efforts to significantly boost exports.

For the past decade, Pakistan's arms sales have averaged about $20 million a year. Most sales were small arms and munitions, produced at the oldest defence production establishment: the Pakistan Ordnance Factories (POF). The high-point of sales was 1998 when the POFs alone exported arms worth about $35 million. Since then the figures have dropped.

With an original goal of disposing of $1 billion worth of excess inventory, the military established the DEPO, headed by Maj Gen Ali Hamid to market the products and services of the three services. The organisation not only represents the 17 public-sector production units or departments, but also 32 private-sector companies.

The export organisation's goal, as stated by its director of policy, is to boost sales to $120 million per year in two years. Many observers believe that Islamabad can interest low- and medium-income countries in its defence products that can be manufactured and sold for less than competing equipment made by first- and second-tier arms producers.

To attract international customers Pakistan is to hold defence exhibitions and symposiums and take part in similar events abroad.

The DEPO plans to target a number of Persian Gulf and South Asian countries for the sales. Countries like Egypt, Kuwait, Malaysia, Saudi Arabia, Syria, Turkey and the United Arab Emirates (UAE) are considered traditional customers and are viewed as potential buyers for equipment and services.

However, this assessment fails to take into account that in the past Islamabad has been unable to attract its traditional buyers. For instance, the Pakistan Aeronautical Complex failed to finish the overhaul of the UAE's Mirage fighters within the specified time, discouraging the UAE from signing new contracts. The POF's efforts to sell to African states have also failed because of competition from South Africa and the inability to offer substantial kickbacks, POF chairman Abdul Qayyum said. Nevertheless, the POF has endeavoured to attract customers through product innovation. An example are the modifications to the German Heckler & Koch MP5A2 sub-machine gun that makes it smaller and attractive enough to sell to countries like Uruguay.

Most recently, the POF's main customers for 2001-02 were Sri Lanka and Bangladesh. However, Pakistani officials hope that sales will materialise from several memoranda of understanding that have been signed with a number of countries including Iran and Romania.

Non-traditional customers - such as Algeria, Congo, Indonesia, Kenya, Libya, Nigeria, Sri Lanka, Sudan and Zimbabwe - are where Islamabad hopes to sell major weapon systems like the Agosta 90B submarine, minehunters, tanks, armoured personnel carriers, missile- and gun-boats, jet trainers and propeller-driven aircraft. Pakistan also hopes to sell arms and ammunition such as surface-to-air missiles, anti-tank guided missiles, cluster bombs, recoilless rifles and rocket launchers.

A key obstacle to increasing exports is the limited production capacity of the defence industry. Its primary task is to fulfil the needs of the armed forces. Last year, when only $12.7 million worth of weapons had been exported, the military's General Headquarters warned the POF to abstain from excessive exports. This problem, observers say, will restrict sales regardless of the export strategy.

The DEPO is also the conduit for private-sector manufacturers. However, their capacity is limited to small arms, ammunition fuzes, rubber and simple mechanical components. The DEPO may help them capture some additional orders but is unlikely to lead to a dramatic rise.

Pakistan's military establishment, however, is keen to sell the big-ticket items, most of which are produced under licence. A problem Islamabad would face in trying to market these major weapon systems is that most of the production activity is restricted to assembly. Actual understanding of the entire system is limited. For example, although Heavy Industries Taxila can manufacture most of the mechanical components used in T-59, T-69-II, T-85 main battle tanks (MBTs) and many of those for the Al-Khalid tanks, components such as the gearbox, transmission, fire control system and others are procured from foreign sources.

The Al-Khalid is presented as being on a par with the best MBTs available internationally. However, it depends on foreign sources for about 50% of its components and subsystems. Likewise, the Naval Dockyard is completely dependent on its Chinese, Italian and French suppliers in its manufacture of missile- and gun-boats, submarines, minehunters, and midget submarines. A similar situation is faced by the air force for its jet trainer, the K-8, which is co-developed and co-produced with China.

Prospective customers would likely be wary of buying major weapon systems when they could not be assured of spares and support. Also, Pakistani manufacturers have not negotiated the terms under which they can sell subsystems and components to third parties. So far, the major weapon systems have been offered for sale without taking into account the buyer's maintenance requirements and the overall life-cycle cost of the equipment. This could well make the Pakistani assembled systems both less dependable and more costly in the long term. That potential customers are aware of this was illustrated when Pakistan tried to sell submarines to Saudi Arabia and Malaysia. The countries turned down the offer and opened negotiations directly with Pakistan's French suppliers instead.

Additionally, if Pakistan is placed under sanctions, companies would likely be unable to acquire the foreign subsystems and components needed to assemble systems or provide spares and support.

Given Pakistan's constraints, observers say the country's possibility of selling major weapon systems is bleak. The comparative potential of selling low-tech products and services appears a far better reality. Nevertheless, they say, the prospects of sales crossing the $100 million mark in the next two years appear extremely slim.

List of potential military exports and services of DEPO

Military training; training simulators; unmanned air vehicles and drones; avionics; chaff and flare dispensers; laser rangefinders; optics; radios, remote-sensing products; rubber products; commercial explosives; military clothing; missile overhaul; aircraft and tank upgrades and overhauls; software development; and a variety of other non-major weapon systems.

 

[sparklingway]

Perhaps a group of investors might be daring enough to invest big money these days. If they do so, it might be a confidence booster for the market and overall economy as well.

 

[mughaljee]

Happy with Up gradation but ,
Privatization , ?
this is not fruit full.

 

[gowthamraj]

^ ya it fruitful man. Take India as example.

 

[khurasaan1]

Happy with Up gradation but ,
Privatization , ?
this is not fruit full.

The shares could be privatized but not the sensitive industry as a whole..the owners shares should be kept in hand...

---------- Post added at 07:30 PM ---------- Previous post was at 07:29 PM ----------

Happy with Up gradation but ,
Privatization , ?
this is not fruit full.

The shares could be privatized upto 40-45% through stock exchange but not the sensitive industry as a whole..the owners shares should be kept in hand at all cost...