TIP under the spotlight

A high-level committee headed by Prime Minister's Advisor on Commerce, Textile, Industries and Production and Investment is to evaluate prospects of privatisation of Telephone Industry of Pakistan (TIP), well-informed sources told Business Recorder.

The decision taken by the ECC on November 27, 2019 was endorsed by the federal cabinet on December 3, 2019.

Giving the background, the sources said, TIP is a private limited company, established jointly by Government of Pakistan and M/s Siemens AG Germany in 1953 at Haripur, KPK, with a mandate to manufacture telecommunication equipment in the country. However, with the passage of time, TIP could not align itself with the fast changing requirements of the telecom sector. Resultantly, TIP is running in losses since financial year 2002-03. TIP is now fully dependent on GoP's funding even for payment of salaries to its employees. M/s Siemens' and PTCL's shares in TIP were transferred to GoP in February 2008. Presently, TIP is working under the administrative control of MoIT.

TIP has been heavily depending on overdraft from National Bank of Pakistan. The overdraft limit was fully utilized in December 2007 which stands at Rs 988 million plus unpaid interest of Rs 179 million from January 2008 to March 31, 2009. Ministry of Finance was requested to intervene to get NBP loan written off or restructure the classified loan improvement of TIP's financial position. NBP did not write off the loan but agreed to restructure it. NBP required GoP's guarantee in favour of NBP for the restructuring of short term bank loan for 10 years (inclusive of 4 years grace period starting from April 1, 2009).

Ministry of Finance had, in principle, agreed to issue GoP's guarantee of Rs 1.075 billion subject to the approval of the ECC. Accordingly, ECC in its meeting on September 1, 2009 approved the conversion of loan into demand finance facility-1 amounting to Rs 1.075 billion and demand finance facility -II amounting to Rs 1.2 million against GoP guarantee for ten years. Tenure of 10 years guarantee period has expired on September 15, 2019.

The present government had included TIP in phase-II program of privatisation. However, it has been desired to revive TIP through a joint venture model in view of its large land asset, potential to produce, employees' skills location in an important district enriched with literate population and development of industry and IT in the adjoining districts. The Federal Minister for Power also approached the Minister for IT& Telecom highlighting the need to turn TIP into a productive entity.

In this connection, a meeting was held between the Minister for IT & Telecom and Minister for Privatisation/Chairman PC on August 21, 2019 wherein PC agreed to review the list of entities being considered for privatisation. Ministry of IT& Telecom formally requested the PC to exclude TIP from phase-II program. The CCoP, in its meeting held on September 18, 2019 approved delisting of TIP from the privatisation list.

On expiry of guarantee period on September 15, 2019, the NBP issued notice of default under clause-1 of the Government of Pakistan guarantee on September 16, 2019 favoring NBP demand finance extended to M/s TIP (private) up to date i.e. August 31, 2019 to the tune of Rs 1.030590 billion aggregating to an amount of Rs 2.105590 billion.

In view of receipt of notice, the issue was placed before TIP BoD in its meeting held on September 25, 2019. The members of Board decided that the summary may be submitted to the ECC with the request to consider payment of loan amounting to Rs 2.105590 billion (demand finance-1 Rs 1.075 billion) and markup of Rs 1.030590 billion being guarantor) as in the case of other entities. Ministry of IT & Telecom is considering reviving TIP through a joint venture and the TIP Board has also approved appointment of Financial Advisor and draft advertisement for Expression of Interest (EoI) which has been prepared in consultation with PC.

The sources said, draft summary was also forwarded to Finance Division for their views/ comments in terms of Rule 8 of Rules of Business 1973, on October 9, 2019, and Finance Division has opined that the repayment of loan and markup was the responsibility of TIP, however, TIP failed to service its financial obligation reiterating its earlier position conveyed on November 30, 2018, January 28, 2019 and May 22, 2019. Finance Division argued that any further delay by TIP/ MoIT in setting its liability towards the bank shall further complicate the issue without any beneficial gain and shall lead to additional markup accumulation.

Ministry of IT& Telecom maintained that financial liability poses a threat to the revival plans and in turn to the possibility of turning TIP into a profitable entry.

The Ministry of IT & Telecom submitted the following recommendations to the federal government for consideration: (i) extension of government sovereign guarantee, in respect of TIP, for a further two year from September 16, 2019; and (ii) payment of loan amounting to Rs 2.105590 billion (demand finance-1 Rs 1.075 billion and markup of Rs 1.030590 billion being the guarantor) for smooth process of the revival plan.

The sources said after a detailed discussion on the proposal, the ECC headed by Finance Advisor constituted a committee under the chairmanship of Prime Minister's Advisor on Commerce, Textile, Industries and Production and Investment, Abdul Razak Dawood comprising Minister for Economic Affairs Division, Minister for Power, Minister for Information Technology and Telecommunication, Minister for National Food Security and Research, Chairman Board of Investment (BoI), Secretary Finance and Secretary Ministry of Information Technology and Telecom to review in detail (i) financial position of TIP, (ii) viability of its revival in view of future requirement of the country and (iii) prospects of privatisation. The committee will submit its recommendations within the next few days.