IN the good old days when as kids we played cricket, every once in a while a batsman getting out on the very first ball of the match would claim to be not out by arguing that the first ball of the match is always a ‘try-ball’. It seems that Pakistan as a state often behaves like that same kid when it comes to entering into contract agreements with various global private entities.
The government in Islamabad is often found trying to interpret contracts at its own convenience and timing. Though this approach might work locally or in kids’ cricket, when it involves international firms and arbiters, it can result in national embarrassments as witnessed in the Broadsheet and Reko Diq cases, or the seizure of a plane belonging to the national carrier for violation of the lease agreement. Here is a list of what else this ungainly attitude entails.
The recent attempt of Pakistan LNG Ltd to import liquefied natural gas met firstly with no bids and then record high bids. One of the reasons was the excessive criticism in the media over LNG prices in the past. No business would want to risk it all by getting into an agreement with a country which drags international companies into petty politics.
Similarly, projects proposed to be funded by the BOT (build, operate, transfer) arrangement mostly do not fetch any bidders in Pakistan because such projects require a period of 10 to 20 years for returns on investment and in Pakistan decision-makers have a habit of giving political considerations precedence over consistency of policy. ‘A bull in a china shop’ takes on a whole new meaning when highly technical matters are left to the mercy of such individuals.
Reneging on agreements comes at a heavy cost.
Currently, this government is doing the same with independent power producers, and is now trying to renegotiate the already agreed to terms and conditions of MoUs signed in August last year. Now that the government owes billions to IPPs, they are being offered unviable payment plans as they face a liquidity crunch due to the enormous circular debt.
The list is endless. An agreement for the sale of Pakistan Steel Mills was almost finalised in 2006 when the Supreme Court decided to strike down the deal. The government had approved $464 million based on discounted cash flow valuation for the PSM. As reported, the per share value then came to Rs16.18 and the winning bid was for Rs16.8. In fact, the price, though apparently low at that time, was justified as investors would have had to provide a large injection of capital upfront for the mills to be profitable. Failing that, losses would multiply (as they did). Then chief justice Iftikhar Chaudhry who declared the privatisation null and void is enjoying a comfortable retired life, while the Pakistani taxpayer continues to pay for his retirement benefits and the PSM suffers Rs400 billion in losses.
Another aspect of any agreement or contract is the provision of a level playing field to all competitors. This is also often violated right under the nose and sometimes with the full consent of state institutions in Pakistan. For example, FWO is a military engineering organisation that bids for various infrastructure development projects in Pakistan including construction of highways across the country. It competes with private contractors in the bidding process and like any other contractor would charge the employer, which in most cases is the federal or provincial government highway authority, for their services.
However, the problem is that FWO enjoys tax exemptions while other bidders competing for the same projects do not, meaning that for a project where a private contractor would pay 7.5 per cent to the government in taxes, the FWO would pay nothing. Again, this is an apparent failure to provide a level playing field to all competitors by implementing contracts in letter and spirit. Would any court or government entity like the Competition Commission of Pakistan want to take corrective action in cases where such enterprises are pitted against private firms or individuals?
Lastly, it is pertinent to point out that most of the cases involving international arbitration result in adverse judgements for Pakistan as these bodies make decisions based purely on merit and unlike the local forums cannot be influenced or coerced to get favourable decisions.
This trend of losing these legal battles will continue unless the government of Pakistan employs specialists to think things through before getting into agreements in highly technical domains. The era of civil servants who know a little about everything and everything about nothing is over. The sooner we realise this the better.
The writer is a former civil servant.
Published in Dawn, January 20th, 2021