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HUMAN RESOURCE MANAGEMENT AT STAR ENERGY LIMITED

Mr. Jawwad Cheema, Director Projects at Star Energy Limited, was sitting in his office in a very tense
and pensive mood that was evident from his face. He had a personal file of a trainee engineer in front of
him; and he has to do this abominable task, of telling this young man that his services are no longer
required by the company. Every time in such situations, it breaks his heart to tell such a bad news to
someone who has been under his training for one year. Trainee engineers were paid Rs 10,000 per month
for a probation period of one year at Star Energy. The MTO batch usually was consisted of 40 - 50 fresh
graduates. Generally 5 to 8 MTOs were offered regular employment after one year training. All others
were terminated at the end of 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 job were
scarce without connections.
Mr. Cheema had discussed this issue with the owners several times, but was told that they have
implemented this MTO program for the training purpose only and anyone can leave the training if they
have found a job. They told him:
Look, when these MTOs come here they have never seen an inside of a boiler or transformer and they
know nothing about engineering. We train them. Otherwise they will be on streets, God knows doing
what,
Mr. Cheema and his colleagues were never convinced of this argument and considered as exploitation of
workers at cheap salaries. He wanted to change this culture. He had his sympathies with the employees.
Mr. Cheema was a 68 year 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 1995 and joined Star
Energy as the General Manager. Then in year 2000, he was promoted as Director Projects and since then
he has been working in that capacity. He played a major role in setting up the thermal power plant in
association 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 operations and 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.75.4 billion to Rs. 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.
This case was written by the students of batch 2012 (Ms. Afia Farooqi, Mr. Muhammad Arsalan Aftab, Mr. Zahid Latif, and Ms.
Zara Murtaza), revised by Ms. Haadiah Qaiser, Teaching Associate under the direction of Mr. F. A. Fareedy, professor of
Business Administration, 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.


Nishat Power also has a gross capacity of producing 200 MW worth of energy. The company has a net
efficiency of 45% and started its operations in 2009. It has a total paid up capital of worth Rs. 3.54 billion
and it comes under the head of Nishat Group of Industries.
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.
(Kod Addu Power and Hub Power Company are in large company leagues) Kot Addu Power Company
was inaugurated in 1996 and was listed 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.
Lastly, 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 outputs.
Star Energy, however, has a total paid up capital of Rs. 190 million (which is much lower than its
competitors) and has a capacity of producing 90 MW of energy. The company was incorporated in 1991
and started its commercial operations in 1995 with an installed capacity of producing 48 MW of energy
initially which was doubled in 2001.
Energy Crisis
Currently, Pakistan is facing a serious energy crisis. Despite strong economic growth in the past decade
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 is on the rise. Pakistan needs about 15000 - 16000 MW electricity per day, and the demand is
likely to rise to approximately 36,000 MW per day by 2015 (Exhibit 1).
Presently, it can produce about 12,500 MW per day resulting in a shortfall of about 3000 4000 MW per
day. As per Pakistan Economic Survey 2009-10, electricity consumption has increased by 9.6 per cent
during first three quarters of last fiscal year. However, a top level WAPDA official said that electricity
demand surged up to 14 per cent during last quarter. 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.
According to an official report, the gap between firms supply and peak hours demand has already been
(-440 MW) and will rise to next year (-881 MW) and further intensify to (-1,457 MW) in the following
year (Pakistan Economic Survey).
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.

According to Mr. Fawad Khan, an energy analyst at a leading investment firm in Karachi, In Pakistan,
during 2008, the electricity cuts were as long as 3 hours a day on an average. However, by 2011 this
downtime has grown to eight hours per day on average.
Pakistan's reliance on oil-based electricity has grown from 16% of total output in 2005 to 38% in 2010.
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.
Sitara Energy Limited is a publicly listed company. It is listed on the Karachi Stock Exchange (KSE-100
Index) and was incorporated in 1991. It started its commercial production in 1995 with installed capacity
of 48 MW. As of today, its total production is 100 MW and out of this 40 MW is sold to Faisalabad
Electric Supply Company (FESCO), whereas remaining 60 MW is sold to the private sector. The plant
runs 24 hours a day and 7 days a week.
Currently, there are 279 employees at Sitara Energy who are on regular pay roll and another 35 work as
daily wagers. The employees work in three shifts of 8 hours each. 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 2011 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 25% in 2008 but could not
maintain the percentage and decreased it to 10% in 2011.
Human Resource Management at Sitara Energy
The Personnel Management at Sitara Energy is merged with the General Administration Department. It is
managed by only two people. Mr. Nadeem Gujjar is the Manager P&A (Personnel and Admin), and Mr.
Yasin Zafar is his assistant (Admin Supervisor). A workforce of nearly 300 is managed by these two
people. Mr. Gujjar is responsible for recruiting, appraising, and compensating employees. He is supposed
to report directly to the CEO, Mr. Javid Iqbal. (Exhibit 4)

Recruitment at Sitara Energy is done 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 Sitara Energys
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 Sitara Energy tries to implement some basic HR functions in
the company.
Comments of the Employees
Mr. Cheema was aware of rapidly increasing dissatisfaction among employees. He knew what an
engineer would feel when he is paid Rs. 10,000 a month during one year training and then after
confirmation of job (that too not sure), he would get Rs. 25,000 a month (Exhibit 5). This was the salary
of electrical and mechanical engineers from universities like UET, 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 situation and unemployment, 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 Personnel and Admin Department, 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 CEOs office and the person is got to be selected.
Mr. Navid Mughal, who works as a shift engineer at Sitara 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 Sitara Energy is, 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 seriously thinking of switching my job.
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
This is precisely the reason that turnover rate for engineers is very high. Most of the trainee engineers
leave after 8 to 10 months of training and they often get a job where they get better pay package.
Mr. Waqas Akram, Ex- Head of Electrical Department, left the company after working there for 11 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, I was the Head of the
Electrical Department, but I was not happy with what Sitara was paying me. So I left the company when I
found a better opportunity. There is a very wide communication gap between management 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 a 80% concession. But no employee can avail it unless CEO
approves the particular request probably due to abuse of the system by some employees. So I was not
happy with employee related policies of the company.
Not only pay structure but another thing which was letting people, like Mr. Akram, to switch their jobs
was the growth opportunities within the company. Top two positions of Director and General Manager
were occupied by same persons for last 12 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 and they wanted to avoid problems with government agencies
like WAPDA.
Opportunities for Sitara Energy
A successful man once said, I like to tell people that all of our products and business will go through
three phases; their vision, patience, and execution. (Steve Ballmer)
Sitara Energy is going through the phase of stagnation for a very long period of time and the stagnant
period seems to persist in the near future. There is tremendous growth and are many expansion
opportunities available in the industry and also in this country which is short of the basic necessity,
electricity. The load shedding being a major problem of Pakistan in the year 2011 is thrusting the nation
back to the Stone Age when the seed of productivity and change was sown. But unfortunately, no such
seed is being sown at the moment of current crisis. Particularly in case of Sitara 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 closed the file of that engineer with a lot of dreams and wishes in his mind. He knew he
could do a lot of things for the betterment of Sitara Energy but for that he must own the company.


EXHIBIT 1
DEMAND AND SUPPLY GAP PROJECTION FOR PAKISTAN
YEAR DEMAND (MW) GAP (MW)
2010 24,474 (6,577)
2015 36,217 (18,320)
2020 54,359 (36,462)
2025 80,566 (62,669)
2030 113,695 (95,798)
Source: Pakistan Electric Power Company (PEPCO)



EXHIBIT 2
PAKISTAN'S ELECTRICITY GENERATION BY TYPE (YEAR: 2010)

Oil: 38%
Gas: 29%
Hydel: 29%
Others: 3%
Source: Pakistan Energy Year Book (2000-2010), KASB.


EXHIBIT 3
FINANCIAL STATEMENTS (ALL FIGURES ARE IN RS. 000)

Source: Sitara Energy Financial Book, Lahore Stock Exchange.





Years 2011 2010 2009 2008 2007 2006 2005
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


EXHIBIT 4
ORGANIZATIONAL STRUCTURE


Source: Companys Employee
CEO
Director
Project
General
Manager
HOD
Electrical
Supervisor
HOD
Mechanical
Supervisor
HOD
Utilities
Supervisor
Manager
P&A
Supervisor


EXHIBIT 5
EMPLOYEE PROFILE
Designation Qualification Tenure in the company Salary
Director Project Electrical Engineer(Japan) 16 years Rs. 102,000
General Manager Mechanical Engineer 13 Years Rs. 85,000
Manger P&A B.A (arts graduate) 17 Years Rs. 65,000
HOD Electrical B. Tech 6 Years Rs. 50,000
HOD Mechanical B. Tech 12 Years Rs. 50,000
HOD Utilities B.A (Art Graduate) 13 Years Rs. 40,000
Supervisor Electrical DAE 10 Years Rs. 20,000
Supervisor Mechanical FA (Intermediate) 13 Years Rs. 20,000
Supervisor Admin BA (Art Graduate) 17 Years Rs. 25,000
Supervisor Utilities FA (Intermediate) 10 years Rs. 20,000
Shift Engineers (3) Electrical Engineers 10 to 12 Years Rs 35,000
Shift Engineers (3) Mechanical Engineers 8 to 10 Years Rs. 35,000
Trainee Engineers Engineering Degree 2 to 6 Months Rs. 10,000
Boiler Operator B.E 5 Years Rs. 52,00

Note: Salaries of Engine room supervisors, Control Room Supervisors, Engine Operators and Time
Keepers vary between Rs. 5000 to 10,000, depending upon their experience.
Source: Interviews with Company Officials.