Pakistan Telecoms Left Hanging On

Privatisation of Pakistans telecommunications sector will take a step forward on Monday when the last vouchers in the state telecoms company must be converted into shares.

But the future profits of Pakistan Telecommunications Corporation (PTCL), will depend on next weeks budget, which is expected to set new phone tariffs and give analysts a chance to assess growth prospects. PTCL issued 100-share vouchers in domestic and foreign placements almost three years ago when the government sold 12 per cent of its shares. The vouchers became convertible into shares last year in preparation for PTCLs privatisation.

Prime Minister Nawaz Sharif, has ordered the companys management to prepare it for privatisation in the next 12 months. But critics are sceptical, since the plan to sell the company is now in its sixth year. The delay, along with a number of concerns over the companys future, have triggered a sharp fall in PTCLs share price during the past year.

The latest financial results, though short on revenue growth, provide some encouragement in the shape of profits. The PTCLs revenues during the second half of 1996 - from July to December rose only 5 per cent compared with the first half of the year (January to June) - from Rps18.67 billion to Rps19.61 billion ($466.9million). But second-half operating profits half jumped 24.35 per cent, from Rps6.81 billion in the first half to Rps8.47 billion.

The improvement is seen by some analysts as perhaps a one-time gain, partly resulting from a write-off of bad debts worth Rps1.54 billion in the first half, while there were no such write-offs in the second half. In the run up to the budget, Nasim Mirza, PTCL chairman, has urged the government to reduce a 40 per cent tax known as central excise duty and pass on the benefit to the company by increasing inland tariffs.

PTCL management says that the company gets little benefit from what may appear to be exorbitant rates, because a large chunk goes to the government. Since 88 per cent of the company is still owned by the government, Mirza says, they will stand to benefit from lower tariffs because higher usage will lead to revenue growth.

Other PTCL executives worry over recent attempts by the government to detect income tax evasion by requiring all telephone subscribers to file tax returns. This step will carry no benefit because currently there are 1million income tax payers in Pakistan and there are 2.5 million subscribers, says one senior executive.

The tax system will be choked with a 150 per cent increase in tax returns and PTCL would be damaged by a disincentive to increased subscription and usage. Many subscribers are also bitter over what they consider to be irrational tariffs - such as a five-minute day-time call from Islamabad to Karachicosting roughly the same as a three-minute call to London.

Financial Times

Some analysts say that concerns over future revenue growth have discouraged investors. Part of the problem has been caused by uncertainty over the share of phone lines that will go to NTC (National Telecommunications Corporation), a smaller company carved out of the PTCL last year, which will exclusively serve government offices and Pakistans defence forces.

NTC was formed in response to fears that PTCLs privatisation would jeopardise national security interests by giving unwanted access to confidential communication. There are other concerns, among which are the effect of reduced international accounting rates which are certain to push down the companys international call revenues. Mr Asghar Merchant, telecom analyst at Karachis Khadim Ali Shah Bukhari brokerage, says the recently formed telecommunications regulatory organisation, the Pakistan Telecom Authority, needs to be strengthened before such issues can be firmly resolved. Unless there is a very distinct regulatory body in place, you cant privatise PTCL. They have now established one but it will take time to settle in. Many analysts also say that the company needs to cut almost a quarter of its work-force of 55,000. Though the prime minister is known to have considered large scale retrenchments in the public sector, its not clear if the government will approve the step, which is bound to lead to widespread union protests. Senior officials concede that the anxieties surrounding the company, and the uncertainty caused by its delayed privatisation, may lead to a softening in the sale terms offered earlier, though a final decision is yet to be made. Farhan Bokhari Copyright Financial Times Limited 1997. All Rights Reserved.