PTCLs privatization dilemma leaves behind no beneficiary

Etisalats payment dispute with Pakistani government over PTCL sell-off shows that the picture of privatization in the country is not as rosy as it seems. Not at least, when it comes to so-called state-owned white elephants - such as Pakistan Railways - since they are not only the victim of sheer mismanagement but their true worth and potential are vague and largely underestimated.
Series of disagreements between Etisalat International and government officials over various issues bodes ill for the future of privatization, as it will raise queries about the credibility of governments contracts made with foreign businesses.
Lately, Etisalat threatened to approach arbitration court in London, if Pakistan Telecommunication Authority issues LDI license to China Mobile. As per the Share Purchase Agreement signed between Etisalat and Pakistani government, PTA is restricted to issue telecom licences for a period of 7 years, or till 2013.
The underlying contract, which limits PTA to issue telecom licence, is a discouraging level playing field among the operators. Critics suggest that Etisalat is not allowing the government of Pakistan to sell 3G licences, with the auctions being postponed a number of times.
But perhaps this issue should be best left to the Competition Commission of Pakistan, to whom, sources reveal, China Mobile has the legal option to present their case. Then it would be up to Khalid Mirza, chairman CCP, and his team to delve into the issue and perhaps deal with PTA regarding how to resolve this apparently monopolistic agreement.
Aside from this, however, there is a bigger issue. When PTCLs sale to the UAE-based firm had almost run into snags, the government agreed to transfer PTCLs lands and other immovable property within the same price.
Since then, land grabbing by political groups in Punjab and Sindh has created hindrance in the completion of privatization proceeds from Etisalat, resulting in some direct and indirect negative consequences to PTCL, the government and the overall economy.
In essence, the motive behind privatization was to accumulate foreign exchange. But the delay in payments arising from disputes over the ownership of properties has encouraged Etisalat to withhold payments worth $799 million after the government failed to transfer some of PTCLs property located in these provinces.
This time lag between expected and realized payment is causing huge losses to national exchequer, especially, when foreign reserves account is under pressure. What was the rationale behind the decision to transfer PTCLs land to Etisalat is another question, but now that the deal has been long signed, there is no reason for delay.
The earlier these immovable properties are transferred, the sooner the government would receive its payments from Etisalat. This would help the government to plug in its fiscal gap, which in turn can crowd-in private investment.
Besides, since the government is the major owner of PTCL (62%, whereas Etisalat owns only 26 percent with control rights), the state is also the main beneficiary of sale proceeds of controversial properties, if any.
As for the future of privatization, government officials should learn a lesson from PTCLs case study, which can clearly explain how a deal which was termed as a defining moment, the single largest transaction ever in the countrys privatization history, turned into a dilemma.

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Etisalat payment schedule

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Installments  Amount ($mn) Status

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Jun-05         260           Paid

Apr-06        1140           Paid

Sep-06         133           Paid

Mar-07         133           Paid

Sep-07         133           Paid

Mar-08         133       Deferred

Sep-08         133       Deferred

Mar-09         133       Deferred

Sep-09         133       Deferred

Mar-10         133        Not due

Sep-10         133        Not due

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