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Pakistan has rejected suggestions that moves by the government to soften the payment terms for the sale of a stake in the country’s state-run telecoms incumbent might undermine its ambitious plans for further privatisations this year.

Abdul Hafeez Shaikh, Pakistan’s privatisation minister, spent more than two months late last year trying to settle a dispute with Etisalat – the UAE-based telecoms company, which in July bought a 26 per cent stake and management rights in Pakistan Telecom Company (PTCL) for US$2.6bn but later failed to meet the deadline for payment.

The settlement, under which Pakistan allowed Etisalat to make staggered payments over the next two to four years, has raised questions about whether future potential buyers of state-run enterprises might use the incident as a precedent in their own negotiations

However, Mr Shaikh argues the change of terms represented nothing more than the usual “twists and turns” involved in any negotiation process.

He insists Pakistan’s privatisation agenda remains on course and points to his track record since he took over his ministry three years ago.

“In these three years, we have earned Rps90bn (US$1.5bn) annually, up from Rps36bn [annually] in the previous three years and very much up from Rps6bn per year during the 1990s,” Mr Shaikh says.

Successes include the privatisation of most of the major state-owned banks, the sale of Karachi Electricity Supply Company – Pakistan’s second largest power generation and transmission enterprise, and that of a number of smaller companies, including textile and cement manufacturing plants.

The government’s privatisation agenda is set to continue this year with plans to privatise Sui Northern Gas Pipelines (SNGPL), the Sui Southern Gas Company (SSGC), Pakistan Steel Mills, Pakistan State Oil, and National Investment Trust.

Privatisation ministry officials say the government is considering ways to prevent a recurrence of the PTCL dispute, including demanding future bidders pay more than 10 per cent up front and that they present a clear financing plan as part of their final offers.

“Investors would have to clearly demonstrate the sources they would tap to be able to pay up in good time,” a senior privatisation ministry official says.

But analysts are sceptical. “Once you set an example, I am sure others would be tempted to follow that route” says Shuja Rizvi, senior analyst at Karachi’s Capital One securities brokerage house.

“Coming out of PTCL, you can never rule out the possibility of another fiasco in future”.

Economists at western embassies in Islamabad caution that Pakistan will have to be careful not to discourage future potential investors by attaching too many stringent conditions.

“You have to balance safeguards with the incentives you are prepared to give to investors,” says one.

Investors in the country’s privatisation programme already have to grapple with the country’s high political risk, analysts say.

General Pervez Musharraf, Pakistan’s president and military ruler, who seized power in a bloodless military coup more than six years ago, has overseen a three-year economic recovery.

But he has refused to retire from the military, angering the opposition.

“The political question is one which would remain in the back of the minds of investors,” adds the western economist.

But Mr Shaikh says: “This is not an easy task, you can’t just sell everything in one go . . . Pakistan is making progress [on privatisation] even if there are some issues to be resolved.”

Copyright The Financial Times Limited 2017. All rights reserved.
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