Telecom operators urge Pakistan to repeal rule favoring state-owned firms in contracts

Pakistan’s telecom operators have urged the government to repeal a public procurement rule that allows government-owned entities and state-owned enterprises to secure certain contracts directly, saying the policy is crowding out private-sector companies and stifling innovation.

In a letter addressed to Finance Minister Muhammad Aurangzeb, Planning Minister Ahsan Iqbal and IT and Telecommunications Minister Shaza Fatima Khawaja, the Telecom Operators Association said Clause 42(f) of the Public Procurement Rules, 2004, should be repealed.

The association said the federal government introduced the provision through S.R.O. 834(I)/2021 on June 28, 2021, allowing procuring agencies to directly contract state-owned entities for time-sensitive works and services considered to be in the public interest.

The rule requires the state-owned organization to be eligible to perform the work and, in principle, complete it using its own resources without private-sector partners or subcontractors. Where more than one eligible state entity exists, competition through limited tendering is required, while procuring agencies must establish a mechanism to assess price reasonableness.

Private sector being crowded out

The association said federal and provincial governments have strengthened existing SOEs and established dozens of new entities, which have subsequently received numerous IT and telecom projects through government-to-government contracting without open competitive bidding.

“This has severely crowded out private sector which has invested billions in infrastructure and services in last couple of decades,” the association said.

It added that private-sector telecom operators have also invested heavily in data centers, cloud computing, artificial intelligence and digital services as the industry shifts toward becoming a global digital-services provider.

The association said a strong domestic technology ecosystem is necessary if Pakistani companies are to compete in international markets.

Government is a major buyer of IT, telecom and digital services, but a significant share of its spending goes to international vendors for hardware and software, it said. The association argued that the portion previously available to local companies is increasingly being diverted to government-owned businesses.

Concerns over competition and innovation

The association said direct government-to-government contracting leaves Pakistani technology companies with fewer opportunities to deploy locally developed products and establish a track record before entering international markets.
It also alleged that state-linked entities and preferred G2G contractors can benefit from regulatory exemptions, preferential licensing and implicit government guarantees that are not available to private companies.

The association warned that state dominance could reduce incentives for independent research, development and entrepreneurship by raising barriers to private-sector entry.

It also argued that a lack of competition could reduce efficiency among state-backed contractors, while citing loss-making public-sector entities including Pakistan International Airlines, Pakistan Steel Mills and power distribution companies as examples of the longer-term risks of state dominance.

The group further warned that restricting opportunities for small and medium-sized private businesses could hurt job creation, particularly for educated young people.

Calls for transparency

Another concern raised by the association was subcontracting by SOEs after government-to-government contracts are awarded.
It alleged that some SOEs subsequently subcontract projects to preferred private companies without competitive bidding, describing this as a way of bypassing transparency and accountability requirements in public procurement.

The association also linked government borrowing and large-scale state spending to tighter access to credit for private businesses, saying commercial banks may prefer lending to the government over riskier private-sector borrowers.

The operators said the government itself has acknowledged the need to reduce its role in running businesses, referring to Prime Minister Shehbaz Sharif’s publicly stated position that “there’s no business of government in running a business.”

The association argued that SOEs are largely funded through taxes generated by the private sector, but are then allowed to compete with those same taxpayers while receiving preferential access to government contracts.

It urged the government to repeal Clause 42(f) and require SOEs to compete for government-funded projects on the same basis as private-sector companies, saying this would promote competition, transparency and the development of Pakistan’s technology ecosystem.