MANAGEMENT TRAINEE PROGRAM AT STAR ENERGY

Mr. Jawaad Cheema, Director Administration at Star Energy Limited, picked up his packet of cigarettes
from the table, opened it and found it empty. He tossed the empty packet towards the small dustbin in the
corner of the room and missed it. He got up from his chair murmured in disgust, ‘kis manhus ki shakal
daekhee thee aaj subha’. Then he yelled at the peon outside his office to bring him a new pack of
cigarettes from company’s canteen. He had already smoked five cigarettes since the time he came to his
office this morning. “Why do I have to do this miserable job every year? Why the owners don’t do it
themselves?”, he murmured to himself again. He sat down in his chair and gazed at the files lying on his
desk. He started to look at the personal file of Muhammad Irfan, a trainee engineer, whose file he has
been looking at all this morning. This young man, he recalled, got married after one month of his
induction into the MTO program of Star energy. Mr. Jawaad remembered that he attended his wedding
and gave him 1000 rupees as a wedding gift. Recently, he also helped this young man to get the approval
for medical bills from the owners when his first child was born. And now, he has to do this difficult task
of telling this young man that his job is terminated as of this afternoon.

Every time in such situation, it broke his heart to tell such bad news to someone who has been under his
training for one year. Trainee engineers were paid Rs. 15,000 per month for a probation period of one
year at Star Energy. The MTO batch usually was consisted of 50 fresh graduates. But only 8 to 10 MTOs
were offered regular employment after one year of training with starting salary of Rs. 30,000 per month.
All other trainees were terminated at the end of one-year program. Everyone knew that they are free to
leave the program whenever they could find an opportunity. However, there was an excessive supply of
engineers and real jobs were scarce without connections.

Mr. Cheema had discussed this issue with the owners, Shaikh Haji Bashir Ahmed and Shaikh Rasheed
Ahmed, several times. But he was told that they have implemented this MTO program for the training
purpose only and anyone can leave the training program whenever they wanted. The fresh graduates were
unable to find a real engineering job because of excessive supply of untrained and inexperienced
engineers. The owners told him, “Look, when these MTOs come here they have never seen an inside of a
boiler or transformer or a generator and they know nothing about engineering. We train them. We show
them practical things. We give them actual skills. If we do not take them, they will be on streets, God
knows doing what.”

Mr. Cheema and other managers at Star Energy were never convinced of this argument. They thought that
the owners of Star Energy were taking advantage of MTOs in picking the best of the lot and leaving all
others to their fate. They considered compensation policies of the company as exploitation of all workers
at cheap salaries. Most of the engineers reporting to him were also unhappy with the low salaries and
medical benefits they were getting at Star Energy. They all thought that the owners (Seths) were
exploiting the workers at the plant by paying them low salaries due to the market conditions. Mr. Cheema
wanted to change this culture. He had his sympathies with the MTO engineers.
Mr. Cheema was a 65 years old man. He had studied engineering from Japan and then he worked for a
Saudi Arabia based multinational firm for 20 years. He came back to Pakistan in 2002 and joined Star
Energy as a Project Manager. Then in year 2008, he was promoted as Director Administration and since
then he has been working in that capacity. He played a major role in setting up the thermal power plant in
collaboration with a Japanese company. He is a respected figure in the company. But even a person of his
stature had a very limited influence on company’s administrative policies.

Power Sector in Pakistan

The electricity and power sector of publically registered companies consists of 17 companies in Pakistan
with total paid up capital ranging from Rs. 75-80 billion. Core competitors of Star Energy are Nishat
Chunian, Nishat Power, Kohinoor Energy, Kot Addu Power. and Hub Power Company.

Nishat Chunian Power started its operations in mid-2010 and has a total capacity of producing 200 MW
of energy. The total paid up capital of the company is Rs. 3.67 billion and the company is a subsidiary of
Nishat Chunian Ltd. which was founded in 1990 as a single spinning unit and is considered as a market
leader in spinning industry.

Kohinoor Energy was incorporated in 1994 and has a total paid up capital of Rs. 1.69 billion. It has a net
capacity of producing 124 MW of energy. The company is a subsidiary of Saigols Group of Companies.

Kot Addu Power Company was inaugurated in 1996 and was listed on stock exchange in April 2005. It
has the highest capacity of producing 1600 MW of energy among its competitors. The company is
independent with a total paid up capital of Rs. 8.8 billion.

Hub Power Company is one of the earliest independent power producers, which disclosed its financials in
1995 and started its operations in 1997. This station was co-financed by several governments, the World
Bank as well as international private sector. It has a total paid up capital of Rs. 11.57 billion. The plant
consists of four generating units; each consists of 323 MW gross output.

Star Energy, however, has a total paid up capital of Rs. 1.90 Billion (which is lower than its competitors)
and has a capacity of producing 90 MW of energy. The company was incorporated in 1999 and started its
commercial operations in 2001 with an installed capacity of producing 48 MW of energy initially, which
was doubled in 2004.

Energy Crisis
Pakistan has been facing a serious energy crisis. Despite strong economic growth from 2002-2007 and a
rising demand for energy, no worthwhile measures have been taken to set up new capacity for generation
of the required energy sources. Consequently, the demand exceeds supply and thus “load-shedding” has
been a normal way of life in Pakistan. Pakistan needs about 20000 - 25000 MW electricity, and the
demand is likely to rise to approximately 36,000 MW per day by 2025 (Exhibit 1).
Presently, it can produce about 15,000 MW on the average per day resulting in a shortfall of about 5000 –
10000 MW per day. As per Pakistan Economic Survey 2011-12, electricity consumption is rising by 9.60
percent every year. However, a top level WAPDA official said that electricity demand surged up to 14 per
cent during last year. It is argued that Pakistan needs a quantum jump in electricity generation in order to
avoid load shedding since there is a widening gap between demand and supply of electricity. The energy
supply needs to keep pace with the economic growth of the country.

Mr. Aziz Memon, a renowned textile analyst, says “We have problems of infrastructure, inefficiency and
decades of mismanagement”. He was also reported to have said, "Most countries in the region like India,
Nepal, and Bangladesh are facing energy shortages, but our problem is probably the worst because of
declining textile exports and rising deficit in the balance of trade.”

According to Mr. Fawad Khan, an energy analyst at a leading investment firm in Karachi, “In Pakistan
during 2010, the electricity cuts were as long as 8 hours a day on an average. However, by 2012 this
downtime has grown to 12 hours per day on an average”.

Pakistan's reliance on oil-based electricity has grown from 16% of total output in 2005 to 40% in 2012.
Analysts are of the opinion that this dependence on oil is causing the circular debt problem which is
adding to the energy crisis in Pakistan. (Exhibit 2)

The Company
Star Group of Industries is one of the biggest industrial groups of Pakistan. The group began its
operations with textile weaving sector in 1956 under the leadership of two brothers, Mr. Haji Abdul
Ghafoor (Late) and Mr. Haji Bashir Ahmed. As of today, Star Group is dealing in textile (clothing &
fabric), chemical, and energy sectors.

Star Energy Limited is a publicly listed company. It started its commercial production in 1999 with
installed capacity of 48 MW. As of today, its total production is 96 MW and out of this 40 MW is sold to
Faisalabad Electric Supply Company (FESCO), whereas remaining 56 MW is used up by parent company
of Star Energy and remaining is sold to the private sector. The plant runs 24 hours a day and 7 days a
week.

Currently, there are 260 full time employees at Star Energy who are on regular pay roll with all the
benefits, and another 85 work as daily wagers. The employees work in three shifts of 8 hours each.
Company provides free one-time meal to all employees in each shift. Most of the employees are engineers
and others are diploma holders. The positions like engine room supervisors, engine operators, control
room supervisors, and boiler operators are filled with diploma holders. Shift Engineer is the senior most
technical position.

Financial Performance of the Company

The company`s sales grew at an average rate of 23% and has doubled its sales volume in last seven years
(Exhibit 3). The gross profit margin of the company in 2013 is 11.9% whereas the net profitability margin
of the company is 2.4%. This shows that the company has huge operating costs that result in decrease in
its overall profitability. The company does not have enough cash available to cover its short-term
financial needs. The net profit of the company is also volatile in last seven years. It has been changing its
trends all around. The company started paying its dividends at the rate of 10% in 2010 but could not
maintain the percentage and decreased it to 5% in 2013.

Management at Star Energy

The Personnel Management at Star Energy is merged with the General Administration Department. It is
managed by two people. Mr. Nadeem Butt is the Manager P & A (Personnel and Admin), and Mr. Yasin
Zafar is Supervisor Administration, both report directly report to Director Administration, Mr. Jawwad
Cheema. A workforce of nearly 300 is managed by these three people. Mr. Nadeem is responsible for
recruiting, appraising, and compensating employees. Although he is supposed to report to Mr. Jawwad
but it is known in the company that Mr. Nadeem and Mr. Yasin directly reports to the owners of the firm.

Recruitment at Star Energy is done on informal basis and through word-of-mouth and connections. Once
the applications are received, they are short listed on the basis of documents verification and then a pool
of candidates is finalized for the interviews. The first interview is done by a committee of four people
which consists of Head of Department (department where the vacancy is open), a Head Office
representative, Director Projects, and Manager P&A. Once the candidate is recommended by this
committee, his final interview is taken by the CEO. Once the employee is on Star Energy’s payroll, he is
eligible for all the benefits offered by the company. The benefits include medical facility (at the factory
only), provident fund, and house rent allowance. Moreover, in case a married employee dies during
service, his widow will get the pension throughout her life.

As far as the appraisal system is concerned, all the employees are evaluated on their performances once a
year. The performance is evaluated by the Head of Department and then it is counter signed by Manager
P&A. So it can be said that Management of Star Energy tries to implement some basic HR functions in
the company.

Comments of the Employees

Mr. Jawwad was aware of rapidly increasing dissatisfaction among employees. He knew what an
engineer would feel when he is paid Rs. 15,000 a month during one-year training and then after
confirmation of job (that too not sure), he would get Rs. 30,000 a month (Exhibit 5). This was the salary
of electrical and mechanical engineers from universities like UET, GIKI, NUST, COMSATS, and BZU.
The salaries of engine room supervisors, engine operators, and boiler operators were far below the
engineers. He described this situation as, “In Pakistan, a business man cannot be successful if he does not
know how to exploit the employees. Given the economic and unemployment situation, we can afford to
offer the minimum possible salary and only through this practice, we can get maximum possible output”.

He further explained the working of the P & A Department that “There is no HR department in the
company. Certain HR policies are there on papers but they are never implemented. If there is a vacancy in
the company, I will get a CV from the CEO’s office and the person is got to be selected.”
Mr. Navid Mughal, who works as a shift engineer at Star Energy, is in the company for last 11 years. He
is 37 years old and has 4 children. His opinion about the compensation packages at Star Energy is that “I
am at the senior most technical position in the company. The salary I am getting is hardly enough for me
to run my kitchen expenses and send my children to some good school. Normally after spending this
much time in an organization people get settled, but I am always looking for a job with higher pay”.

Mr. Ghulam Murtaza, a trainee engineer who got his electrical engineering degree from UET, was
extremely unhappy with the company. He said, “I have been here for last 6 months. Now that I have got
the basic knowledge of the job after training, I try 24 hours a day to leave this job and go to some better
place who pays more money”.

High turnover of engineers is considered normal by the owners. They are always happy when older
employees leave the company and MTO are given a chance for permanent employment, who are paid
only Rs.30,00 per month. The company official policy is such that encourages its employees to leave Star
Energy for better pay package.

Mr. Waqas Akram, Ex- Head of Electrical Department, left the company after working there for 10 years.
He was a very well qualified engineer. He got his degree in electrical engineering from NED University
of Engineering and Technology. He states his experience at the company that “I was the Head of the
Electrical Department, but I was not happy with what Star Energy was paying me. So I left the company
when I found a better opportunity. There is a very wide communication gap between higher authorities
and employees. Employees are unaware of certain benefits which they can get from the company. For
example, the managerial level employees have this facility that they and their families can avail medical
facility from Aziz Fatima Hospital at an 80% concession. But no employee can avail it unless owners
approves the particular request probably due to abuse of the system by some employees. I was not happy
because owners decided everything.”

Not only pay structure but also the promotion opportunities were zero within the company. There was no
opportunity for career advancement or progress within the company. Top two positions of Director and
General Manager were occupied by same persons for last 18 years or so. Similarly, Manager P&A was on
that seat for nearly 15 years. The department heads were not promoted from shift engineers, instead they
were appointed from outside for a minimum period of 10 years. In these circumstances, young and
enthusiastic people were unable to find any opportunity of reaching the higher level as there was no plan
for expansion of the plant. Although there was tremendous opportunity existed in electrical generation,
however Mr. Cheema felt that the owners were not interested in expansion because they were heavily
involved in textile and chemical industry. When asked, the owners said that they could not cope with the
Government regulators and agencies. Further, they were not happy with the rising Accounts Receivable
from Government. They cited that they could not deal with the government officials and had decided to
avoid problems with government agencies like WAPDA (FESCO). However, Mr. Cheema felt that Star
Energy was not a priority for the owners.

Opportunities for Star Energy

Star Energy is going through the phase of stagnation for a very long period of time and this situation will
persist in the near future because there are no plans for expansion of the plant. Although there are
tremendous growth and expansion opportunities available in the electricity generation field in Pakistan
industry but the owners are not thinking about expansion. The load shedding being a major problem of
Pakistan in the year 2013 is thrusting the nation back to the Stone Age. Particularly in case of Star
Energy, here lies a great opportunity to attempt to meet the electricity requirements in the country. Since
the company deals in selling electricity to WAPDA, it can increase the production and sell more units to
WAPDA.

Mr. Cheema gave one last look to the file of Muhammad Irfan, closed it and he sighed. He wished he
could do something for the trainee engineers but realized that he is totally helpless. He hated this part of
his job the most when he had to terminate any employee. He thought he could do a lot of things for the
betterment of Star Energy employees.

He called Mr. Nadeem Butt and Mr. Yasin Zafar in his office for a meeting at 2.00 pm to discuss the
entire MTO program of Star Energy Limited. He was thinking that he has to come up with a new plan of
making a presentation to the owners for the expansion of the plant and rethink or redesign their MTO
program.

This case was written from the information contained in the MBA Term Project, done by the students of batch 2013. The case is
prepared by Prof. F. A. Fareedy, and assisted by Ms Haadia Yasir as a basis for class discussion, rather than to illustrate either
effective or ineffective handling of an administrative situation. Any resemblance to any situation will be totally co-incidental, if
any.
 EXHIBIT 1

DEMAND AND SUPPLY GAP PROJECTION FOR PAKISTAN

YEAR DEMAND (MW) GAP (MW)

2015 18,000 (6,577)
2020 36,217 (18,320)
2030 54,359 (36,462)
2040 80,566 (62,669)
2050 113,695 (95,798)

Source: Pakistan Electric Power Company (PEPCO)

EXHIBIT 2

PAKISTAN'S ELECTRICITY GENERATION BY TYPE (YEAR: 2010)

 Oil: 40%
 Gas: 29%
 Hydel: 29%
 Others: 3%

Source: Pakistan Energy Year Book (2010), KASB.

 EXHIBIT 3

FINANCIAL STATEMENTS (ALL FIGURES ARE IN RS. ‘000)

Years 2013 2012 2011 2010 2009 2008 2007

Profit and Loss Statement
Net Sales 3,753,492 3,875,481 3,009,929 2,286,357 1,461,240 1,346,031 1,154,752
Cost of Sales 3,305,510 3,397,026 2,551,158 1,919,613 1,284,948 1,241,283 1,135,474
Gross Profit 447,982 478,456 458,770 366,745 176,292 104,748 19,278
Other Income 9,841 4,794 7,168 14,032 7,422 28,364 1,889
Operating Profit 366,296 376,323 404,518 310,083 136,108 97,012 (11,198)
Finance Cost 295,903 303,742 324,180 211,447 142,013 89,662 28,921
Profit Before Tax 91,527 106,927 80,338 112,669 1,518 7,351 (40,119)
Taxation 487 269 698 358 339 398 275
Profit After Tax 91,041 107,195 81,035 112,311 1,179 6,953 (40,394)
Dividend (%) 0 20 20 25 - - -
Bonus - - - - - - -
Right - - - - - -
Balance Sheet
Paid Up Capital 190,920 190,920 190,920 190,920 190,920 190,920 190,920
Total Equity 1,236,277 1,183,420 1,114,409 1,081,104 968,792 967,613 960,660
Current Liabilities 1,838,056 1,496,000 1,377,056 1,084,109 1,009,876 1,007,194 741,091
Long Term Liabilities 296,815 867,727 949,595 1,075,711 882,845 120,971 46,200
Total Liabilities 1,234,870 2,363,727 2,326,561 2,159,820 1,892,712 1,128,165 787,291
Current Assets 951,136 1,065,017 1,067,153 950,716 662,945 1,043,688 806,477
Fixed and Long Term Assets 2,399,783 2,451,382 2,373,817 2,290,208 2,198,558 1,052,090 941,474
Total Assets 3,350,919 3,516,399 3,440,970 3,240,924 2,861,503 2,095,778 1,747,951
Investments 49,995 50,000 50,000 50,000 - 50,000 50,000
Total Capital Employed 1,533,092 2,051,147 2,063,914 2,156,815 1,851,637 1,088,584 1,006,860

Source: Star Energy Financial Book, Lahore Stock Exchange.

EXHIBIT 4
 ORGANIZATIONAL STRUCTURE

Director
Administration

Director Project Manager P&A

General
Supervisor
Manager

HOD
HOD Electrical HOD Utilities
Mechanical

Supervisor Supervisor Supervisor

Source: Company’s Employee

 EXHIBIT 5

EMPLOYEE PROFILE

Designation Qualification Tenure in the company Salary

Director Project Electrical Engineer(Japan) 18 years Rs. 120,000
General Manager Mechanical Engineer (UET) 15 Years Rs. 85,000
Manger P&A MBA (Finance) 12 Years Rs. 55,000
HOD Electrical Electrical Engineer (UET) 10 Years Rs. 50,000
HOD Mechanical Mechanical Engineer (UET) 12 Years Rs. 50,000
HOD Utilities Electrical Engineer (NED) 13 Years Rs. 45,000
Supervisor Electrical Electrical Engineer (UET) 10 Years Rs. 30,000
Supervisor Mechanical Mechanical Engineer (UET) 13 Years Rs. 30,000
Supervisor Admin MBA (Finance) 8 Years Rs. 30,000
Supervisor Utilities Electrical (Engineer) 10 years Rs. 30,000
Shift Engineers (3) Electrical Engineers 10 to 12 years Rs 30,000
Shift Engineers (3) Mechanical Engineers 8 to 10 years Rs. 30,000
Boiler Operator B. TECH. 5 years Rs. 15,000
Trainee Engineers (MTO) Engineering Degree 1 year Rs. 15,000

Note: Salaries of Engine room supervisors, Control Room Supervisors, Engine Operators and Time
Keepers vary between Rs. 15,000 to 20,000, depending upon their experience.

Source: Interviews with Company Officials.