Thursday, August 13, 2009

Prime Minister constitutes ministerial committee for GoP-Etisalat dispute

Pin It ISLAMABAD (August 13 2009): mmittee to resolve the dispute between the GoP and Etisalat International with management control after purchase of 26 percent shares of Class B shares in Pakistan Telecommunication Company
Limited (PTCL) on issuance of Long Distance International (LDI) licence to China Mobile Pakistan and proposed 3G spectrum auction plan, official sources told Business Recorder.

The issue was discussed by the Cabinet in its meeting on August 5, 2009 wherein some Ministers were of the view that Etisalat's warning that it may approach the international court should be taken seriously. Etisalat is contesting the anticipated award of LDI licence to China Mobile as a breach of the Shares Purchase Agreement (SPA) and guarantees given to it.

Etisalat has already withheld payment of last tranche of about $780 million because according to it the GoP failed to transfer properties in the Punjab and Sindh in favour of PTCL. The committee, to be convened by Minister for Privatisation Naveed Qamar, comprises Minister for Interior Rehman Malik, Minister for Overseas Pakistanis Khurshid Shah, Minister for Petroleum and Minister of State for Law.

It has been directed to examine issues concerning the ramifications of Share Purchase Agreement (SPA) with Etisalat and its effects on the proposed auction of 3-G spectrum in a comprehensive manner and formulate appropriate recommendations for consideration of the cabinet in its next meeting.

Official documents show that the Ministry of Information Technology had submitted a summary to the Cabinet for grant of LDI telecommunication licence to China Mobile Pakistan (CMPak) after consulting Prime Minister Secretariat, Ministries of Foreign Affairs and Interior, Cabinet Division (PTA) and Board of Investment (BoI), whichrecommended issuance LDI licence to CMPak.

The Cabinet in its meeting on September 24, 2008 had decided to grant LDI licence to China Mobile Pakistan in relaxation of the "watch hold" decision of Cabinet Committee on Regulatory Bodies (CCRB). Etisalat International agitated that in the light of SPA schedule-6 clause-g, such an action on the part of the GoP is violation of SPA concluded between GoP and Etisalat on March 13, 2006.
Its stand is based on the following provision of SPA which stipulates: "deliver to the Purchaser's Solicitors a certified copy of the policy directives of the Pakistan Telecommunication Authority relating to the non-issuance of new mobile and fixed line license in Pakistan for 7 years from the date hereof".

Now the MoIT has proposed to the top decision makers that GoP should take up the issue with Etisalat for one-time consent of issuance of LDI licence to CMPAK; and, if deemed necessary, fresh policy directive for a moratorium on new issuance of fixed line (LL & LDI) and cellular licences for the remaining time of commitment with Etisalat may be issued.

The background of the subject issue springs from the fact that while SPA was negotiated and signed by the Privatisation Commission and Etisalat on March 12, 2006, the MOIT through a summary on the subject of 3-G cellular mobile and fixed line licensing, submitted to CCRB March 18, 2006 proposed that in the wake of development like privatisation of PTCL and future prospects of growth of telecommunication sector, the process of grant of new LL, LDI and cellular licences be put on the watch-hold for the next seven years and PTA be asked to submit periodical reports in terms of growth and absorptive capacity of the markets.

The documents further show that the Cabinet Committee on Regulatory Bodies (CCRB), in its decision of March 22, 2006, approved the proposal, accordingly. It seems that while submitting this summary, the Ministry had lost sight of the legal provision of the afore-stated stipulation (clause-g of schedule-6) of the SPA.

Besides, it appears that the Ministry had submitted a summary for grant of LDI licence in favour of CMPAK on account of the assumption that nothing precluded the GoP to issue any new LL, LDI and cellular mobile connection, corresponding to the availability of spectrum and interplay of the market forces, as things were put on the 'watch-hold' as decided by the CCRB, whereas, according to Etisalat International SPA's afore-stated stipulation is an affront to such a stance of GoP.
On the other hand, CMPAK is pressing hard for issuance of LDI licence, in its favour in pursuance of the Cabinet's decision of September 24'2008. Etisalat is now contesting the anticipated award of LDI licence to China Mobile as a breach of the SPA and guarantees given to it.

MoIT in a recent communication solicited Etisalat's viewpoint in the light of the foregoing and, in response, Etisalat reiterated its earlier stance and indicated to take the matter to the arbitration Court in London UK as agreed by the two sides under the arbitration clause of the SPA, sources added.

The issue is also of further relevance in view of the fact that MoIT is, presently, formulating a policy for auction of 3G (Third-Generation) Mobile services frequency spectrum for proliferation of broadband services in the country. This also includes the issue of allowing new entrants for bidding of 3G frequencies and eventual new licensing.

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