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
PSMC 1
 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.

PSMC 5
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
Developing Human resource and motivating employees through
5
.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

Products

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Pakistan 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

Galvanised products

USES
Automobiles,Roofing,Shuttering

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Panelling Manufacture of buckets, utensils, cans, containers
Desert 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

PSMC 8
 ETHICAL PRACTICES
Health & 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
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

PSMC 9
 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
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.

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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
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)

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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.

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

PSMC 12
in the evenings for all staff, with regular football tournaments arranged promoting participation
from all age group and sexes.

Quaid-i-Azam Park

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:

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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
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.

PSMC 14
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)

PSMC 15
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

PSMC 16
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 200 million

2008

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

Reasons Unveiled

PSMC 17
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

Media

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,

PSMC

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.

PSMC 18
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.

PSMC 19
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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PSMC 22