December 3, 2001	Monday	Ramazan 17, 1422

THE Pakistan Steel was in the news last week. The Minister of Industries Mr. Razzak Dawood called its senior management to Islamabad for a heart-to-heart talk.

The published account of the encounter shows that other than an improvement in net worth and current ratio the Minister found nothing satisfactory. He was highly distressed at the PSM’s operational inefficiencies, weak financial management, opaque functioning, stagnant corporate culture, and above all complete absence of strategic vision. Of some 18 points that appeared in the published account, 11 pertained to strategic areas of management. The PSM has itself to blame. For years the Pakistan Steel has been systematically eliminating all talent, on one excuse or another, with the result that today it is left with only those specialists who are bereft of originality and creativity. When you keep information under tight lid, when you do not freely interact with employees and customers, when you employ managerial terrorism as an instrument of policy, how do you get new ideas?

Colonel Afzal’s administration that started with high aims and indeed achieved much ran out of ideas long time ago. The momentum provided by remarkable feats of financial restructuring and reduction of workforce was allowed to peter out due to the management’s preoccupation with the tactical and neglect of the strategic issues. So, today if the minister observes that much he is not to blame.

Recently in the United States the giant Bethlehem Steel filed for bankruptcy. There are 14 other steel mills on the brink. All are victims of rising costs and lack of innovative alternates to cope with emerging forces in the market place. The PSM should take the hint, hark to the new realities and find answers to strategic issues. What is to be done in the face of huge exportable quantities of steel available worldwide on the one hand and the WTO ordered easing of protective barriers on the other?

How to survive in an environment of rising prices of raw materials and overheads and falling prices of finished goods? How does the PSM intend to reduce its production costs? How to improve ratio of yield and eliminate wastage and rejection. Now that the Pakistan Steel has neither the reserve of trained manpower nor enough retained earnings and expansion has to be ruled out, what is the alternate route to permanent profitability? How and what segments of market need to be addressed. Lastly, what are the plans for replacement of manpower when in a year or two old workers will start retiring in droves?

So much for strategy-now to some opaqueness in corporate functioning. The Report on the 6th June 2001 tragedy has still not been made public. Lives of citizens who work in Pakistan Steel are not the inert property of the mills. These are live national assets and need to be accounted for in the court of the people. Information given out initially showed that use of below specification additives at the Steel Making Plant was responsible for the accident. Subsequent investigations by journalists have pointed out a degree of mismanagement, culpable neglect, technical misjudgment and a cover up to boot. In response, the management said nothing on specific issues. It expected the public to live with the proposition that since responsibility cannot be individualised, therefore no one is blamable.

This was not acceptable and Pakistan Steel hurt its credibility. The issue was too big to be dispatched in a hurry. A sensitive management would have realised that the case involved workers’ right to safety at the work place and opted for a judicial inquiry to keep its own backyard clear especially when the conclusions of internal inquiry were open to question. Even by the PSM version, culpability of those involved in procurement and technical evaluation seemed obvious? Especially so when the use of below specification material is so severely restricted at Pakistan Steel. Recall Mr. A.K. Pelenov the once chief Soviet engineer, who back in 1988 wrote a letter to the then Managing Director, on the subject saying:

‘In the process of operation of the Steel Plant complexes there could be situations when one material has to be substituted for another. (Please note that a material is defined by specifications). But such substitutions should be isolated and treated as an exception and never incur violation of the established production process. The following procedure must be adopted for such occasions.

1.Technical wing makes technical evaluations and calculations for changing of materials, parts or units conditions.

2.These evaluations and calculations are approved by General Manager (Production).

3. Managing Director issues a circular laying down the nature of the changes, executives responsible for introduction of the same, time of execution. It must also be stated therein that such change is permitted but once as an exception due to a particular reason or somebodys fault.

4. Should such necessity recur, then the circular must be endorsed by the Chairman.

5. No third repetition is allowed. The unit must be shut down till materials or equipment specified in the Detailed Project Report are delivered. The Plant technical policy should rest on the rule that neither maintenance nor purchase, finance or supply departments could change the established production process. Their primary duty is to assure it. The Production process is unchangeable, all the plants departments and services are subordinated to it and serve to assure it. This letter was widely circulated and extensively discussed at all levels including the Board of Directors. All departments were instructed to ensure action in accordance with the letter. Does anything else need to be said? Clearly the accident was caused by a combination of logistical and technical failures.

Under the circumstances Pakistan Steel would have done well if among other things it had subjected the concerned departments to a rigorous technical and functional audit. It is also surprising that Provincial Labour Department has failed to play its part. The Factories Act empowers authorised inspectors to satisfy themselves about the safety of the manufacturing process. Their plea of technical limitations in metallurgy would be understandable but now that the deadly effects of the use of below grade material are common knowledge how do they propose to satisfy themselves with the safety of the manufacturing process in future?

For last several months Pakistan Steel has not published its figures of production and sales. Is it because it is no joy? In this case also management’s shyness is misplaced. Production at Pakistan Steel concerns the nation because of the linkages. Public understands perfectly well that in the wake of the budget a certain amount of downturn was inevitable. So what is the worry? Taking public into confidence would have created some helpful opinion. Of course it would have involved the risk of people questioning the wisdom of premature claims of a turnaround. But that risk would be worth taking because as a spin off it would also bring into focus the fact that PSM is essentially a sub-economic level unit.

The press reports say that programme of major repairs is in jeopardy due to expected reduction in revenues. This is bad news. Recently escape of molten iron at a Blast Furnace in Port Talbot steel works (UK) caused injuries to ten employees, one died on the spot. Reason was defective and patched up lining (Jugad). Does it ring a bell?