Pakistan bends over backwards on PTCL deal

Concessions for Etisalat

The uncertainty is finally over. Etisalat has agreed to stay in the process of acquiring a 26 per cent controlling stake in Pakistan Telecommunication Company Limited (PTCL). An agreement between Etisalat and the Privatisation Commission the other day says the money involved will now be paid over five years instead of three months, the period originally set by the deal.

This staggered payment was one of the main demands made by Etisalat to keep the $2.6 billion deal going. Others included the ability to pledge the acquired shares; allowing dual listing of PTCL shares; exemption from withholding tax; waiver of duties and taxes; and the ability to transfer acquired shares. In an earlier move to placate Etisalat, PTCL sacked 400 contract employees last month and senior government officials bent over backwards to come up with any possible concession, even after officially calling off the deal back in October.

These extraordinary allowances highlight the peculiar nature of PTCL's privatisation. In normal circumstances and according to set procedure, if the highest bidder fails to pay the money in 90 days after winning the privatisation bid, the second highest bidder is asked to step in. In PTCL's case, no one in the government even thought of inviting China Mobile, the second highest bidder, to rejoin the privatisation process after Etisalat repeatedly failed to pay the remaining 90 per cent of its offer. Etisalat is owned by a group based in and operating from the United Arab Emirates, a long-time ally, and the privatisation we are talking about is the largest ever in Pakistan. Hence, the desperation to salvage the deal, no matter what. A meeting between the UAE ruler and President Pervez Musharraf in Makkah to discuss the issue only further highlights the geopolitical importance of the deal.

One unintended consequence of the official desperation to save the deal is that it weakens the privatisation process, rather than strengthening it as officials claim. If the government is conceding so much ground in one deal, how can it hold its own in others? If PTCL's privatisation has to be projected as a success story, the official concessions make it less likely so.