As the internet revolution in the 21st century demands better service and communication, the privatization of telecom companies has increasingly become a means to achieve this goal.
Around the world, state-owned companies, particularly in the telecommunications sector, have evolved from small to medium-sized, locally-based companies to multinational giants. Huawei (formerly owned by the Chinese military), Norway’s Nortel, China Mobile, Deutsche Telekom or more popularly T-Mobile (formerly the state-owned Bundespost) and Etisalat are just a few successful examples of state-owned multinationals investing in the international telecommunications sector.
It is therefore interesting to note why Pakistan, whose telecoms industry has reportedly shown extraordinary growth in recent years, has not benefited from privatisation.
The Pakistan Telecommunication Company Ltd privatization saga (PTCL) reads like a corporate thriller.
Can privatization be the panacea for Pakistan’s foreign investment woes? The case of the privatization of Pakistan’s telecommunications company may offer some lessons
In 2005, General Pervez Musharraf-Shaukat Aziz’s hybrid dispensation, in an unholy haste, privatized several state-owned mega-corporations, including PTCL, then valued comfortably in the billions of dollars. Fearing mass layoffs as a result of privatization, PTCL employees fiercely resisted the move. Thousands of protesting workers were beaten black and blue by police, leading to this episode making front page headlines. The protesters were charged en masse under anti-terror laws.
Although the government and new PTCL management had the option to drop the criminal cases, they unnecessarily forced workers to endure the rigors of an overtly punitive criminal justice system.
Thousands of PTCL employees were fired by new management in 2005 and later in 2008 and offered oppressive termination packages. This was a blatant violation of the terms and conditions of their services for at least two reasons.
First, all fiscal indicators suggest that the company was doing well and there was little financial reason to leave thousands of families at the mercy of a profit-seeking multinational. According to the financial statements released prior to its privatisation, PTCL’s net profit for 2004 was Rs 44 billion on total sales of Rs 79 billion – a clear indication that the company was profitable.
PTCL was not qualified as a “sick entity” like Pakistan International Airlines (PIA) and Pakistan Steel Mills. Nonetheless, a series of brutal crackdowns were carried out in an attempt to force workers at the telecommunications company to agree to harsh and unscrupulous layoffs. Meanwhile, Gen Musharraf’s Home Secretary, Kamal Shah, has been “talking” with union leaders, giving them and the media the false impression that the negotiations had been successful.
Second, the manner in which the company was “gifted” to the United Arab Emirates’ Etisalat – the highest bidder of the three companies in the running, including China Mobile and Singapore’s Singtel – was dubious and mysterious, worthy of further investigation was .
However, the actual raid in broad daylight occurred a few months later.
BITTER FRUITS
Contrary to the narrative created for the public at the time that the deal would inevitably involve foreign direct investment, most of the funding in Pakistan was raised through various banks. This contradicted statements by government ministers who touted foreign investment as a way to stimulate the economy.
The more alarming, albeit more interesting, aspect of the deal between the President of Pakistan and Etisalat is its apparent illegality. After being declared the highest bidder, Etisalat withdrew from accepting the deal, which secured them a 26 per cent stake after the June 2005 auction, and obtained a majority of five votes to four on the board.
As a result, the 10 percent deposit monies forfeited and the privatization process was completed without a management handover as required by the first agreement.
On March 16, 2006, a new contract was signed with Etisalat without a new tender. The second agreement was negotiated rather secretly without involving the other two participants in the June 2005 auction. This made the whole process questionable and vulnerable to judicial scrutiny, not only legally but also morally.
The deal was so lopsided that, despite breaching the widely publicized terms of the auction, it also envisaged accepting claims from Etisalat that were not part of the original agreement, specifically the right to dispose of PTCL’s assets and property as a whole Country scattered – about 3,300 in total.
Through the back door, not only was the deposit (which was legitimately forfeited after PTCL’s refusal to sign the first agreement) returned, but it also became a sweetener in the form of $50 million a year for Etisalat’s technical experts agreed for five years, which inexplicably continued for 10 years.
Any unbiased observer would view Etisalat’s softening and the state’s overly protective stance with apprehension and apprehension. That the deal was mismanaged, with Etisalat over-accommodating at the expense of two other bidders, is illustrated by the fact that after 17 years, PTCL has so far paid Pakistan only $1.8 billion out of the total agreed $2.59 billion dollars. It has withheld around $800 million over a ownership dispute with the Pakistani government.
Disputes also arose over the property rights of some evacuees and those owned by the armed forces, but the fact remains that the deal still would not have sounded like it had the right to dispose of PTCL property not been unlawfully claimed under the second Agreement would have been unilateral for the government of Pakistan.
The unlawful right to dispose of properties owned by PTCL by the second agreement never came about as a result of an auction process, let alone a transparent auction, as the public was led to believe.
It is noteworthy that $800,000,000 in 2005 is equivalent to purchasing power of about $1,213,767,537.12 in 2022. This amount is comparable to foreign investment in Pakistan’s telecom industry over the past three to four years.
CORRECTION OF PAST MISSING
Instead of blindly privatizing a national icon like PTCL through a dubious and opaque process on extremely unfavorable terms, the state should reconsider such reckless steps of the past that may lead to the improvement of digital services deemed adequate to meet the challenges of the 21st century. century to face.
Although measures are in place to prevent access to official government communications and defence-related, sensitive data to foreign operators in every domestic telecommunications sector in the world today (through the National Telecommunication Corporation or NTC in Pakistan), countries such as the US, UK and some in Western Europe proceed with extreme caution.
For example, Chinese telecom giant Huawei has been under the US government’s radar as the Biden administration investigates its activities over suspicions that US cell towers using its equipment could collect sensitive information from military bases and missile silos, which Huawei potentially could to China as the company owes its origins to the Chinese military.
While the UK and other US Western allies may be required – either legally and/or morally – to remove all of the Chinese firm’s equipment from core networks, developing countries like Pakistan may not have that luxury in the absence of equivalent alternatives.
Expecting a dysfunctional and overly bureaucratic state like Pakistan to absorb all overnight technological advances in a rapidly reinventing global telecoms industry is indeed a major challenge. However, correcting historical errors such as the PTCL fiasco can be a step towards creating a fairer and more transparent process when dealing with telecoms-related matters.
However, the Supreme Court, in its recent dismissal of the appeal against PTCL’s privatization, has put an end to that idea by giving the second agreement the status of a stand-alone agreement – a move beyond the jurisdiction of any court, let alone one is the Supreme Court.
You can draw your own conclusions.
The author is a lawyer in Lahore. He tweets @Tariq_Bashir. Email: [email protected]
Published in Dawn, EOS, September 25, 2022
