On the eastern edge of Karachi, where the coastal highway thins into a dusty service road and the Arabian Sea wind rarely stops blowing, sits a complex so large that visitors often mistake its scale for a small town.
Twenty separate plants, a captive power station, a private railway network and enough warehousing to service an entire province lie spread across roughly nineteen thousand acres. This is Pakistan Steel Mills, once described without exaggeration as the single largest industrial undertaking in the country's history.
Today its blast furnaces stand cold. Its coke ovens have not produced a spark since 2015. And its story, viewed end to end, reads less like an isolated industrial failure and more like a case study of what happens when a strategic national asset is allowed to become a political prize.
The idea of building a steel mill on Pakistani soil predates the country's independence generation of planners by only a few years.
As early as the First Five Year Plan of 1955 to 1960, the state owned think tank then known as the Pakistan Council of Scientific and Industrial Research began pressing the case that a nation aspiring to industrialize could not remain permanently dependent on imported steel.
The logic was straightforward and, in the context of the 1950s, almost universally accepted among developing economies from India to Egypt. Steel was the backbone input for railways, bridges, defence production and construction, and every rupee spent importing it was a rupee that left the country rather than building it.
West German firms made early overtures. Krupp Industries proposed a mill based on domestic iron ore reserves at Kalabagh, and in 1966 another German company, Salzgitter AG, actually produced around five thousand tonnes of usable steel from Kalabagh ore in a demonstration project.
Yet the government of the day, and in particular the minister who would go on to dominate the project's fate, Zulfikar Ali Bhutto, favoured a far larger single mill built on imported ore rather than a series of smaller domestic ore based facilities.
That single decision, made in the 1960s before Bhutto had even become prime minister, set the entire trajectory of Pakistan Steel for the next half century, tying its fortunes permanently to imported raw material and international freight costs rather than to resources under Pakistani soil.
By July 1968 the Pakistan Steel Mills Corporation had been formally incorporated as a public sector company under the Companies Act, and the following January the corporation signed a feasibility agreement with the Soviet trading agency Tiajproexport.
Contacts had also been made with the United States, but Washington showed little enthusiasm for financing an integrated steel complex in Pakistan, and the studies were redirected to Moscow. In January 1971, under President Yahya Khan, Pakistan and the Soviet Union signed a formal government to government agreement under which the USSR committed technical expertise, equipment and financing for a coastal based integrated mill near Karachi.
Political upheaval intervened almost immediately. The war of 1971 and the loss of East Pakistan delayed everything, and it was not until 30 December 1973 that Prime Minister Bhutto, by then firmly in power and pursuing a broader nationalisation programme that had already brought ten categories of heavy industry under state control, laid the foundation stone at the site near Port Bin Qasim.
According to the Wikipedia entry chronicling the mill's history, the location was chosen partly for ecological reasons, situated along a tidal creek with prevailing winds carrying industrial emissions away from the city rather than into it, a consideration that reads almost poignantly given the pollution disputes that would surface decades later.
What followed was, by any measure, an extraordinary feat of construction. More than four hundred Soviet engineers worked alongside a consortium of Pakistani construction firms.
The final project consumed roughly 1.29 million cubic metres of concrete and 5.7 million cubic metres of earthworks, and incorporated close to 330,000 tonnes of imported machinery, steel structures and electrical equipment, all at a capital cost of around Rs24.7 billion, or roughly two billion dollars at the exchange rate of the time.
The first coke oven battery came online in April 1981, and Blast Furnace Number One was commissioned that August, an event that formally inducted Pakistan into the small club of nations capable of producing iron and steel from raw ore rather than simply importing finished product.
Commercial operations began on 25 December 1984, and the plant was formally inaugurated by President General Muhammad Zia ul Haq on 15 January 1985, twelve years after Bhutto had laid its foundation stone and a full generation after the idea was first proposed in the 1955 plan.
As the Express Tribune later documented, PSM's designed capacity settled at 1.1 million tonnes of finished steel a year, matching the standard template the Soviets had already exported to more than thirty other countries.
For roughly two decades after commissioning, Pakistan Steel functioned essentially as intended, if never quite at its full designed potential. It reduced the country's dependence on imported billets and finished long products, supplied raw steel to shipbuilding, railway, defence and construction sectors, and became the anchor tenant that justified the development of Port Muhammad Bin Qasim as Pakistan's second major deep water port.
Economic historians and mill veterans alike point to the period between 2000 and 2008 as the plant's genuine golden era.
According to figures cited in an investigative account published in The News, the mill's accumulated losses of Rs9.326 billion recorded in 1999 and 2000 had been entirely wiped out by 2005, replaced instead by an accumulated profit of nearly Rs4.9 billion. Capacity utilisation during those years climbed steadily, moving from 76 percent in 1999 and 2000 to a remarkable 94 percent by 2003 and 2004.
In the two fiscal years that followed, 2006 to 2007 and 2007 to 2008, the mill posted net annual profits of Rs3.159 billion and Rs2.081 billion respectively, while running at 82 and then 89 percent of installed capacity.
For a state enterprise so frequently mocked in later years as an unfixable liability, it is worth pausing on this record, because it demonstrates something important and often overlooked in the public debate: Pakistan Steel was not structurally doomed to fail. Under competent, politically insulated management, it could and did operate as a genuinely profitable industrial concern.
The mill's contribution to the broader economy during its productive years extended well beyond the balance sheet of the corporation itself.
As the largest single industrial employer in the country, PSM created a multiplier effect that rippled through allied sectors including shipping and freight forwarding at Port Qasim, downstream steel fabrication, engineering workshops, and the construction industry that depended on locally rolled products rather than costlier imports.
A retrospective published by the Express Tribune noted that supporters of the mill have long pointed to a cumulative contribution of roughly Rs103 billion in duties and taxes paid to the national exchequer over its operating history, a figure that predates the far larger losses accumulated after 2008.
Beyond the direct fiscal contribution, PSM also functioned as Pakistan's principal training ground for metallurgical and industrial engineering talent, producing a generation of technical professionals who went on to staff private sector steel and heavy engineering firms across the country.
Readers following our earlier coverage of Pakistan's broader economic and geopolitical trajectory will recognise a recurring theme here, one that also surfaces in debates over the Indus Waters Treaty and regional energy security: the tendency for large, strategically important national assets to be shaped as much by short term political calculation as by long term economic planning.
The turning point came, somewhat counterintuitively, at precisely the moment the mill was performing at its best. In 2006, with PSM running near optimum capacity and freshly profitable, Prime Minister Shaukat Aziz's government moved to privatise it under a broader disinvestment programme covering several state owned enterprises.
A consortium comprising the Al Tuwairqi Group of Saudi Arabia, the Magnitogorsk Iron and Steel Works of Russia, and Arif Habib Securities of Pakistan won an open auction with a bid of 362 million dollars for a 75 percent stake.
The sale immediately triggered political controversy, with opposition parties and labour unions arguing that a profitable national asset was being sold at an undervalued price and through a rushed process.
A petition filed under Article 184 of the constitution reached the Supreme Court of Pakistan, and on 23 June 2006 a nine member bench led by Chief Justice Iftikhar Muhammad Chaudhry annulled the sale in an eighty page judgment that found the entire process reflected undue haste and inadequate valuation.
It marked, according to legal and privatisation experts quoted by Dawn's Herald magazine, the first instance in Pakistani history in which a completed state enterprise privatisation was judicially reversed. Whatever the legal merits of that ruling, its practical effect was to freeze the mill in public sector limbo for the better part of a decade, without the fresh capital and modernised management a private buyer would have brought, and without the political discipline needed to run it professionally as a state enterprise either.
What followed the reversal has become a familiar Pakistani pattern of institutional drift. The global financial crisis and a collapse in steel prices hit the mill hard in 2008 and 2009, when it recorded a loss of Rs26.526 billion in a single year, even as capacity utilisation slid to 65 percent.
Analysts who examined the mill's governance during this period, including a detailed account published in The News, point to a leadership churn so severe that Pakistan Steel had twenty two different chairmen across the twenty five years between 1981 and 2006, with as many as half a dozen rotating through in 1990 alone.
Few of these appointees came from a steel or heavy industry background, and many owed their posts to political patronage rather than technical merit. Layered on top of executive instability was a workforce that had grown well beyond operational need through years of politically motivated hiring, particularly after 2008,
when trade union influence within the mill's collective bargaining structure became deeply entangled with party politics in Karachi. By the end of the 2012 to 2013 fiscal year, productive capacity utilisation had collapsed to just 12 percent, a level at which no industrial concern of this scale can conceivably sustain itself.
The final operational rupture arrived in June 2015. Sui Southern Gas Company, the public utility supplying fuel to the plant, cut off gas over unpaid dues that had swollen to roughly Rs19 billion, and production came to a complete stop.
Despite an earlier Rs18.5 billion bailout and turnaround plan approved in 2014, which had targeted 77 percent capacity utilisation as the break even threshold by January 2015, poorly maintained infrastructure meant the mill could not even sustain the more modest 60 percent target set for the preceding November.
Reporting from the Express Tribune at the time noted the particular irony that SSGC continued supplying gas to other defaulting entities such as K Electric despite comparable or larger overdue balances, while cutting off PSM precisely as it was attempting a production recovery.
Since that shutdown, the plant has not produced a single tonne of finished steel, yet the government continued paying full salaries to a workforce that, at various points, numbered in the tens of thousands, a policy that critics and even sympathetic commentators alike came to view as fiscally indefensible.
| Period | Capacity utilisation / status | Financial result |
|---|---|---|
| 1999 to 2000 | 76 percent | Annual loss of Rs1.141 billion |
| 2003 to 2004 | 94 percent | Accumulated losses fully recovered by 2005 |
| 2006 to 2007 | 82 percent | Net profit of Rs3.159 billion |
| 2007 to 2008 | 89 percent | Net profit of Rs2.081 billion |
| 2008 to 2009 | 65 percent | Loss of Rs26.526 billion |
| 2012 to 2013 | 12 percent | Continuing heavy losses |
| June 2015 | Production halted entirely | Gas supply cut over unpaid dues of roughly Rs19 billion |
| By 2020 | Zero production, salaries still paid | Government bailouts since 2008 reached roughly Rs92 billion |
| By 2024 | Idle | Cumulative losses estimated near Rs600 billion by industry researchers |
The human cost of this prolonged decline fell overwhelmingly on the workforce. A representative body known as the PSM Stakeholders' Group, comprising employees, pensioners, suppliers and contractors, placed the mill's total accumulated losses at around eleven billion dollars by 2020, a figure driven largely by the cost of importing steel that domestic capacity could no longer supply.
In June 2020 the government announced what it termed a human resource rationalisation plan affecting 9,350 employees, offering a compensation package worth roughly Rs20 billion, a move labour representatives at the time described to Arab News as inadequate given outstanding arrears they placed at Rs85 billion.
Separately, retired employees reported that pension dues stretching back to 2013, totalling around Rs22 billion, remained unpaid for years.
Analysis published by The News calculated that the government spent roughly Rs55 billion between 2015 and 2020 on a plant producing zero output, split between an ongoing monthly salary bill of about Rs350 million and accrued retirement obligations, on top of Rs92 billion in cumulative bailouts extended since 2008.
By some estimates circulating in 2024 and cited in independent research summaries, total net losses including operational deficits and outstanding payables had climbed to approximately Rs600 billion, a sum that dwarfs the entire original capital cost of building the mill in the first place.
Raw material dependence
The original decision to build around imported iron ore rather than domestic Kalabagh deposits left the mill permanently exposed to international freight and commodity price swings.
Leadership instability
Twenty two chairmen in twenty five years, most without steel industry backgrounds, undermined consistent strategic management.
Overstaffing and patronage
Politically motivated recruitment swelled the payroll well beyond what an efficiently run mill of this scale required.
Utility disputes
The 2015 gas disconnection by SSGC, amid unresolved payment disputes, delivered the final blow to ongoing production.
Successive governments have oscillated between privatisation and revival without settling firmly on either path, a pattern that itself has arguably done more damage than any single policy choice.
In 2020, under Prime Minister Imran Khan's administration, the government again moved to privatise PSM's core operations while retaining the land under corporation ownership, with then industries minister Hammad Azhar telling the Senate that roughly fifteen parties had expressed interest in taking over operational charge, according to reporting by Arab News Pakistan.
That interest largely evaporated by 2023, when a caretaker government confirmed that three of four qualified Chinese bidders had withdrawn, citing shifts in global steel demand, as Arab News reported at the time.
Later that year the caretaker administration reversed course again, removing PSM from the privatisation list altogether and directing the Ministry of Industries and Production to draft a revival plan instead, with the Senate Standing Committee on Industries and Production formally recommending public private partnerships, workforce retraining and modern technology investment in December 2023.
The most consequential recent development has been the return of Russian involvement, the same country whose engineers built the plant more than half a century ago.
In July 2025, Pakistan and Russia signed an agreement described by Dawn as reaffirming a long standing industrial partnership, aimed at restarting and expanding steel production at the original site while also exploring a new mill elsewhere in Karachi. Under the framework of the Pakistan Russia Intergovernmental Commission, a second protocol followed in November 2025, and Moscow subsequently presented Islamabad with two technical pathways for revival, as detailed by Profit by Pakistan Today.
The first option would rehabilitate the existing blast furnace and basic oxygen furnace infrastructure using locally sourced ore at an estimated cost of 1.91 billion dollars, while the second would establish an entirely new facility built around electric arc furnace technology using imported scrap, priced at approximately 1.05 billion dollars.
A third protocol finalised in April 2026 with a Russian private engineering firm outlined a phased restoration plan targeting an eventual production capacity of three million tonnes annually, nearly triple the mill's original designed output, according to reporting from ProPakistani. Notably, officials cited in the same coverage indicated that the government does not intend to operate the revived mill itself, opting instead to prepare a bankable feasibility study and then open the project to local and international investors through a fresh privatisation process, a decision that suggests policymakers have at least partially internalised the lesson that direct state operation was itself part of the original problem.
Whether this latest chapter succeeds where 2006 failed will depend on variables that have derailed the mill before: the discipline to keep commercial decisions insulated from short term political interference, a credible resolution of the roughly Rs600 billion in accumulated liabilities, and a tariff and energy pricing regime that does not once again make the plant's raw material costs uncompetitive against imports.
Commentators such as engineer Hussain Ahmad Siddiqui, writing in Business Recorder, have cautioned that a full technical, commercial and environmental feasibility assessment is essential before Pakistan commits to either the blast furnace or electric arc furnace pathway, given how differently the two technologies would reshape the mill's cost structure, workforce needs and environmental footprint.
There is also a broader regional context worth noting. Pakistan's deepening industrial and energy cooperation with Russia mirrors similar realignments discussed in our earlier analysis of the country's evolving ties across the Gulf and its recalibrated posture toward Iran and the wider region, part of a pattern in which Islamabad has increasingly looked beyond its traditional Western partners for large capital projects.
What makes the Pakistan Steel story worth revisiting in such detail is not simply that a state enterprise failed, since state enterprises fail in every country for reasons ranging from genuine market shifts to outright incompetence. It is that this particular failure was neither inevitable nor purely a function of the public sector model itself.
For eight consecutive years between 2000 and 2008, under a specific configuration of management discipline and relatively stable governance, the mill demonstrated that it could be run profitably at close to full capacity. Its subsequent collapse traces almost entirely to decisions made by people rather than forces of an impersonal market: a contested privatisation reversed by the courts, chairmen appointed and removed at a dizzying pace, a workforce expanded for political rather than operational reasons, and a fatal utility dispute allowed to fester until it shut the plant down entirely.
The mill's supporters are correct that it once contributed meaningfully to national output, employment and tax revenue, and that its physical infrastructure, however dated, remains one of the largest industrial footprints in South Asia. Its critics are equally correct that keeping tens of thousands of workers on a state payroll for a decade without a single tonne of production represents an extraordinary and largely avoidable drain on public finances.
Both of these things are true at once, and reconciling them is precisely the task facing whichever government ultimately decides the mill's future, whether that future runs through Moscow, through a new group of private investors, or through some combination the country has not yet tried.
For now, the wind still blows steadily across Bin Qasim, past silent conveyor belts once used to move imported ore from the port to the plant in under half an hour, past a coke oven battery that has not been lit in over a decade, and past the quarters of a township built to house tens of thousands of workers whose numbers have dwindled year after year.
Pakistan Steel Mills remains, on paper, the country's largest industrial complex. Whether it becomes once again what it briefly was, a genuinely productive engine of the national economy, or whether it settles permanently into the role of a cautionary tale taught in business schools about the perils of political interference in state enterprise, is a question the coming decade will most likely answer.
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