PTCL’s Privatization: The Biggest Financial Scam in

Pakistan’s History?
The fall of corporate giants like ENRON and WORLDCOM left many learning
impressions for both public and private sector enterprises besides stakeholders including
governments, employees, Board of Directors and strategic partners. In both of the above
mentioned historical cases, the core reason was fraudulent conduct by the corporate level
management. The top officers consistently kept hiding the true financial facts and figures
bearing losses and public reports kept displaying healthy financial results and
profitability, which strengthened the trust of shareholders and partners to keep investing
besides helping the share price to grow further in the stock market.

Unfortunately, we might have another big financial scandal in Pakistan in upcoming days
this is about privatization of PTCL. As you may recall Etisalat acquired a 26%
strategic stake along with management control in 2006 after months of deals and
bargaining on the actual value of the deal. Now the scandal reported in the papers claims
that PTCL was worth a lot more. PTCL no doubt is one of the strongest corporate
enterprises not only in Pakistan but also in the continent known as Asia. Therefore, if the
news story becomes true, it will have a devastating effect on the Pakistan’s Telecom
market, Economy and Pakistan’s political stability. Pakistan’s image, which already is in
crisis, will be hurt further. The business schools around the world surely will have
another good case study.

Source of information:

Jang, one of leading Urdu newspaper in Pakistan, has highlighted news on the secret
contract over privatization of PTCL as shown above. An ex-Senior Vice President has
claimed the privatization as Pakistan’s Biggest Financial Scandal. PTCL former official
further commented that the deal was closed on 2.6 billion dollars including U-fone &
Paknet, however only U-fone had enterprise value of more than 6 billion dollars which
does not include assets of U-fone. Moreover, pricing decisions were made through old
records instead of determining current market value, which means, it was like Buy One
Get 2 Free offer. It has been reported further that in September 2006, when Etisalat had
refused to honor the deal, they were offered a secret price discount of 394 million dollars
along with commitment to lay off 20,000 employees and to bear the 50% cost of layout.
Supreme Court of Pakistan has already given decision against the privatization of PSO
and Pakistan Steel and if PTCL’s privatization gets challenged on true facts, it will bring
horrifying results.

Causes of Privatization

Being state owned enterprise, it was Government’s critical responsibility to measure the
scope and feasibility of privatization. PTCL was and is one of the oldest & strongest
corporate enterprises and revenue contributor in Pakistan. The key objective of any
business entity is to earn profit. So, why there was a need to privatize such a
Giant, Whatever PTCL is doing after privatization could also have done before
privatization. When there is no major change in organizational structure and policies and
even new owners have still not been able to even lay off those 20,000 employees for
which our Government has agreed to bear 50% cost of layoff.

Marketing, Corporate Level, Business level strategies and new product launch could also
be carried on without risking a profitable business. All PTCL needed was good corporate
governance through accountable and economically feasible process with holistic
approach towards growth besides integrity & ethical behavior, transparency and control
by the BODs (Board of Directors).

Concluding here, one could well imagine that if PTCL‘s management had implemented
such controls, it would have been in a better position.
 CORPORATE GOVERNANCE
ASSIGNMENT
Outline
PTCL’s Privatization: the Biggest Financial Scam in Pakistan’s History

Submitted to: Mr. Javed

Submitted by: Ayesha Anwaar (020)
Iqra Abid (037)
Arooj Tariq (016)
Date of submission: 10 October, 2009
DEPARTEMENT OF MANAGEMENT SCIENCES, COMSATS
ISLAMABD