Published on May 20th, 2011 | by Admin3
The Incessant PTCL-Etisalat Saga, Payments Against More Shares
Etisalat bought a 26 percent management stake in Pakistan Telecommunication Company Limited (PTCL) for $2.6 billion in July 2005. Around $800 million is currently withheld by Etisalat. GOP has a majority shareholding of 62 percent in PTCL, while 12 percent of its shares are being traded on local bourses.
Etisalat deferred the payment instalment for the first time in March 2008, citing delays in transfer of PTCL properties and violation of the sale agreement by Pakistani authorities as the reason.
Since 2008, there has been a lot of political hue and cry over the privatisation deals transparency and legitimacy.
This represents a classic case of rent-seeking where a not-so-complicated process of transferring properties in the legal owners name – in this case PTCL – has been hijacked by interest groups for over three years now. While the market values of these properties could be many times over their book values, this does not justify infringement of this transaction because one has to view a transaction in entirety.
In fact, the GOP did agree with Etisalat, after the deal initially hit snags in 2005, to transfer titles of the properties of which PTCL was a legal owner. This is also mentioned in the share purchase agreement entered into with Etisalat in 2005.
While talking to Gulf News last year, Mohammad Omran- Chairman and Managing Director of Etisalat- said, “Under the agreed terms of the transaction, Etisalat is entitled to withhold payments until the property titles are transferred to PTCL. Our aim is to ensure that PTCL receives clean title to and possession of all properties”.
He added, “We are confident that when the Privatisation Commission fulfils this obligation, Etisalat will immediately release the instalments”.
The background of this issue needs to be understood. Uptil June 2005, PTCL was wholly owned by the GOP and the titles of its assets, including land and buildings, were either in the governments name or the relevant federal and provincial departments. It was never deemed necessary to obtain title deeds in PTCLs name.
Moreover, there was no documentation whatsoever for some of the properties belonging to PTCL. Post-privatisation, the foreign entity managing PTCL – Etisalat – wanted full control and ownership of assets in PTCLs name. News items suggesting that Etisalat wanted these properties in its own name are factually and technically incorrect.
The spokesperson of the Privatisation Commission told BR Research that the Secretary Privatisation Commission recently called upon United Arab Emirates (UAE) officials in Dubai for the release of $800 million due from Etisalat. He said that the UAE officials were ‘receptive’ to GOPs concern and Pakistan would soon receive the money withheld by Etisalat, while the CEO of Etisalat would visit Pakistan next month in this regard.
On the issue of transfer of properties, the spokesperson revealed that out of 3,248 properties, 3,098 have already been transferred to PTCL. Of the remaining 150 properties, 102 are with the private sector, 48 with the public sector including the provinces of Punjab and Sindh, and 16 are under litigation.
The Privatisation Commission has denied media reports regarding the possible release of payments for more PTCL shares by Etisalat, or a $ 200 million concessionary offer from Pakistan if Etisalat paid $ 600 million immediately.
It was only prudent of Etisalat to demand transfer of titles of all the properties belonging to the PTCL in PTCLs name. The PTCL management could then better utilise its resources, and channel the idle, unlocked potential of its properties towards new investments. GOP being the majority shareholder gets to benefit the most.
Some analysts say that Etisalat overpaid for the PTCL deal, realised this only later, and would withhold the payment until both sides reach a compromise. The GOP should, however, keep its part of the deal and complete the transfers of the remaining properties immediately.
The Etisalat-PTCL saga has laid bare governments negotiation skills, or the lack thereof, and this also goes for the economic managers who sealed this deal in 2005.
Source: Business Recorder Research
The latest on the PTCL-Etisalat Saga comes the demand of more shares against release of outstanding payments. As reported by Express Tribune;
In a major setback to the government’s effort to bridge the widening gap between income and spending through recovery of $800 million from Etisalat, a secret mission, led by Interior Minister Rehman Malik, has failed to convince UAE rulers to use their influence on the company and get the withheld amount released.
Pakistan’s offer that if Etisalat – the buyer of 26 per cent shares in Pakistan Telecommunication Company Limited (PTCL), makes an emergency payment of $600 million (Rs51.6 billion) it would consider writing off the remaining amount was also rejected, said finance ministry sources. Instead, they added, Etisalat hinted at releasing money against getting more shares.
Sources told The Express Tribune that Rehman Malik and Secretary Privatisation Imtiaz Kazi flew to the United Arab Emirates last Saturday for resolving the issue of the $800 million (Rs68.8 billion) installment. Malik held meetings with the Emir of Dubai and the minister of state for finance.
“They promised to look into the matter but did not make any commitment,” said Secretary Privatisation Imtiaz Kazi. He said the Etisalat chief may visit Islamabad next month.
The finance ministry has been striving to get the $800 million released before June in a bid to utilise the money for financing the budget deficit. This will help lower the deficit by 0.4 per cent of total size of economy. The ministry insists that it can still manage to restrict the deficit to 5.5 per cent or Rs941 billion by the end of June.