PTCL’s Privatization: The Biggest Financial Scam in Pakistan’s History?
The fall of corporate giants like ENRON and WORLDCOM left many learning impressions for both public and private sector enterprises besides stakeholders including governments, employees, Board of Directors and strategic partners. In both of the above mentioned historical cases, the core reason was fraudulent conduct by the corporate level management. The top officers consistently kept hiding the true financial facts and figures bearing losses and public reports kept displaying healthy financial results and profitability, which strengthened the trust of shareholders and partners to keep investing besides helping the share price to grow further in the stock market.
Unfortunately, we might have another big financial scandal in Pakistan in upcoming days – this is about privatization of PTCL. As you may recall Etisalat acquired a 26% strategic stake along with management control in 2006 after months of deals and bargaining on the actual value of the deal. Now the scandal reported in the papers claims that PTCL was worth a lot more. PTCL no doubt is one of the strongest corporate enterprises not only in Pakistan but also in the continent known as Asia. Therefore, if the news story becomes true, it will have a devastating effect on the Pakistan’s Telecom market, Economy and Pakistan’s political stability. Pakistan’s image, which already is in crisis, will be hurt further. The business schools around the world surely will have another good case study.
Jang, one of leading Urdu newspaper in Pakistan, has highlighted news on the secret contract over privatization of PTCL as shown above. An ex-Senior Vice President has claimed the privatization as Pakistan’s Biggest Financial Scandal. PTCL former official further commented that the deal was closed on 2.6 billion dollars including U-fone & Paknet, however only U-fone had enterprise value of more than 6 billion dollars which does not include assets of U-fone. Moreover, pricing decisions were made through old records instead of determining current market value, which means, it was like Buy One Get 2 Free offer. It has been reported further that in September 2006, when Etisalat had refused to honor the deal, they were offered a secret price discount of 394 million dollars along with commitment to lay off 20,000 employees and to bear the 50% cost of layout. Supreme Court of Pakistan has already given decision against the privatization of PSO and Pakistan Steel and if PTCL’s privatization gets challenged on true facts, it will bring horrifying results.
Now this brings another example to Corporate Governance books and poses immense need to improve upon corporate governance practices. Corporate Governance is the set of policies, procedures, practices, processes, customs, laws and institutions affecting the way in which a corporation or enterprise is controlled or administered. It further involves shareholders, stakeholders, management and the enterprise goals and objectives i.e. profitability, organizational growth, share price stability for which a company is governed. The two main aspects of corporate governance are Accountability and Economic efficiency for the welfare of the shareholders.
Being state owned enterprise, it was Government’s critical responsibility to measure the scope and feasibility of privatization. PTCL was and is one of the oldest & strongest corporate enterprises and revenue contributor in Pakistan. The key objective of any business entity is to earn profit. So, why there was a need to privatize such a Giant, Whatever PTCL is doing after privatization could also have done before privatization. When there is no major change in organizational structure and policies and even new owners have still not been able to even lay off those 20,000 employees for which our Government has agreed to bear 50% cost of layoff.
Marketing, Corporate Level, Business level strategies and new product launch could also be carried on without risking a profitable business. All PTCL needed was good corporate governance through accountable and economically feasible process with holistic approach towards growth besides integrity & ethical behavior, transparency and control by the BODs (Board of Directors).
Corporate governance practice includes a set of internal and external controls, which, if applied properly can bring growth results in all operational activities. These controls include Internal Controls such as Monitoring by the Board of Directors, Human Resource Development, Transparent & Accurate Disclosure of Financial Results. Then there are External Controls such as Debt Covenants, Government regulations, Media pressure, Competition etc.
Concluding here, one could well imagine that if PTCL‘s management had implemented such controls, it would have been in a better position.
Created by Babar Bhatti, TelecomPk.Net is a leading source of information and analysis about Pakistan Telecom industry. 
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We need to look at the balance sheet of Etisalat in order to ensure the amount of initial investment made to acquire 26% stake in PTCL.
Assigning $6 bn to Ufone is not a justified figure. The value of Ufone in accordance with transaction multiple is around $2.5bn as of 5 Sep, 2007. We must remember that Ufone gain more customers during post privatization era. Furthermore, we are assuming 100% value of Ufone to be around $2.5 or $6bn according to the author however, Etisalat only acquired 26% stake. Therefore value of 26% stake comes around $0.65 bn according to my estimate as of 5 Sep, 2007 and $ 1.56 bn as per author.
That was an interesting read. This scandal can be devastating to the on-going development in the Telecommunication sector. I do not understand as to why they one of the biggest contributors to Pakistan economy, PTCL, go private with a sour deal and keep it secret. Even though Privatization Commission made it clear that this is a transparent deal for all the public to see? I really hope to see some positive light been shed on this deal.
Not surprising:)
you should post on Adil’s website as well.
this is the silliest “scandal” i’ve ever heard of!
how could anyone EVER be upset when etisalat paid $2.6billion, and the next highest bidder was at $1.4billion?
i mean, it seems to be true that they might’ve violated a couple of fine-print terms and conditions, but come on —they paid $1.4billion (the second highest bid) up front in cold hard cash and agreed to pay the other $1.2billion over the coming years. it seems like a very reasonable payment scheme when you consider the vast divergence in competitive bids.
it hurts pakistan’s image when a ton of “writers” with less than half a neuron start attacking a deal that’s clearly delivering unprecedented value to pakistan. if i were a foreign investor, i’d be less likely to bring my money to pakistan after observing this behavior (on the part of some politicians specifically, and the media more generally).
let’s try to be rational/intelligent and be a bit more critical of such silly anti-privatization talk in the future :)
i’m glad you wrote about it, i was wondering same why its not being discussed. This will remain as a Scam untill proven by the authentic facts & figured by Etisalat & GOP.
The real value of PTCL assets (at the time of sale) can only be determined by experts - I would like to see those determinations before jumping to conclusions. To Omar’s point the Etisalat bid was much higher than other bids. And in my opinion privatisation is good for Pakistan if we follow the process and use that money wisely.
The tone of the newspaper articles is typical of journalism in Pakistan: anonymous sources and not much substance. However given the other issues with privatization in Pakistan (steel mills case for instance) this case cannot be dismissed right away and merits more investigation. If the matter goes to court then things will become clear.
[...] and management control in a privatization deal with the Government of Pakistan. The deal has been repeatedly attracting objections, criticism and bad press for a number of reasons ever since it was struck in [...]
[...] Times has reported this interesting statement. As we have been discussing, Etisalat’s last transaction (26% shares and management control) is under scrutiny these [...]
you suck!!!
Well guys I am from real estate industry and its all about real estate. U guys dont know how much PTCL’s real estate worth all over Pakistan. Its a gold mine and u know Arab guys love real estateeeeeeeeeeeeeeeeeeee
Dear
Its really a useful site about telecome sector & i really appritiate the efferts of owner & write of this website.
Dear i need little inform
1) How much total active mobile subscribe in pakistan
2) How much active mobile subscriber by GSM operators
3)How much SMS are sent in per day
Hope to read from u soon.
Regards
Hafiz Basit