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ISLAMABAD, Aug 9: A powerful industrial group plans to diversify into oil and telecommunications to expand its revenue base and become Pakistan's top conglomerate, an executive said.
The Fauji group, which is owned by an army welfare organization and operates some of the country's biggest listed companies, intends to bid in the privatization of two large state-owned companies, Syed Muhammad Amjad, managing director of Fauji Foundation, said.
The group plans to bid for Pakistan State Oil, the country's largest oil refining and distribution company, and U-fone, the second-largest mobile phone company, which is owned by PTCL, Mr Amjad said.
Such plans by Fauji could hasten Islamabad's on-again, off-again privatization programme, which is aimed at reducing Pakistan's $34 billion in foreign debt and transferring state assets to the private sector.
However, it could also invite criticism from members of the business community who allege that the group, through its army links, has potential to gain tremendous influence over Pakistan's economy and hamper development of the private sector.
Analysts estimate that the two assets are worth a combined $1 billion. The government has affirmed plans to privatize them, but no firm timetable has been set. "Telecom and oil and gas are going to be the group's core areas for expansion and acquisition," said Mr Amjad, who is a retired general and former head of National Accountability Bureau.
Fauji Foundation, formed in 1953, runs hospitals and schools for the families of retired soldiers. Mr Amjad estimates that its industrial assets - including fertilizer, cement, and power companies - are worth Rs100 billion.
The group's four listed companies - Fauji Fertilizer Co, Fauji Fertilizer Bin Qasim, Fauji Cement Co and Mari Gas Co - earned a combined $70 million in net profit on revenue of $600 million in the their latest financial years.
Addressing concerns over its links to the country's military-backed government, Mr Amjad said the Fauji group strictly operated in the private sector and had not accepted undue favour or funds from any government agency.
"This is all utter rubbish. Our companies operate just like any other corporate concern," he said, noting that the group is not exempt from corporate taxes and paid around five per cent, or Rs21 billion of total direct taxes collected in the country, in the fiscal year 2003-04.
Arshad Arif, head of research at KASB Securities, said that despite criticism over Fauji's increasing role in the country's economy, the group has ventured into areas where Pakistan desperately needs investment.
"The group is less leveraged than other groups and has a strong execution team to run and manage big companies," Mr Arif said.
REFINERY OPERATIONS: Fauji will be the first local group to try owning PSO, whose previous failed attempts at privatization attracted Middle Eastern oil groups such as Kuwait Petroleum Company.
Mr Amjad said that if Fauji won control of PSO, it would also bid for 51pc of National Refinery Ltd, the country's second largest petroleum refining and petrochemical complex. Citigroup Inc has been mandated to privatize NRL.
"NRL by itself doesn't make much of economic sense for us as it does with PSO," Mr Amjad said. By acquiring both refining and marketing of oil products, the group would be able to maximize margins in one of the most lucrative sectors of the economy, analysts said.
Meanwhile, buying U-fone's established business would give Fauji group an edge over Norway's Telenor ASA and Abu Dhabi-based Warid Telecom, which recently won licences to operate GSM-based networks to compete with U-fone. The Fauji group lost to the two companies in the recent bidding for mobile licences.
U-fone is a wholly-owned unit of Pakistan Telecom, which the government will in a few weeks decide whether to privatize as one entity or several. Separately, Fauji is also mulling a merger of Fauji Fertilizer and Fauji Fertilizer Bin Qasim, a move aimed at cutting costs and boosting efficiency, Mr Amjad said. -Dow Jones Newswires
