Table of Contents

Executive Summary ……………………………………….......….... ..…. 2

Acknowledgement……………………………..……………...…….… ….3

Introduction…………………………………………………….….……….4

Background……………………………..……………...………….……….5

Vision Mission…………………………………………………………...…6

Products…………………………….………………………...…….……....7

Ethical Practices………………………....…………...………….……...9

Health and safety……………………………….………..……….………....9

Enviroment……………………………………………….…..….……..…..10

Educational facilities…………………………….……………….....…......11

Unethical Issues………………………….…….……...…….....…........14

Recruitment policies……………………………………………..…………14

Privatisation Of PSMC……………………..………………...…...….….. 15

Historical Loss Of PSMC…………….…………………….…….……..….17

Conclusion…………………….……………………………….…………..19

References.…………….………………………………………..……….…20

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Abstract/Executive Summary

In this paper our group has used the case study of PSMC (Pakistan Steel Mills Corporation) in a

bid to find the ethical/unethical issues related to this business. Although PSMC is considered as

business which gives importance to ethical issues such as responsibility to its employees,

customers and environment, we have discussed some of the major issue that we think are

unethical in the context of “Business Ethics” course that we are studying. This report also shows

our level of understanding and thinking at the end of each issue, where we have tried to assess

the case in the light of our knowledge and academic learning. Therefore, this report is not only

descriptive but also a good deal of thinking and reasoning have been incorporated to make this

report meet the requirements and criteria of a good report.

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Acknowledgement

We, students of Shaheed Zulfikar Ali Bhutto Institute of Science and Technology, sincerely

thank Sir Taha Noman, who taught us Business Ethics and for giving us an opportunity to make

an Ethics Report on Pakistan Steel Mills Corporation and for guiding us in the report and for

giving us the motivation to do it through which we were able to learn a lot and we gained a lot of

experience. We are also thankful to Mr. Khan Manager at PSMC for giving us of his precious

time.

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Introduction

The real founders of Pakistan Steel Mills are Prof. Niaz Muhammad, Wahab Siddiqui and

Russian scientist Mickhail Koltokof. It was the hard work of Prof Niaz that thousands of

scientists and technical staff got trained by him. His inspirations and innovations got him the

highest award from president of Pakistan and also from Russian Government. The Government

of Pakistan has given him Pride of Performance. His nomination for Nobel Prize was biggest

respect of what Pakistan achieved.

Pakistan Steel is the country's largest industrial undertaking having a production capacity of 1.1

million tonnes of steel. The enormous dimensions of the project can be visualized from the

construction inputs which involved the use of 1.29 million cubic meters of concrete, 5.70 million

cubic meters of earth work (to Tarbela Dam), 330,000 tonnes of machinery, steel structures and

electrical equipment. It has an unloading and conveyor system at Port Qasim is the third largest

in the world and its industrial water reservoir with a capacity of 110 million gallons per day is

the largest in Asia. A 2.5km long sea water channel connects the sea water circulation system to

the plant site with a consumption of 216 million gallons of sea water per day.

The above figures illustrate the massive civil works, intricate erections, installations of

sophisticated electrical and mechanical equipment. With the completion of Pakistan Steel, the

local contractors gained the technical ability till then unknown, which they utilized later to

undertake million dollar projects both within the country and abroad especially the Middle East.

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Background

After independence in 1947, it did not take long for Pakistan to come to the realization that

progressive industrial and economical development would be impossible without the possession

of a self reliant iron and steel making plant. The dependence on imports would cause serious

setbacks to the country along with an extortionately high import bill which would be impossible

to support.

In 1968 besides other factors, it was considered by the Government of Pakistan that a basic steel

industry should be established in the public sector, as public sponsorship of the project would

enable integrated development of the steel industry in the country. In light of this, the

government decided that the Karachi Steel Project should be sponsored in the public sector for

which a separate Corporation under the Companies Act be formed. As a result on the 2nd of

July, 1968 Pakistan Steel Mills Corporation was setup as a private limited company in the public

sector in accordance to the Companies Act of 1913, with the objective to establish and run steel

mills at Karachi and other places in Pakistan.

In January, 1969, Pakistan Steel concluded an agreement with V/O Tiajpro export of the then

USSR for the preparation of a feasibility report into the establishment of a steel mill at Karachi.

Subsequently in January, 1971 Pakistan and the USSR signed an agreement under which the

latter agreed to provide techno-financial assistance for the construction of a coastal based

integrated steel mill at Karachi.

The foundation stone for this gigantic project was laid on the 30th of December, 1973 by the

then Prime Minister Mr. Zulfikar Ali Bhutto. The mammoth construction and erection work of

the integrated steel mill, never experienced before in the country, was carried out by a

consortium of Pakistani construction companies under the supervision of Soviet experts.

Commissioning of Blast Furnace Number 1 on the 14th of August, 1981 marked Pakistan's entry

into the elite club of iron and steel producing nations. The project was completed at a capital cost

of Rs. 24,700 million. The completion of the steel mill was formally launched by General Zia-

Ul-Haq the then President of Pakistan on the 15th of January 1985.

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Our vision

To become a leading steel company in south Asia committed to serving stake holders by offering

quality products through an innovative and cost effective manner in accordance to

environmentally friendly conditions.

Our Mission

Pakistan Steel is committed to be a leader in steel industry by:

1 Greater response to customer's present & future needs.

2 Focus on productivity and Quality.

3 Facing Challenges of free Market Economy

4 Ensuring higher rate of return on invested capital

5Developing Human resource and motivating employees

through .empowerment and hard consequences.

6 Safe Working and Environment friendly conditions.

7 Minimizing process wastages, rejections and recycling wastes.

8 Good Governance

9 Fulfilling Social Obligations

10 Improving Corporate Image

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ProductsPakistan Steel billets, are produced to tight tolerances, high surface finish and superior quality.

Pakistan Steel's high quality billets are used for

Manufacturing plain, deformed, twisted and ribbed bars.Manufacturing steel sections viz, rails, angles, joints, channels, squares, flat bars, rods, wire rods, bailing hoops, tees and chains etc.Manufacturing seamless pipes.Manufacturing of machine components.Forging and stamping.Manufacturing of spring steel flat bars.

Hot rolled carbon steel coils, sheets, strips and plates are produced at our 1700mm Hot Rolling Strip Mill.

Uses.Seam Welded Pipes for Gas/Water/Oil.Storage Tanks, Vessels, Containers.Ships/Barges, Launches & Floating Structures.Fabricated Sections/Structures.General Purpose Sheets/Plates.Wheel Rims.Formed Sections, Steel Flooring and Cold Rolled Products

Cold Rolled Sheets/Coils.

 Uses.Seam Welded Pipes for Gas/Water/Oil.Storage Tanks, Vessels, Containers.Ships/Barges, Launches & Floating Structures.Fabricated Sections/Structures.General Purpose Sheets/Plates.Wheel Rims.Formed Sections, Steel Flooring and Cold Rolled Products

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Galvanised products

USESAutomobiles,Roofing,ShutteringPanelling Manufacture of buckets, utensils, cans, containersDesert coolers, Air conditioners, Water coolers ,Fresh water tanks, etcDomestic appliances

Pig iron

Pakistan Steel produces, two grades of Pig Iron - Foundry Grade Pig Iron (F.P.I)and Conversion Grade Pig Iron (C.P.I).Normal practice at Pakistan Steel is to produce Conversion Grade Pig Iron (CPI).

Metallurgical Coke

Uses Widely used as a fuel by foundries in cupolas for melting iron scrap and pig iron. In sugar mills employing the carbonising process. For making chemicals/calcium carbide.Used in the pharmaceutical industries.Coke breeze is used for steam generation in boiler houses.Used in Steel making for carbon adjustment.

Granulated Blast furnace Slag

is produced as a result of the reduction of iron oxide to iron.

It consists of silicates, the alumina silicate of lime, a minor percentage of ferric and managanese oxide and sulphur.jgjgjgj

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ETHICAL PRACTICESHealth & Safety

Pakistan Steel adheres to a strict, health and safety policy. We are

committed to providing a safe and healthy working environment to all our

employees and work continuously to incorporate safety in design. Our drive

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in the achievement of a safe working environment with safe working practices has

recently awarded us with OHSAS 18001 accreditation. We however, endeavor to continue

our work in the field of safety and continuously push safety practices and safety education

and training across the whole workforce.

This shows that Steel Mills of Pakistan is fully aware of its responsibility towards its

employees. They are determined to take every step in order to provide better environment,

pay and working conditions to its employees. This is comes under the head of ethical

arrangements taken care by the management of Steel Mills of Pakistan. This endeavor by

Steel Mills of Pakistan, showing courtesy to their employees will improve not only the

productivity of employees working in hazardous conditions of steel manufacturing and

improve the loyalty of employees.

 

The management at Pakistan Steel is fully committed to providing a high

level of social accountability to its entire workforce. It follows the

philosophy that Pakistan Steel's success comes from its people and the

needs of the people are inseparable from the needs of the organ. In order to

motivate its employees steel mills has developed an ideal dwelling near the production

facility, known as “Steel Town”. This again is an ethical behavior as it provides the

employees opportunity to live near, where they work and hence saves the fuel cost to

them, and travelling time which they can utilize in increasing production levels. This also

has bigger implications in the macro environment and helps Pakistan reduce the cost of

Petrol and Gas. This is ethical because efficiency is key in solving problems of a calamity-

hit nation like Pakistan.

Environment

Pakistan Steel has in place a strict environmental policy. We are

committed to the continuous improvement of our environmental

performance. At Pakistan Steel we take our environmental responsibilities

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seriously and environmental protection is integrated in all our business and process

activities. Adherence to our strict policies and undertaking work consistent with

international standards has enabled us to meet or exceed applicable legal requirements. If

we look at this statement from the lens of ethical reasoning, we will find out that this is a

good statement by Steel Mills of Pakistan, as responsibility of saving the environment

should be observed by each and every company that

burdens the natural environment in someway or the other.

In the past two years Pakistan Steel has followed an active

reforestation program within and exceeding its 20,000

acres of responsibility. We our continuously setting new

targets for waste reduction and pollution prevention. We have carried out extensive work

in water recirculation and treatment and have improved the treatment of fresh water

supply feed to lakes and reservoirs for the benefit of our local communities.

This again is a positive step taken by Steel Mills of Pakistan, as they are at least doing

something for the protection of the natural environment. We can apply utilitarian

perspective to this as we know that a company should indulge in things that are good for

the society and by saving the environment they are helping not only the current population

but also helping the future generations of Pakistan.

Educational Facilities

Pakistan Steel actively contributes towards the promotion and advancement of learning and

education. We manage a large number of educational institutions from primary school to college

level including a cadet college, a degree college, an intermediate college, 4 high schools and 2

primary schools. In addition to this we operate the two following institutes.

As we all know from our understanding of the course, that each action that a firm undertakes has

social costs and benefits. However, since education is a merit goods, it affects will help the

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Pakistan to grow and become a better country. As a result, this action by PSMC is again an

ethical one.

Metallurgical Training Centre

The Metallurgical Training Centre (MTC) is designed to impart

training in 64 technical trades to 1600 students/workers

annually. The students who are trained from this institute

specialize in the fields of mechanical, chemical, electrical, metallurgical technologies. Since

inception in 1978 the MTC has provided training to

approximately 11846 people. In addition to this the centre has

introduced a three year diploma course in Metallurgy and

Electronics.

The centre is affiliated with the Sind Board of Technical

Education, Karachi. The UNIDO has declared the MTC as a centre of excellence. The MTC

boast state of the art laboratories, academic research and teaching facilities, work shops, a

technical library, two large auditoriums and other facilities expected from a centre of

excellence.This is again a very good action by steel mills of Pakistan and one that can be

classified as ethical. Again we can apply the utilitarian theory to justify this action and it is not

going to help the steel mills but to the entire nation of Pakistan. This means that action imparts

more social benefits than social costs and hence is going to benefit one and all.

Institute Of Computer Science (ICS)

To develop, improve and broaden the scope of professional

knowledge in Computer Science, Pakistan Steel established

the Institute of Computer Science (ICS) in May 1994 at a

cost of Rs.3 million. The institute conducts short courses in

computer software and has introduced a diploma course in Computer Science.

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Recreation

Pakistan Steel places great importance, in the welfare of its workforce and community. It have

invested highly in insuring the availability of state of the art facilities for our workforce and their

families. Recognizing that sports and leisure are imperative to the well being of our people, we

actively promote the participation of health related activities at all level.

Astro-Turf Hockey Pitch

Pakistan Steel takes great pride in leading the way in the

public sector in providing state of the art welfare facilities to its

workforce. Our recently developed Astro-turf hockey pitch is

the only one of its kind in the public sector. Its level of

construction is at such a level that even the Pakistan national hockey team uses it for practice

sessions. Our own team has also gained immense benefit from this facility evidence of which is

confirmed by winning numerous tournaments giving great pride and immense moral to our

organization

Football Pitch Have recently invested highly in the

restoration of a full size football pitch in Steel Town. A newly

turfed pitch with flood light facilities has been completed for

adults and children both to benefit from. A very popular facility

in the evenings for all staff, with regular football tournaments arranged promoting participation

from all age group and sexes.

Quaid-i-Azam Park

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Spread over an area of 45 acres, Quaid-i-Azam Park serves as an

oasis in a industrial jungle. With carefully planned and designed

lush green lawns, artificial lakes, flower gardens, fountains, a

mini zoo, children's play area, mini train network and jogging

track this provides the perfect setting for families to escape the

daily rigors of life. Originally designed for the workforce of Pakistan Steel the park has proved

so popular that now it has had to open its door to the public looking for a perfect day's escape

from the hassles of Karachi city.

UNETHICAL PRACTICES:

RECRUITMENT POLICIES:

We discussed the unethical issues that were prevalent in PSMC. The first thing he said that

PSMC’s recruitment policies are the most common unethical issue in the company. He said that

the bureaucracy involved in the selection process of PSMC’s employees is playing its parts in the

selection of people at high posts of top-management rather than skills or merit of the people.

This can be easily related to the course. In one chapter, we studied about how firm discriminates

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among people and we easily related his works to the text of the book. He said that whenever

government changes and new government comes, it changes the employees and bestow or gift

important people to their party members who are usually from the same ethnics groups of the

government. For example, when PPP comes, it fires people from Punjab side and employ Sindhis

and similarly, when PML (N) or any other party from Punjab comes, the structure of people who

make up the company also changes. This discrimination is not a good policy for any company

and PSMC is no different. Because of this discrimination many efficient people have been made

redundant and as a result PSMC has never reached the potential earning power that could be

attributed to such a firm.

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PRIVATISATION OF STEELS MILLS OF PAKISTAN:

Dawn Newspaper writes about the privatization of PSMC as “the biggest scam in the history of

Pakistan, by the political forces”. The issue involved when government of Pakistan decided to

sell PSMC to private investors in second quarter of 2006. They were willing to sell major stakes

in the company. The major dilemma was that the government was selling this Corporation

despite it being the most profitable Business owned by the government of Pakistan.

Similarly, when the privatization process started the government did not arrange an auction in an

attempt to find the highest paying investor. However, they invited sealed proposals from

investors. This was a sign that something eerie is happening. By not holding the auction and

inviting press reporters in the selling process, it raised further eyebrows. However, later when the

news about the privatization was released to media by the government, it justified the suspicions

that people had about this privatision process.

Dawn, a leading newspaper of Pakistan, writes about privatization of Steel Mills in the following

words:

…………” the government of General Musharraf privatized Pakistan Steel Mills. The

consortium involving Saudi Arabia-based Al Tuwairqi Group of Companies submitted a winning

bid of $362 million for a 75 per cent stake in Pakistan Steel Mills Corporation (PSMC) at an

open auction held in Islamabad. the consortium of Saudi Arabia-based Al Tuwairqi Group of

Companies, Russia's Magnitogorsk Iron & Steel Works and local firm Arif Habib Securities paid

a total Rs21.6 billion ($362 million), or Rs16.8 per share, to take control of Pakistan's largest

steel manufacturing plant.

Tuwairqi Group of Companies, one of the Ieading business concerns in Saudi Arabia, also

launched a $300 million steel mills project at Bin Qasim. The group will set up Tuwairqi Steel

Mills (TSM), a state-of-the-art steel-making plant in the southern port city of Pakistan……..”

(DAWN, May 2006)

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The selling price of the PSMC was set far below the assets that the company had at that time. To

top it all that, the company was making huge profits at that time, and it should have asked for

heavy goodwill for being a profitable business and being a monopoly in its operations. However,

later it was revealed that around 20 politicians including ministers have been benefitted from this

privatization. This meant that the private investor, which was buying PSMC, have given gifts,

extortations and bribes to these individuals in an attempt to get PSMC at a less than market price.

Later some sense prevailed and Chief Justice of Pakistan, Justice Ifthikar Mohammad Chaudhary

revoked the privatization process and government again took over the control of their most

profitable business, among the mix. However, the issue did not end there and later agitated

government minister who were making million of Rupees from the sale of PSMC started another

controversy by having Chief Justice removed from his seat by Special Powers of the President.

This part of the issue is irrelevant to the case study of Steel Mills that we are doing but in the end

it became a movement and Chief Justice was restored and with his coming back on his seat, it

meant that the government now cannot privatize the PSMC, for the benefits of its officials and

will have to command the right price from investors if they want to sell it.

There are three unethical issues that can identified in this case:

The people who are controlling PSMC are not loyal to their firm and are not running it in the

way which is best for the company but are looking for their own benefits. The employees PSMC

are not observing their duties to the firm and taking bribes and gift. Extortions are also common

in the functioning of PSMC. All these are prevalent in PSMC that give a bad name to PSMC and

can be classified as unethical issues.

Similarly, the second unethical issue in the above case was how government ministers abuse

their power for their benefits. Instead if they would have used the power to make PSMC a better

organization it would have not only benefitted them in the long-run but would have been

beneficial for the entire nations.

Thirdly, the privatization issue resulted in the sacking of Chief Justice of Pakistan. This shows

the hunger and greed of some people in the government of Pakistan. These people were prepared

to take any action in order to sell PSMC, at a price which benefits them. This is unethically

because these people are representative of people and are civil servants and their duty holds that

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they work for the betterment of the organization they are assigned to rather than using unfair

means which involves harming the organization to fill their own pockets.

Historical loss of Pakistan Steel Mills Corporation (PSMC)

The country’s single largest steel producer Pakistan Steel Mills Corporation (PSMC) has posted

a historical loss of Rs 22 billion in fiscal year 2008-09, for the first time in nine years. The state

owned PSMC was profitable organization till fiscal year 2007-08 making enough profit since

fiscal year 2000-01 however, during last year its profit rotated into massive losses.

Magnitude of losses

According to the PSMC’s provisional financial documents, for the period ending June 30, 2009.

PSMC revealed a loss of 22.143 billion during the June-July compared to a profit of Rs 2.375

billion in fiscal year 2007-08.After an eight year profitability the steel mills started posting its

losses from august 2008, just after the new chairman Moeen Aftab took over.

DATE LOSS/RS

Aug 2008 55 million

Sept 2008 200 million

Oct 2008 660 million

Nov 2008 4.1 billion

Dec 2008 2.5 billion

Jan 2009 2.0 billion

Feb 2009 2.0 billion

Mar 2009 2.1 billion

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Reasons Unveiled

PSMC faced heavy losses during the tenure of the recently sacked chairman Moeen Aftab

Less than target production and sales

Import of raw materials at high rates

Ineffective policies & Non-technical management

Global economic crisis

M edia

During the tenure of Chairman Moeen Aftab steel products were sold under costs as special

favors to some selected vendors. This was done despite Rs. 5000 premium per ton on the supply

of billet offered by some re-rolling mills.

PSMC made a purchase agreement of iron ore in April 2008 when the pieces were at peak .later

the price of iron ore declined sharply in the world market.

The management adopted inefficient marketing policy that raised the losses, aiming to reduce the

inventory and enhance the sales; the management sold some products under costs which also

raised the losses of corporation,

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According to the managing director PSMC he added that earlier they were compelled to sale

products under cost due to slow economic activities (Global economic crisis) and decline in

international steel prices, he said the prices of steel declined from $80-90 dollar per ton from

$110-120 per ton, while the shipping freight had reduced from $114 to $34 per ton.

Ms Billet is one of the major products of PSMC that was being sold at around Rs 30,000 per ton

less than the cost to release the inventory and earn revenue for daily expenses.

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CONCLUSION:

After the examination of the above issue, one can easily relate it to the course that we are

studying, “Business Ethics”. We can quite clearly see that “Steel Mills” is far from being a

“Rational Organization” and currently its structure can be best described as being near to

“Political Organization”. The benefits that result from it being an unethical organization are there

such as Job Discrimination, Selection on the basis of Political Affiliation than on Merit, PSMC is

far away from being a right-sized firm which hinders its efficiency. However, the unethical

issues in PSMC are more than that occur due to firm being a political organization. These issues

involve, Unethical Behavior of the workers of PSMC, Political Corruptions and Controversies,

Instable Policies and corruption from the level of janitors to the Chairman. All these give a bad

name to PSMC and are hindering its development process.

However, in the midst of dismal conditions under which PSMC is operating, there is some silver

lining as well. The firm is fully aware of its Corporate Responsibility which can seen from the

initial part of our reports which talks about the environment, training, education and employees

responsibility statements that PSMC talks about.

All of this shows that though PSMC is a firm which needs right-sizing, right structure, right

management and right attitude of the employees. If all these these rights get incorporated in

PSMC, we can be sure that this firm will make big progress in the development of not only

PSMC but also in the development of Pakistan.

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REFERENCES

Dawn Newspaper

Pulse magazine

www.pakistansteelmills.org.pk

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BUSINESS ETHICS REPORT ON PAKISTAN STEEL MILLS CORPORATION SUBMITTED TO SIR TAHA NOMAN BY

SOHAIL KHAN, AHMED TAHIR,SALMAN ANIS

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