Pakistan sees Etisalat resolving $799mn dispute soon

Etisalat office is seen in Dubai. Pakistan expects Etisalat to settle the $799mn it owes from a 2006 investment in the country’s former telecom monopoly, Ishaq Dar, Pakistan’s finance minister, said yesterday.

Reuters/Karachi/Dubai

Pakistan expects Etisalat to soon settle the $799mn it owes from a 2006 investment in the country’s former telecom monopoly, the finance minister told Reuters.

Settlement would provide vital funds for the cash-strapped government.

Etisalat, the United Arab Emirates’ largest telecom operator by revenue and subscribers, led a consortium that bought a 26% stake in Pakistan Telecommunication Co (PTCL) for $2.6bn.

But Etisalat, which also obtained majority voting rights in PTCL, withheld $799mn it owes on the deal because of Pakistan’s failure to reassign ownership of 3,248 properties to PTCL as per the sale agreement.

“The release of funds is expected shortly,” Ishaq Dar, Pakistan’s finance minister, told Reuters in an e-mailed response to questions.

PTCL is still due 31 properties, but these are unlikely to ever be transferred due to various reasons including legal impediments, Dar said. This leaves Etisalat with two options – to surrender PTCL’s right to these properties and reduce the amount the UAE operator owes Pakistan by their combined agreed value, or withhold the same amount until it receives titles to these properties.  Dar ruled out taking punitive action against Etisalat to try to force the company to pay, while Etisalat did not respond to repeated requests for comment regarding Pakistan.

Etisalat paid an initial $1.8bn for the PTCL deal and was to pay the remaining $799mn in six twice-yearly instalments of $133mn.  Etisalat owned 90% of the acquiring consortium, giving it a 23.4% stake in PTCL. The consortium’s bid was $1.2bn more than the next highest offer and in 2012 Etisalat took an impairment of $645mn on PTCL, whose current market value is $1.12bn, Reuters data shows.

Receiving the bulk of the money Etisalat owes would boost Pakistan government coffers. The International Monetary Fund (IMF) saved Pakistan from possible default by agreeing last September to lend it $6.7bn over three years. The minister said the government was considering a so-called “tax rationalisation”, which would likely cut the tax burden on telecoms, to bolster consumption of services.

Pakistan’s telecom sector paid $1.23bn in taxes on revenue of about $4.4bn in 2012-2013, Dar said, making it the second largest contributor to tax revenues.

Dar said rising broadband and data use would enable annual telecom revenue to top $11bn within a decade.

In April, Pakistan raised $903mn in an auction for 3G mobile phone networks, plus $210mn for more advanced 4G spectrum. These will allow mobile companies to launch broadband services.

“Rationalised tax levels are predicted to have a stimulator effect on subscriber penetration and service usage,” Dar added.

“Our inclination is to enable more usage and penetration to help the sector earn more so it can contribute more to the exchequer.”