With the internet revolution in the 21st century necessitating better service and communication, privatisation of telecom companies has increasingly become the means to achieve that goal.
Globally, state-owned corporations, especially in the telecom sector, have grown from small to medium-sized locally-raised corporations to becoming multinational giants. Huawei (formerly Chinese military-owned), Norway’s Nortel, China Mobile, Deustche Telekom or popularly T-Mobile (previously the state-owned Bundespost) and Etisalat are only a few successful examples of investment by state-owned multinationals in the international telecom sector.
It is therefore interesting to note why Pakistan, whose telecom industry has reportedly shown extraordinary growth over the past few years, has not benefitted from privatisation.
The saga of the Pakistan Telecommunication Company Ltd. (PTCL) privatisation reads like a corporate crime thriller.
Can privatisation be the panacea for Pakistan’s foreign investment woes? The case of the privatisation of Pakistan Telecommunications Company can offer some lessons
In 2005, the Gen Pervez Musharraf-Shaukat Aziz hybrid dispensation privatised in unholy haste multiple state-owned mega enterprises, including PTCL, whose worth was quite comfortably in the billions of dollars at the time. Fearing large-scale redundancies as a result of privatisation, the employees of PTCL staged stiff resistance to the move. Thousands of protesting workers were beaten black and blue by the police, which led to this episode making front page headlines. The protesters were charged en masse under anti-terrorism laws.
Although the government and the new PTCL management had the option to withdraw the criminal cases, they needlessly made the workers go through the rigours of a patently punitive criminal justice system.
Thousands of PTCL employees were sacked in 2005 and later in 2008 by the new management and offered oppressive termination packages. This was in stark violation of the terms and conditions of their services for at least two reasons.
One, all fiscal indicators suggest that the company was doing well and, financially, had little cause to leave thousands of families at the mercy of a profit-hungry multinational. As per the financial statement released prior to its privatisation, in 2004, out of its total revenue of 79 billion rupees, PTCL’s net profit stood at 44 billion rupees — a clear indication that the company was profitable.
PTCL did not qualify as a “sick unit” such as the Pakistan International Airlines (PIA) and Pakistan Steel Mills. Yet, a series of brutal crackdowns were carried out in order to force the telecom company’s workers into agreeing to harsh and unconscionable dismissals. Meanwhile, Gen Musharraf’s interior secretary, Kamal Shah, held “talks” with union leaders, giving them and the media a false impression that the parleys had been successful.
Secondly, the manner in which the corporation was “gifted” to UAE-based Etisalat — the highest bidder out of the three companies who were in the race, including China Mobile and Singapore’s Singtel — was dubious and secretive, making it worthy of deeper investigation.
However, the real broad daylight heist occurred a couple of months later.
Contrary to the narrative created for public consumption at the time that the deal necessarily involved foreign direct investment, most of the funding was raised in Pakistan through various banks. This went against the statements of government ministers, who touted foreign investment as a way to boost the economy.
The more alarming, albeit interesting, aspect of the deal between the President of Pakistan and Etisalat is its blatant illegality. After having been declared as the highest bidder, Etisalat backed out of accepting the deal that secured them 26 percent shareholding after the June 2005 auction, giving it a majority of five votes to four on the board of directors.
Consequently, its 10 percent deposit money was forfeited and the privatisation process closed without any handing over of the management, as mandated by the first agreement.
On March 16, 2006, a new agreement was signed with Etisalat without any fresh bidding. Quite surreptitiously, the second agreement was negotiated without involving the other two participants of the auction conducted in June 2005. This rendered the whole process questionable and open to judicial scrutiny, not only legally but also morally.
The deal was so one-sided that, despite it being in violation of the widely published terms and conditions of the auction, it also envisaged accepting Etisalat’s demands that were not part of the initial agreement, particularly the right to dispose of PTCL’s assets and properties dotted all across the country — approximately 3,300 in total.
Not only was the deposit (rightly forfeited after PTCL’s refusal to sign the first agreement) restored through the back door, but a sweetener, in the form of 50 million US dollars per year, was agreed for Etisalat’s visiting technical experts for five years, which inexplicably continued for 10 years.
Any impartial observer would view the mollycoddling of Etisalat and the overly protective approach adopted by the state with concern and trepidation. That the deal was mismanaged by excessively accommodating Etisalat at the expense of two other bidders is evident by the fact that, after a lapse of 17 years, PTCL has so far paid only 1.8 billion dollars to Pakistan out of the total agreed amount of 2.59 billion dollars. It has held back around 800 million dollars over a property transfer dispute with the Pakistani government.
Disputes also arose over titles of some evacuee properties and those in possession of the armed forces, but the fact remains that, had the right to dispose of PTCL property not been conceded unlawfully under the second agreement, the deal still wouldn’t have sounded so lopsided for the Government of Pakistan.
The unlawfully awarded right to dispose of properties owned by PTCL through the second agreement never materialised as a result of any auction proceedings, let alone a transparent auction, as the public was led to believe.
It is noteworthy that $800,000,000 in 2005 is equivalent in purchasing power to about $1,213,767,537.12 in 2022. This amount is comparable to the foreign investment in Pakistan’s telecom industry over the last three to four years.
CORRECTING PAST WRONGS
The state, instead of blindly privatising a national symbol such as PTCL through a dubious and opaque process on grossly unfavourable terms, should revisit such reckless steps taken in the past, which may go towards improving digital services deemed adequate for meeting 21st century challenges.
Although measures to prevent access to official communications of the government and defence-related, sensitive data to foreign operators in any domestic telecom sector is taken care of in today’s world (through the National Telecommunication Corporation or NTC in Pakistan), countries like the US, the UK and some in Western Europe are treading with extreme caution.
For example, the Chinese telecom giant Huawei has been under the radar of the US government, as the Biden administration is investigating its activities over suspicions that US cell towers using its gear could glean sensitive information from military bases and missile silos, which Huawei may potentially convey to China, considering the company owes it origins to the Chinese military.
While the UK and other Western allies of the US might be under obligation — either legal and/or moral — to remove all of the Chinese firm’s equipment from core networks, developing countries such as Pakistan may not have that luxury in the absence of equivalent alternatives.
Expecting a dysfunctional and overly bureaucratic state like Pakistan to embrace all the technological advancements overnight in a rapidly innovating global telecom industry is a tall order indeed. Yet, correcting historical wrongs such as the PTCL fiasco can be a step towards creating a fairer and more transparent process when it comes to matters relating to the telecom sector.
However, the Supreme Court, by recently dismissing the appeal challenging PTCL’s privatisation, has put paid to that idea, by bestowing upon the second agreement the status of a stand-alone agreement — a move impervious to the jurisdiction of any court, let alone that of the Supreme Court.
One can draw one’s own conclusions.
Published in Dawn, EOS, September 25th, 2022