Privatization of PTCL. An Unforgotten Failure of Governance

1. BACKGROUND AND INTRODUCTION:

Privatization of public assets was emerged in the United Kingdom during early 90s when public experienced a widespread and continued sale programme of public enterprises to elevate economic growth. Denationalisation of public institutions has become a worldwide movement in developed as well as developing nations by selling all kinds of public enterprises including key utilities providers such as electricity, water, gas, telephone services etc. British Telecom was contracted out in 1984 (3) around two decades before the privatization of Pakistan Telecommunication Company Limited (PTCL) in 2006.

PTCL had a public domination on all local telecommunication services, but the telephone industry has been gradually deregulated beginning in 1994 when 12% stocks were sold to people worth more than $900 million and again in 2006 when 26% shares along with its overall management control were surrendered to Etisalat by Pakistan Government (partially privatized to Emirates Telecommunications Corporation) amounting to $2.2 billion. Currently, 62% of its total portion is retained by Pakistan Federal Government (1).

The major motives of PTCL privatization were originally to curtail the financial burden on federal government and to bring investment and proficient management in the country and secondly to minimize budget deficits by improving the consumer demands to meet escalating needs of innovatory information technology. Unfortunately, six years after its faulty privatization, market value of PTCL shares was declined from $7 billion in 2005 to approximately $1 billion in 2011 i.e. negative growth of 18% per annum against a growth of +11% prior its privatization (2).

2. DEFINITION AND ARGUMENTS OF PRIVATIZATION:

There are many definitions of privatization and can mean many things. Steel and Heald in 1984 defined ‘privatization can be carried out through charging, contracting out, denationalization or liberalization’ while more elaboration was provided by Jackson and Price in 1994 who described privatization as ‘sale of public assets, deregulation, contracting out, opening-up state monopolies to greater competition and reducing subsidies’ (3).

Different economists have diverse opinions about the need of privatization. Some are in its favor considering the unnecessary public sector monopoly, massive overheads, evident complex procedures, excessive public administrative, biased and illegal hiring by authorities, uncontrolled corruption, inefficient and redundant resources etc. Whereas, other group who is against the concept of privatization of public enterprises perceives it as a conversion of public monopoly into a private monopoly, source of sensitive information leakage, devaluation of public value, increase in the services cost, transparency deficient, democratically unaccountable, jobs cutting/ unemployment, loss of public knowledge and exclusive practical experience.

3. KEY ISSUES TO UNSUCCESSFUL PTCL PRIVATIZATION:

Overall economy of Pakistan was collapsing due to poor governess and mismanagement and eventually military took over in 1999. To support budgetary expenses, government asked World Bank and International Monetary Fund (IMF) for more loans who encouraged Pakistan for privatization of public assets under their programme of assistance including the economic reforms. Government of Pakistan was in rush to stable the country economy by hooks and crooks therefore, was misguided by financial agencies and blackmailed by foreign investors in form of their forced conditional supports.

Prior to its privatization, PTCL fiscal performance was remarkable which has been contributing a revenue of around $1.6 billion into Pakistani economy each year. However, its management has been weakening and finally become Ineffective over the time due to its traditional model of administration, old-fashioned vertical hierarchy for such a large set up (64,000 work force), nepotism and unecessary political interference.

4. POST PRIVATIZATION CHANGES:

Etisalat (UAE consortium) improved the organizational structure of PTCL and implemented a more horizontal administrative structure with its new management to control over decision making by depoliticizing its work culture. New management partially decentralized its structure for better operations and reduced work force by replacing it with more qualified overseas technical staff who provided necessary trainings to local staff for their skills enhancement. New administration also introduced more progressive telephone packages and improved internet services including online (paperless) bills and payments for customers’ convenience (5). New PTCL management applied contemporary controls and monitoring polices similar to Etisalat setup in the Middle East irrespective of the local work conditions which actually did not fit into Pakistani work culture and thus many of the best linesmen and technical hands had left PTCL which resulted loss of numerous valuable connections (7).

5. CAUSES OF PRIVATIZATION FAILURE:

This case study discusses the failure of a corporate governance in form of PTCL privatization and its associated findings were primarily confined and elective bid completion, selection of wining firm who was unaware of PTCL organizational culture, undue concession to make final offer successful, obscurity of financial deal, HR crisis under the voluntary separation programme in which around 32,000 employees left PTCL(4), damaging impact of share value, lower profit margins, ambiguous financial performance, undervalued assets and the inappropriate choice for privatization. Moreover, with its major constitutional concession, Etisalat was given free hand for selling and purchasing of assets ignoring federal policies and the regulations which caused an issue of major conflict between control and economic ownership. With its privatization, many competitors entered the market and PTCL skilled workers joined other new businesses which caused reduction of PTCL market shares and also number of customers. This was a self-created loss to PTCL by not meeting the customers’ requirements at that time (6).

6. REASONS SUPPORTED BY THE THEORIES:

As per Hughes (cited in Hughes, Owen E 2003, p.101) ‘stimulating competition is an attractive part of privatization programme and selling public assets only improve competition, if it is already in competition. Economic benefits would only be certain to arise from selling enterprise in competitive environment and selling a public monopoly with its regulation intact does nothing for competition. Furthermore, failure to match the performance of competitors soon becomes apparent in the form of loss of market shares and deterioration of financial performance’ (3). Moreover, as explained by Kay and Thompson in 1986 (cited in Hughes,2003, pp.101) ‘there is a need to sequence reforms so that a public monopoly is not converted to a private monopoly’ and discussed by Wilks in 1999 that ‘creation of huge, arrogant, inefficient and exploitative private sector monopoly is a serious misjudgment’ (3).

Comparing the above theories and statements with the given roots of PTCL failure, it is evident that several mistakes were occurred and government failed to take proper measures for the effective privatization of PTCL. Instead of the public value, most likely government was in hurry to fill its financial deficit by temporary aids in terms of foreign investments ignoring the lesson learned by UK government in case of its British Telecom.

7. THEORETICAL ALTERNATIVE SOLUTIONS TO KEY ISSUE:

Financial experts and public administrators has realized that this unpredicted situation of PTCL could be avoided by only introducing proper corporate governance through mutual responsibility, accountability, transparency, integrity, ethics and executive control during its hasty transfer to new administration. Further, retention of public enterprise generally provides more economic benefits to the whole of society instead of private monopoly.

In the light of these arguments, I would like to suggest that current management to adopt a custom-made framework of public value model with necessary adjustments complying with the local standards and to create a corporate culture in which the pursuit of public values by employees is rewarded. Moreover, I also agree with the suggestions of Dr. Kamal Munir (Professor of Strategy and Policy at University of Cambridge), published in ‘The Herald’ in December 2009 that ‘given the current state of affairs, the government should consider asking Etisalat to sell back its shares at current market prices. The government should pay in instalments, just as Etisalat has done. PTCL can quickly generate whatever this will cost. The government should then staff the company with the enormous Pakistani talent pool in the telecom sector and turn PTCL into a global company’ (7).

8. REFERENCES:

1) Wikipedia article on PTCL. Available at: https://en.wikipedia.org/wiki/Ptcl, viewed on 4th April 2017

2) Dr Kamran Siddiqui, 2011, Failure of Corporate Governance: Privatization of PTCL Pakistan. Available at http://saicon2011.ciitlahore.edu.pk/Business%20Ethics/11-1095.pdf

3) Owen E. Hughes, 2003. Public Management and Administration: An Introduction, Third Edition, pp.99-109, Palgrave Macmillan, New York.

4) Dr. Kamal A. Munir, 2010, Pre and Post Privatization Tale of PTCL’s Financials . Available at: ttps://propakistani.pk/2010/01/07/pre-post-privatization-ptcl-financial/

5) Niaz Ali Khan, 2012, Privatization of PTCL: Poor Corporate Governance. Available at: https://www.scribd.com/document/119755654/Privatization-of-PTCL-Poor-Corporate-Governance

6) Privatization of the PTCL , published in Dawn on 2004. Available at: https://www.dawn.com/news/356125/privatization-of-the-ptcl

7) Kamal A Munir, 2012, Privatisation of PTCL: A lesson for policymakers. Available at: https://tribune.com.pk/story/349491/privatisation-of-ptcl-a-lesson-for-policymakers/