Telecom Industry Urges Government to End Direct G2G Contracts

The Pakistani telecom industry is actively campaigning against a specific procurement rule, Clause 42(f) of the Public Procurement Rules, 2004, which they contend creates an unfair playing field. This clause permits government agencies to award contracts directly to state-owned entities for projects deemed urgent or in the public interest, bypassing the standard competitive bidding process. Following a 2021 amendment, the industry notes a significant increase in the number of state-owned enterprises (SOEs) and their involvement in IT and telecom projects, often without open competition. This practice has reportedly diverted numerous projects from the private sector over the past five years, despite private companies having invested billions of rupees and contributing substantially to the national exchequer through taxes.

Clause 42(f)

Clause 42(f) of the Public Procurement Rules, 2004, is at the heart of the telecom industry's grievances. This provision enables federal and provincial government bodies to bypass competitive bidding and directly award contracts to state-owned entities. The Telecom Operators Association (TOA) highlights that this clause was strengthened by a 2021 amendment, which subsequently led to the creation of numerous new state-owned entities and the empowerment of existing ones. These entities are now reportedly receiving government projects through direct G2G arrangements, effectively shutting out private sector participation.

The direct awarding of contracts under this clause has significant implications for market dynamics. It means that projects, particularly in the lucrative IT, telecom, and digital services sectors, are not subject to the scrutiny and efficiency gains that competitive bidding typically brings. The TOA argues that this lack of competition reduces the incentive for service improvement and innovation among the entities receiving these contracts, as their access to government work is virtually guaranteed. This mechanism, therefore, not only limits opportunities for private businesses but also potentially leads to less efficient and less innovative project outcomes for the government itself.

Telecom Operators Association

The Telecom Operators Association (TOA) has been vocal in its opposition to the current procurement practices, articulating several key concerns in a letter to high-ranking government officials including Finance Minister Muhammad Aurangzeb and Planning Minister Ahsan Iqbal. The association emphasizes that the current system creates an uneven competitive environment where state-linked entities may benefit from regulatory exemptions, preferential licensing, or implicit government guarantees that are unavailable to private companies. This perceived advantage allows SOEs to secure public-sector projects without having to compete on merit or cost-effectiveness.

Furthermore, the TOA points out that private telecom operators have made substantial investments in Pakistan's digital infrastructure, expanding beyond traditional connectivity into areas like data centers, cloud computing, and artificial intelligence. They argue that a strong domestic technology ecosystem is vital for local companies to grow and eventually compete internationally. However, by channeling government spending primarily to SOEs, the current policy limits the opportunities for Pakistani technology companies to test and validate their products and services within their home market, which is crucial before attempting global expansion. This also impacts job creation for Pakistan's educated youth, as fewer opportunities for small and medium-sized businesses hinder their growth and employment potential.

Shehbaz Sharif

The TOA's arguments resonate with Prime Minister Shehbaz Sharif’s previously stated position that there is “no business of government in running a business.” The association leverages this sentiment to underscore the contradiction inherent in the current procurement rules. They highlight that many state-owned enterprises, initially established with taxpayer money, have now entered markets directly competing with private companies, often with the added advantage of preferential access to government-funded projects.

This situation, according to the TOA, places additional and undue pressure on private businesses that are already operating in a competitive landscape without similar government backing or advantages. The association also raises concerns about reports of SOEs subcontracting G2G projects after securing them without competitive bidding, suggesting this practice could bypass critical transparency and accountability requirements. By urging the government to repeal Clause 42(f), the TOA aims to align procurement practices with the Prime Minister's stated philosophy, advocating for a system where SOEs compete on equal footing with private sector entities to foster fair competition and serve Pakistan’s broader national interest.