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Etisalat, the United Arab Emirates telecoms company, will not have to pay interest on outstanding payments for its stake in Pakistan Telecom (PTCL) ? prompting concern that Islamabad is setting a dangerous precedent for future privatisations.

Etisalat last year promised to pay $2.6bn for a 26 per cent stake and management rights in Pakistan?s largest telecoms company but missed an October deadline to make the payment. After protracted negotiations, Pakistan agreed to a deal under which the UAE company would pay $1.14bn now in addition to an earlier $260m downpayment, with the remaining $1.2bn to be paid in nine instalments over five years.

Asked if these instalments would be interest-free, Abdul Hafeez Shaikh, the privatisation minister, told the FT: ?Yes, this is the concession we have given to [Etisalat].?

Pakistan government officials argue that they were right to salvage the deal, even with the more favourable conditions, given that it far exceeded any others on the table during the bidding process.

The total upfront payment to be made by Etisalat of $1.4bn is on its own equivalent to the second highest bid which came from China Mobile, mainland China?s largest telecom company.

Failure to seal the PTCL transaction, the biggest government stake sale in Pakistan?s history, would also have been a major setback for the country?s ambitious privatisation plans.

Conscious of this, senior figures in the Pakistan government have spent months lobbying their counterparts in the UAE to try to resurrect the deal.

Officials at the ministry of telecommunications in Islamabad said it could have taken Pakistan years to find another buyer for PTCL ? time best spent restructuring the company to make it more competitive. ?This is a public sector company with its peculiar problems of inefficiency and failure to compete fast enough with a changing telecom environment,? said one official.

But analysts warned that the final settlement had sent an unfortunate message to the market that Pakistan was unable to hold investors to their word.

?There is a danger that you may have others trying to emulate this example,? said Shuja Rizvi, senior analyst at Karachi?s Capital One brokerage house.

Mr Rizvi said the Pakistani government was expected to attach tighter conditions to future privatisations, such as seeking a larger downpayment than just 10 per cent.

?In the end, what Pakistan gains out of PTCL?s privatisation is less than what was promised by Etisalat. But under the present set of circumstances, we had no option,? said a privatisation ministry official.

?Giving a concession was much more feasible than starting afresh.?

Copyright The Financial Times Limited 2017. All rights reserved.
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