Profit E-Magazine Issue 123

CONTENTS

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08 Pakistani drug companies rarely bring innovative products to market.

Ferozsons broke the mould 14 Seven years after delisting, Unilever Pakistan is investing heavily in growth

20 20 Does Pakistan need influencer marketing regulations?

25 Rebuild Karachi Asif Saad

25 27 Ansari Sugar Mills vs Anver Majid: the saga continues 28 Isuzu’s Pakistani partner is definitely not bringing in Chinese SUVs to Pakistan 30 Distressed Azgard 9 to sell its manufacturing plant for Rs825 million

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31 31 Two and a half years after applying, PTCL's licence has still not been renewed 33 Provincial subjects and their discontents Asghar Leghari 35 Lahore government versus its trash collectors: what went wrong?

WELCOME

All for one, one for all

We cannot bring ourselves to recount the brutal and vicious manner in which the coal miners in Balochistan from the Hazara community were abducted and killed. It is too painful to even repeat. We cannot bring ourselves to talk of the pain of the Hazara community at the fact that this is one in a long line of massacres they have faced, the fact that mass burial has become too frequent an occurrence. But we will say this: Prime Minister Imran Khan – for his crass and deplorable response to the incident, refusing to go and condole with the victims’ families unless they bury the bodies first, calling them ‘blackmailers’ in the process, is highly condemnable and beneath the office he holds.

For expatriate Pakistanis in jails for crimes in Saudi Arabia and other Gulf countries, he had the time and energy to fly to Riyadh and other global capitals, but for hard working miners killed in our own country by vicious terrorists, he cannot fly to Quetta?

How are the people of Balochistan supposed to feel when people in other parts of the country – including the prime minister – are more than happy to extract mineral resources from there, but refuse to treat them as fellow human beings, let alone fellow citizens deserving of equal rights in our country. Let us put it this way: if instead of kidnapping the miners, the terrorists had bombed the mine, we can guarantee the Prime Minister would have noticed, and there would have been more than a perfunc-

tory condemnation from his office. Before anyone asked, he would have pledged that the terrorists will be brought to justice.

Think about that: the coal in Balochistan is more precious to our government than the poor men – human beings with inherent dignity all – who mine it. Is that how low we want our humanity to sink? Do we really want to be the people who devalue human life so much?

Although the protesting Hazaras have finally given in to the PM’s demand and buried their dead relatives, whether or not the PM visits Quetta does not matter; the damage is done. The community has faced horror so many times, they were hoping the sight of unburied bodies will shame the rest of the country into recognizing their humanity and spur the government into providing them with actual protection rather than letting them be target practice for terrorists. Little did they know, the PM himself would be the least moved person in all of this.

If the country does not recognise their pain as one inflicting suffering on the nation’s body politic, it will harden the nation’s heart to the point where it will be dead inside. Then, you can sing all the songs you want about the zinda-dil quom all you want, it will be a lie.

Farooq Tirmizi Managing Editor

Profit

Executive Editor: Babar Nizami l Managing Editor: Farooq Tirmizi l Joint Editor: Yousaf Nizami Reporters: Ariba Shahid l Babar Khan Javed l Taimoor Hassan Abdullah Niazi l Meiryum Ali l Hassan Naqvi l Shahab Omer Director Marketing: Zahid Ali l Regional Heads of Marketing: Muddasir Alam (Khi) Zulfiqar Butt (Lhr) l Mudassir Iqbal (Isl) l Layout: Rizwan Ahmad l Photographers: Zubair Mehfooz & Imran Gillani l Publishing Editor: Arif Nizami l Business, Economic & Financial news by 'Pakistan Today' Contact: profit@pakistantoday.com.pk

FROM THE MANAGING EDITOR

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Readers Say So what you’re saying is that a potential market is gauged by imports and that duties shouldn’t be imposed as this might impact future investment in Pakistan? The priority on curbing imports was because Pakistan couldn’t afford them. With imports outstripping exports by a considerable margin there was a danger the dollar reserves would completely disappear. Without fixing the macro economic issues then the country was headed to default. Once Pakistan is on a better footing with exports rising then imports will rise also but not out of control with the consumption lead growth encouraged by the previous government. The fact that P&G are investing is Pakistan should be applauded.

Maybe they are spending potentially hundreds of millions of dollars because they want to circumvent the duties being imposed on their products. Trump was doing the same in the USA by imposing duties on foreign imports to encourage localisation of production to grow the job market. Have you considered that P&G may have other research to hand such as the young demographic of the population. The numbers in the growing middle classes. The growing number of people living in the city. To simply say it’s the amount they used to import dictated their investment is lazy. Apropos: ‘Luxury imports’ led P&G to start local manufacturing. Should we still stop the imports?

Riaz, Website 100% agreed. Buying these imported soaps is equivalent to going to the bathroom and rubbing yourself with dollar bills in the shower.

Anything imported should be discouraged. It is only due to the good policy of the current government that P&G is investing in Pakistan, otherwise diapers were imported and present at top shops for decades. Apropos: ‘Luxury imports’ led P&G to start local manufacturing. Should we still stop the imports?

Fahim, Website

facebook.com/Profitpk twitter.com/Profitpk linkedin.com/showcase/13251020 profit.com.pk profit@pakistantoday.com

HOW TO CONTACT

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They are doing this as they couldn't compete with locally produced diapers, like CanBaby.

Their market share has shrunk by more than 50% in the last three years because of the hugely expensive imports. However, if there were no local alternative, I don't think they would have thought about manufacturing locally. Apropos: ‘Luxury imports’ led P&G to start local manufacturing.

Should we still stop the imports? @hammad_rashid, Twitter Another reason is that they want to compete with the local manufacturers and the rates they offer on the local market, which is why they end

up having to manufacture their products in Pakistan to recapture the middle and lower middle class segment that prefers the cheaper option.

Apropos: ‘Luxury imports’ led P&G to start local manufacturing. Should we still stop the imports? @NaeemQurban, Twitter ‘Luxury imports’ is an anachronism in the ecommerce and Alibaba era. We don’t need to run such expensive experiments to figure out if there’s a market for it. Folks are paying up to 50 dollars for facial cream through drop shipment.

Apropos: ‘Luxury imports’ led P&G to start local manufacturing. Should we still stop the imports? @faisal_parla, Twitter This is quite a strange take. The market for such products in a country like Pakistan can easily be determined, especially when you have good comparisons in the region. Some might even argue that it is higher duties on such imports that push multinationals to switch to local production. Apropos: ‘Luxury imports’ led P&G to start local manufacturing. Should we still stop the imports? @razzblues, Twitter Pakistan has never had an export obsessed economic policy. Thank the heavens we have come to our senses now and actually have a competitive mindset.PPP burned through $ 3.5 bn of borrowed money to keep the rupee stable, PML N burned through $15 billion to keep it afloat. Now we have a huge pile of debt and no benefit of any FDI gained from the indexation. So yes, exports are the only way to develop your economy. Otherwise, we’ll run out of money to borrow and default on our debts. Apropos: ‘Luxury imports’ led P&G to start local manufacturing. Should we still stop the imports?

Shahmeer N. Arshad, Facebook Taking comments from Hina Pervez Butt is a complete joke. She probably does not understand the first thing about financial war crimes, the economic policies of Ishaq Dar and why they were disastrous, or even about her own political party. She can barely understand the difference between BBC and BBC Urdu as it is. Apropos: Why Pakistan has been unable to escape its debt trap Adil Islam, Website I would like to thank Babar Khan Javed for this insightful piece - no one has taken the time to dissect the PR landscape in Pakistan in my 13 years spent at Lotus Pakistan. It was most interesting to read what everyone had to say and evaluate it against where we go (collectively) from here.

Apropos: Do publicists in Pakistan need public relations? @selinarashid, Twitter

COMMENTS

IN BRIEF Pakistan will purchase 1.2 million Covid-19 vaccine doses from China’s Sinopharm, making it the first official confirmation of a vaccine purchase by Pakistan as it battles the second wave of infections. China approved a Covid-19 vaccine developed by an affiliate of state-backed pharmaceutical giant Sinopharm the same day.

“I am directing the officials concerned to activate the Punjab Cooperative Department to ensure financial assistance to farmers. The Punjab Provincial Cooperative Bank (PPCB) will be restructured and for the betterment of farmers and its closed branches would be reopened” Prime Minister Imran Khan

Special Assistant to the Prime Minister (SAPM) on Poverty Alleviation and Social Safety, Dr Sania Nishtar, has announced that the government would launch a new survey for the precise identification of poor people under the Ehsaas Programme within the next few months.

Hyundai Pakistan is likely to boost its production by 100 per cent in the first quarter of the calendar year 2021. According to a statement issued by Hyundai-Nishat Motor CEO, Hassan Mansha, double shift operations would ensure that capacity is further enhanced by the end of the year.

Taking stock of the dwindling economic situation due to the coronavirus pandemic, the World Bank has forecast Pakistan’s growth rate at 0.5 per cent financial year 2020-21. The WB estimated that Pakistan’s growth rate contracted by 1.5 per cent during the last financial year.

$13.4 billion:

The foreign exchange reserves held by the State Bank of Pakistan (SBP) increased 1.98pc or $261 million to $13.41 billion, data issued by the central bank showed last week. According to the central bank, the rise came on the back of official inflows of the government.

The High Court of Justice in the British Virgin Islands (BVI) resumed the hearing of a case relating to the enforcement of a $5.97 billion award against Pakistan on Thursday. The government’s legal team and a team appointed by the Pakistani BVI companies will appear before the court.

Refuting what the Pakistan’s ambassador in Germany claimed about IKEA “entering the Pakistani market“, the company officially confirmed to Profit that “it has not announced any plans to start retail operations in Pakistan.”

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Pakistani drug companies rarely bring innovative products to market

Ferozsons broke the mould

The company’s partnership with Gilead Sciences has resulted in better products available to the Pakistani market, and a substantially better financial performance for the company itself

By Taimoor Hassan

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he Pakistani pharmaceutical has its fair share of issues: a lack of innovative products that the industry blames on regulatory bottlenecks and price controls and depressed profitability as a result. While there are quite a few domestic companies that are doing well, in the industry, there are few stars and fewer still that have performed well financially by bringing access to innovative products for Pakistanis.

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Ferozsons Laboratories is the exception.

The company signed an agreement in 2014 with American life sciences company Gilead Sciences to introduce a breakthrough drug for Hepatitis C in Pakistan. Sovaldi, the drug to cure Hepatitis C, was introduced in Pakistan in 2014 by Ferozsons. Previous treatments for Hepatitis C only treated its symptoms and assumed it was a chronic disease a person had to live with. Sovaldi changed that, making it a curable disease.

Following the launch of Sovaldi in Pakistan just a few months after it first launched in the United States itself, Ferozsons made

a killing: revenue swelled to a high of Rs11.3 billion in 2016, from Rs3.8 billion just two years earlier. While the increase in revenue from that drug did not last, the company is hoping that it can continue to rely on Gilead’s innovation pipeline to provide new products to Pakistanis who need them.

In 2020, for instance, the disease ravaging the whole world is Covid-19 and the one of the most effective drugs against it is Remdesivir. Like in the case of Sovaldi, the partnership again is with Gilead Sciences for production of Remdesivir in Pakistan by Ferozsons. And once again, the drug might be

a lifeline for the company to improve revenues and profits.

The pharmaceutical industry in Pakistan is highly regulated, with the government fixing drug prices. Consequently, margins have remained relatively thin for the entire pharma industry, with many companies exiting the market completely due to high costs of production and insufficient profitability. In such market, partnership with Gilead has come handy for Ferozsons.

The Gilead partnership

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ot too long ago, Hepatitis C, considered an epidemic in the public health landscape of Pakistan, used to be considered insurable, and a chronic disease that was very difficult to treat.

According to the World Health Organisation (WHO), viral hepatitis is the eighth highest cause of mortality globally and was responsible for an estimated 1.34 million deaths in 2015, a toll comparable to that of HIV and tuberculosis.

Globally, approximately 257 million persons are chronically infected with Hepatitis B and 71 million with Hepatitis C. At this rate, the WHO has estimated that between 2015 and 2030, an estimated 20 million deaths will occur because of Hepatitis.

Within the broader Middle East, North Africa and South Asia (MENASA) region, Pakistan and Egypt bear 80% of the disease burden and within Pakistan, almost 12 million people are suffering from Hepatitis B or C. Each year, about 150,000 new cases of patients with Hepatitis emerge, making Pakistan one of the largest populations in the world with this disease.

For years, the antiviral drug Interferon has been used as standard treatment for Hepatitis C, prescribed usually together with another antiviral medicine Ribavirin. Because it affected such a large population in Pakistan, Ferozsons had been producing drugs for treat-

ment of Hepatitis B and C since 2003, initially importing the aforementioned Interferon injections.

From imports, the company moved on to set up a plant in Lahore as a joint venture with an Argentine partner to produce Interferon injections locally because the drug was expensive to import and difficult to supply in the market because it required cold chain conditions, that is, a temperature-controlled supply chain that requires an uninterrupted series of refrigerated production, storage and distribution activities, along with associated equipment and logistics to maintain quality achieved through keeping the drug at a desired low-temperature range.

“We were the first company to start producing interferons locally, in 2009,” says Osman Khalid Waheed, the Harvard-educated CEO of Ferozsons Laboratories. Waheed completed an undergraduate degree in economics from Harvard in 1993.

Interferons were not an easy drug. The entire course of treatment spanned six months to a year, with roughly 60% cure rate and numerous side effects, making it not the ideal drug but the only one that was reasonably effective in treating the disease. By year end 2013, California-headquartered Gilead Sciences launched Sovaldi – a breakthrough drug in Hepatitis C disease management with promising results. Sovaldi cured patients in a much shorter duration than interferons, with 90-96% cure rate and fewer side effects.

“Sovaldi was the product of Gilead Sciences. It was the first treatment approved by the [United States] Food and Drug Administration (FDA) for the treatment and cure of Hepatitis,” says Osman.

When this technology shift began happening, it was a welcome occurence of course because it was a big pain point for Hepatitis patients globally and in Pakistan to go through agonising treatment of six months to a year of Interferon injections.

For Ferozsons, however, the challenge was existential because the company had made a major investment to set up the aforesaid

plant to manufacture interferons, dedicated entirely to making these injections that were about to become obsolete after the discovery of Sovaldi. This naturally prompted Ferozsons to seek partnership with the company [Gilead] that was going to disrupt liver disease management, and initiated efforts to that effect.

“Ferozsons very eagerly started pursuing a relationship with Gilead. Through some specialists in liver disease, who knew our company and the work we were doing hepatology (the branch of medicine concerned with the study, prevention, diagnosis and management of liver disease) in this part of the world, and who also knew Gilead, we got an initial introduction. There was an affinity between the two companies from the beginning because both had a very similar approach to disease management, to patient centricity, to making sure that access is central to what we do,” the affable CEO of Ferozsons told Profit.

The partnership was consummated in 2014 with the launch of Sovaldi in Pakistan.

Osman underscores that the partnership was remarkable in many perspectives because normally, the history of big pharma suggests that when a company discovers a drug, the focus primarily is to offer the new drug in the high-income countries such as in the West.

“These are the markets that have healthcare systems that can afford expensive treatments. The treatments are expensive. Globally, the cost of developing any drug can go over a billion dollars because of massive research and development expenses, expenditure on processes, final approval and making the drug available in the market,” explains Osman.

Only when the drug supply is sufficient for these countries does Big Pharma turn its focus towards developing countries, which normally have a gap of a few years; five to ten years according to Osman. However, in Sovaldi’s case, the drug was made available in Pakistan in a few months because of the partnership that was nearly unprecedented.

“In the case of Sovaldi, within a month of FDAs approval, Gilead began a series of access

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“Ferozsons very eagerly started pursuing a relationship with Gilead.

Through some specialists in liver disease, who knew our company and the work we were doing hepatology (the branch of medicine concerned with the study, prevention, diagnosis and management of liver disease) in this part of the world, and who also knew Gilead, we got an initial introduction. There was an affinity between the two companies from the beginning because both had a very similar approach to disease management, to patient centricity, to making sure that access is central to what we do Osman Khalid Waheed, CEO of Ferozsons Laboratories

partnerships across the developing world. Less than a year after the approval of the drug in the US, the first patient in Pakistan was put on treatment,” says Osman.

What was definitely unprecedented, and surprising, was that besides expediting the availability of physical access to the drug, the drug was made available in Pakistan at a ridiculously low price.

In the US, Sovaldi became controversial because it had been priced using the principle that how much a patient suffering from chronic Hepatitis C disease would save if he was put on the novel drug. The savings were substantial and that reflected in the price of a single pill of Sovaldi, priced ludicrously at $1,000.

While the healthcare system in the US, where health insurance covers medicine costs, nobody was going to be able to afford that kind of pricing in Pakistan. For countries like Pakistan, Gilead created a special access programme where companies like Ferozsons were able to offer the drug at 2% of its price in the United States. The drug was priced high in countries that could afford such prices and from these markets, Gilead would recover expenses incurred to make the drug.

“Initially, it was a Gilead product. Later, we received a license to produce our own

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generic. That brought down the treatment of Hepatitis C down to under Rs10,000 for a patient on Sovaldi for a three month course, against the Interferon course that, when it was imported, used to be a treatment of Rs300,000 for a patient for six months to a year and that is a remarkable improvement for a patient,” says Osman.

Hepatitis C is pervasive in Pakistan and the statistics in this regard are depressing.

Therefore, though margins were thin because of low prices, the company was able to make large profit after tax, over Rs2 billion, on the back of large sales volume. According to an estimate provided by the CEO, Ferozsons helped cure 70,000 patients suffering from Hepatitis C in the first year alone of the launch of the drug in Pakistan.

Things, however, are not easy in Pakistan. In 2017, sales demonstrated a decline of 58% owing majorly due to a decrease in, mainly Gilead-licensed Sovaldi. A year after sales of Sovaldi began, the federal government granted unlicensed generics entry into the market.

Where Sovaldi was a brand name licensed with Gilead, the original medicine was Sofosbuvir. So drugs with similar chemical composition as the original drug were granted entry into the market. And hence the fall in profits.

From Rs2 billion, company’s profits in the next year were Rs395 million only.

The CEO candidly said that when generic drugs to treat Hepatitis C were granted entry into the market, Sovaldi was almost bigger than the rest of the company. “We have normally had a positive bottom line but if you compare that to that one period, because the volume of that business was large, the trends went down,” says Osman.

Like in the case of interferons, large investments were made by the company to produce Sovaldi locally but with generics making entry into the market, it was soon a lost investment.

From Sovaldi to Remdesivir

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hen Covid-19 hit, the go-to drug, in the absence of a clinically proven cure that had the chances of inhibiting the Covid-19 infection was a drug sold under brand name Veklury, a broad spectrum antiviral medicine developed by Gilead Sciences originally to cure Ebola virus. The drug is more commonly known by its generic name Remdesivir.

Luck played its part that Remdesivir turned out to be the only drug that was effective against Covid-19 and luck played its part that it was Gilead that had developed the drug.

Ferozsons was lucky that it had been a partner with Gilead for a few years and the partnership paid off when Gilead granted license to Ferozsons among five companies, four of which were from India, to expand the supply of Remdesivir in the region.

The partnership was rather easy to win because of earlier collaboration between Gilead and Ferozsons to produce Sovaldi in Pakistan. Though other producers of Remdesivir were also available, Ferozsons was the only company licensed by Gilead, the original producer of Remdesivir, to sell the drug in Pakistan. Ferozsons sells Remdesivir under the brand name Remidia in Pakistan.

“Generally, Remdesivir is a difficult product to manufacture so that was a challenge. More importantly, because of the urgency of the pandemic, the technology transfer had to take place in a matter of weeks.

So things were done really quickly. It is an important development in the pharma industry because this is the first time that a producer in Pakistan was made part of an international supply partnership,” Osman told Profit.

The impact on revenue and profits has been visible. For the year 2020, Ferozsons’

revenue has crossed Rs6 billion mark from its steady range of Rs5 billion to under Rs6 billion between 2015 and 2020, except in 2016.

The revenue has remained stable between these years and partnership with Gilead can be considered a spike in the business for the company. However, the bottomline shrunk due to the impact of the drop in Sovaldi sales as noted above.

However, in the case of Remdesivir, the spike might not be profound. In the case of Remdesivir as well, margins are thin but volumes are better because of the export opportunities. When Gilead licensed Ferozsons for local supply of Remdesivir among five other companies, the license allowed Ferozsons and others to distribute their respective brands of the drug to other low-income countries as well and that has opened up foreign markets for Ferozsons.

“We have been supplying Remdesivir to Ukraine and Indonesia and both the countries are highly regulated markets that normally do not buy medicines from Pakistan. We are looking at this as a window of opportunity to establish ourselves in these markets through the quality approvals that we were getting in the process,” says Osman.

“It has opened up markets for us. We are looking at Remdesivir as a bridge rather than as a money making opportunity,” the CEO

said.

The use of Remdesivir is going to decline as vaccines become widely available. In the hyperspeed context of things, the vaccines to cure Covid-19 are going to be available very soon and the focus of companies like Ferozsons is going to shift towards producing these vaccines for domestic supply, might as well for exports in the markets that opened up with the Remdesivir license from Gilead.

A stifling regulatory environment

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nnovation in the pharmaceutical industry in Pakistan has been figmental. There is a reason why all the breakthrough drugs are developed in the Western countries, or China for example. Research and development in the pharmaceutical industry in Pakistan is near to none owing to regulatory frameworks that stifle innovation and lack of critical mass of scientists.

Unfortunately, the scientific base in Pakistan is too small to start real innovation in basic chemistry and basic sciences on a large scale; the scale of producing a drug to cure a disease in a country of 200 million people. The research and development required for innovation in medicine is further dragged down by a difficult regulatory status-quo that finds

PHARMACEUTICALS

it convenient to deny permission to any new innovation because of its own capacity issues.

Henceforth, for the pharmaceutical industry, it has been a discouraging environment for any innovation.

Though a partner of Gilead for many years, there has been no collaboration between Ferozsons and the US company on the research front because big research companies can not really have Pakistan on their radar when the regulatory environment is not conducive to research. And those that were researched and developed by the company on their own, have hit a rock bottom after a Supreme Court judgement that mandated Cabinet approval for all drugs.

“It has been a very discouraging environment for any clinical trials etc to take off.

Next door in India, clinical trials are big export earners for the country. In Pakistan, they are almost non-existent. So when you can not have clinical trials, it means big research companies can not really have Pakistan on their radar.

Before Remdesivir, foreign companies did not have Pakistan on their manufacturing radar either,” says Osman.

The problem at the end of the day, not only for Ferozsons but the entire pharmaceutical industry in Pakistan, is that capacity issues have always kept focus of regulators on controlling prices of drugs instead of creating progressive regulatory framework for innovation in the pharma industry. Pharma industry in Pakistan is regulated under The Drugs Act, 1976 and Drug Regulatory Authority of Pakistan Act (DRAP), 2012. The acts governing the pharma industry vest the authority to control prices in the federal government of Pakistan.

Drugs generally are a very politicised subject and in Pakistan, there is not enough emphasis placed on the fact that it is the government’s responsibility to cater to the health and education for the large population that they govern. The conventional thinking with the government is that cheap healthcare is best healthcare. That is why drug prices have been ridiculously low in Pakistan as compared to Western countries. Nobody thinks that there should be health insurance systems and if someone is ill, the state should step in

and treat them like it happens in the rest of the world. In Pakistan, the government finds it more convenient that the responsibility should be left on the public and for political expediency, all the emphasis has been on the prices instead of drug quality, innovation and research and development.

For companies like Ferozsons, artificially low prices do not leave enough financial capacity in the company to venture into expensive research and development that leads to innovation and breakthrough drugs.

And the de-facto authority to regulate prices in Pakistan has been DRAP that has thus far remained unempowered.

“DRAP needs to be autonomous, manned by a professional permanent CEO. Presently, DRAP officers are appointed on an ad-hoc basis for a three-month tenure. The government has not been able to work out long-term contracts for these officers. DRAP CEO is an acting CEO, DRAP directors are acting directors. Their appointment is done for 90 days which then lapses and they are appointed for another 90 days. So there is also a lag where the government sits on their reappointments and DRAP becomes completely toothless,” Osman says.

The partnership was rather easy to win because of earlier collaboration between Gilead and Ferozsons to produce Sovaldi in Pakistan. Though other producers of Remdesivir were also available, Ferozsons was the only company licensed by Gilead, the original producer of Remdesivir, to sell the drug in Pakistan.

Ferozsons sells Remdesivir under the brand name Remidia in Pakistan 12

“Secondly, DRAP should focus on making sure that there is standardisation in the country because that is what their technical capabilities are. Pricing is the matter of mathematics and anyone can oversee that. There are technical issues that need to be addressed and that is what DRAP should be looking at.

Overseeing prices only is a way of taking your attention away from what your actual job is.

When you also know that every question is going to be about prices, then you forget about other technical responsibilities. Counterfeit drugs have been in the market. It has been reported but how much regulatory action have you seen pertaining to that? So all of that is possible if DRAP is given that role and then enabled to perform,” he adds.

Then there is Cabinet that now sits on drug approvals and that has become another pain for the industry. For about two years now, the Cabinet has not approved a single drug, as the CEO told us, that includes a drug by Ferozsons; a vaccine to cure Hepatitis E. Hepatitis E is an acute form of liver disease that can be deadly if people have other liver diseases.

For pregnant women, it carries great risks with 25-30% mortality rate. Pakistan is also hyper endemic in Hepatitis E which means that the disease has the burden here more than other countries in the world.

But while things have been murky in the past, Osman hinted at a change in the mindset in the government after Dr Faisal Sultan, the incumbent advisor to the Prime Minister on health, assumed charge. Approvals have gone through the Cabinet after a dreadful delay and Ferozsons Hepatitis E vaccine has also been approved. With the approval, the company is hopeful of another surge in revenue and profits.

But this time, it is going to be because of the drug developed by Ferozsons. n

TEXTILES PHARMACEUTICALS

Even as revenue growth has slowed at the company, it has invested heavily in capital expenditures to expand its presence in the Pakistani market

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COVER STORY

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By Ariba Shahid

f an initial public offering (IPO) is when a company first makes its shares available to the public, a delisting can be described as the reverse IPO: when it removes its shares from public exchanges and makes them explicitly unavailable to the public. That is what Unilever Pakistan did in 2013, when it delisted from the Karachi Stock Exchange, with its parent company spending $500 million to buy back its shares, an event that shook the market.

Seven years later, Unilever Pakistan remains a juggernaut in Pakistan’s food and consumer goods space, albeit one whose financial statements are no longer readily available.

But what exactly did the company set out to achieve when they decided to delist from the exchange? And how successful were they in achieving it? With access to its financial statements from 2014 through 2019, Profit examines the progress Unilever Pakistan has made since its delisting.

In this story, we will cover the history of Unilever in Pakistan, its decision to delist, and the impact of that delisting on the capital markets, and finally, what it hoped to achieve from the delisting and the degree to which it was successful in achieving its stated goals.

For this story, Profit did contact Unilever Pakistan, and their spokesperson Hussain Ali Talib did send us a response, but the response included few details about the company’s strategy since the delisting. So much of our analysis relies on the financial statements themselves, and what they reveal about the company, rather than commentary from the management.

There is no doubt that Unilever is an important part of the Pakistani corporate landscape, a training ground for highly talented and qualified professionals, and what happens at the company matters to the Pakistani economy. The delisting made it more difficult, but not impossible, to understand what is happening at Unilever in Pakistan. Here is their story.

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Unilever in Pakistan

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f you are old enough to remember advertising from the 1990s on Pakistan Television, you may remember that the company we refer to today as Unilever was known back then as Lever Brothers. The story of that company starts in 1885, when two brothers – William and James Lever – started a soap manufacturing company, initially by buying out a small soap maker in Warrington, a small town in England.

The brothers teamed up with chemist William Hough Watson, who had invented a new process for making soap that relied on using glycerin and vegetable oils such as palm oil, rather than tallow, which had previously been the main ingredient. (This last bit – about the use of palm oil – will become relevant in the story of Unilever globally, as well as in South Asia.)

Lever Brothers went on to grow into one of the largest personal care companies in the world. After all, if you start off making soaps so that people can clean themselves by washing their hands, and while taking a bath or showering, it is a logical next step to begin producing shampoos to wash hair, and deodorant to ensure that one does not have bad body odour too shortly after having cleaned oneself.

The company merged with Dutch margarine manufacturer Unie in 1930, and changed its global name to Unilever, but never changed its Lever Brothers brand name in most countries where it had started doing business before the merger, including India and Pakistan, as well as places like the United States, where their headquarters building on Park Avenue in Manhattan is still called Lever House. The Unilever name started being used more globally in the early 2000s.

Why merge with a margarine manufacturer? Because if you are creating a global supply chain for palm oil to manufacture soap, it also makes sense to explore other end uses of palm oil. Beside soap, the biggest use of palm oil is in the manufacturing of margarine.

The history of Lever Brothers in India and Pakistan goes back to 1931, when Hindustan Vanaspati Manufacturing Company was incorporated to manufacture synthetic banaspati ghee. That same year, rather than investing in building a brand from scratch, Lever Brothers decided to purchase the rights to manufacture and sell Dada ghee in British India.

Dada agreed to sell those rights, on one condition: that the name Dada be retained. Lever Brothers, however, wanted to give the brand its own touch and decided to put the L from Lever Brothers in the middle of the name, making it Dalda. The company started manufacturing and selling the product in 1937.

But of course, it is not enough to simply start manufacturing the product. For a new category of products like banaspati ghee, consumers have to be convinced to try the product.

“The challenge for Dalda in the initial years was to drive home the point that it tasted just like desi ghee, had deep-frying properties like it, but unlike ghee, it wouldn’t feel heavy either on the pocket or the palate,” said Sagar Boke, head of marketing at Bunge India (the current owners of Dalda in India) in a 2015 interview with Indian financial newspaper Business Standard.

To get around that problem, Lever Brothers began what is believed to be one of the first multimedia advertising campaigns in South Asia. “In cities, roadside stalls had men preparing tasty snacks using Dalda and offering them to the passers-by. Short films were screened in theatres. An intriguing, round-tin-shaped van roamed the streets. Attractive leaflets were handed out and small tins of banaspati sold.

People were encouraged to smell, touch and taste the product. In villages, wandering storytellers were roped in to talk about Dalda. Different customers were targeted using different pack sizes – hotels and restaurants were offered large, square tins and individual consumers small, round tins,” writes Malathy Sriram, in the Indian business publication, BusinessLine.

The marketing campaign, designed by the firm Lindas, worked, and Dalda became a household name throughout South Asia, and

largely remains so today.

Yes, in case you are wondering, the roadside thela-wala making bun-kebabs, samosas, and pakoras was popularised by Unilever as part of a marketing campaign to convince your great-grandmother to start buying Dalda, which you probably also thought was a product manufactured by a local company.

That is how local Unilever makes its products feel: people have forgotten that they are manufactured by a global multinational company. Even Unilever’s soap brands have a ‘local’ feel to them. How many people who buy Lifebuoy or Vim would know that these products are manufactured by a multinational rather than a local company?

(In 2003, Unilever made the strategic decision to sell of the Dalda brand in both India and Pakistan. At the time, Dalda accounted for just under 19% of Unilever Pakistan’s revenues, so the sale meant a significant reduction in the size of the company’s business in the country. In Pakistan, Dalda is now owned by the Westbury Group, a palm oil trading conglomerate owned by Karachi-based brothers Bashir Janmohammed and Rasheed Janmohammed.)

That is a very British approach to multinational management: use the core manufacturing and branding expertise to create and sell products that are popular in the local market, and only cross-sell across markets if there is broad appeal. By contrast, the American approach is epitomised by Procter & Gamble, which believes – like Americans – that everyone wants to live like an American and hence has a relatively uniform set of brands available worldwide.

(Remember that P&G versus Unilever contrast. Because it becomes relevant in the next part of the story.)

One other element of Unilever was very similar to other British companies that do business in Pakistan: a commitment to employee welfare. Unilever has been consistently recognised as one of the best employers in Pakistan, and it is not by accident.

“Unilever has been recognized as Employ-

“The increased stake reaffirm[ed] Unilever’s strong commitment to local operations and to Pakistan’s economic potential. Through this [delisting] process, Unilever Overseas Holdings actually increase[ed] its investment in the country by a substantial amount” Ehsan Malik, former chairman and CEO of Unilever Pakistan er of Choice for 11 years consecutively,” said Hussain Ali Talib, spokesperson for Unilever Pakistan. “We are the only FMCG with 100% of our sales force with medical and educational insurance coverage. On the diversity and inclusion front, Unilever has demonstrated thought leadership whereby we have recruited more than 25 transgender people, 100 differently abled and 3,500 widows, and are pushing the agenda further every single year.”

Paul Polman and the delisting

A

fter decades of Unilever and P&G being two of the largest consumer goods companies that had completely differing approaches to multinational management, something extraordinary happened. In 2009, Unilever hired Paul Polman – a Dutch executive who had spent the first 27 years of his career at Procter & Gamble – to become their global CEO. When he took over, there was a perception among analysts that perhaps Polman would bring in more P&G-style global brand management trends to Unilever, which had historically given a lot more local autonomy to its global subsidiaries than P&G. While that trend has not come to pass, Polman did initiate one change that had a major impact: he began delisting as many of Unilever’s publicly listed subsidiaries worldwide as possible.

In Pakistan, that meant delisting the

main subsidiary – Unilever Pakistan, which had been publicly listed on the Karachi Stock Exchange since December 1980.

On November 27, 2012, the company announced that it would buy back the 25% of Unilever Pakistan that was not owned by the global parent. The announcement was not well-received by the market, which was especially insulted by the fact that Unilever announced that the buy-back would be at the closing price on the day of the announcement: Rs9,700 per share, which implied a valuation of the company at Rs129 billion ($1,349 million at the time), or about 23.6 times trailing 12-months’ earnings, at a time when even local consumer goods companies were trading at closer to 30 times trailing-12 months’ earnings.

There was a shareholder revolt, let by some large institutional investors based outside Pakistan. One of the most outspoken shareholders was the New York-based hedge fund Acacia Partners, which then managed about $4 billion in assets, including $75 million worth of investments in Pakistan. Acacia owned about 4.1% of Unilever Pakistan and sent strongly-worded letters to all three stock exchanges in the country.

“We believe the proposed de-listing of the company would, if approved, be a great tragedy for minority investors, the stock exchanges of Pakistan and the country overall,” wrote the fund in its letters.

Foreign investors in particular were perturbed at the prospect of losing the ability to

COVER STORY

invest in one of the fastest-growing blue-chip consumer goods companies in Pakistan.

“Food and consumer goods companies represent only about 6% of the market capitalisation of the [benchmark] KSE-100 index, far lower than the 18% or so that it is in India and Southeast Asia. If Unilever Pakistan gets delisted, that number goes down further to around 4%,” said Puneet Saraogi in an interview with The Express Tribune at the time, a director at the Singapore-headquartered Arisaig Partners, an asset management company with a 5.8% stake in Unilever Pakistan, the single largest minority shareholding.

At the time, Unilever was one of the best performing stocks in Pakistan. During calendar year 2012, the stock soared by 81.5% in calendar year 2012, vastly outperforming the benchmark KSE-100 index’s rise of 49% during that year.

The stock’s rise had been largely based on its stellar financial performance. During the first three quarters of 2012, while the company’s revenues increased by 15% to Rs43.9 billion, its profits increased by a staggering 49%, on the back of improved margins.

Foreign investors wanted either no delisting, or if there was going to be a delisting, a price of between Rs20,000 and Rs25,000 a share. Unfortunately, in reality, neither Unilever nor the foreign investors were empowered to make that decision since under the Karachi Stock Exchange’s rules at the time, the KSE management was supposed to decide the price.

KSE management were the first to acknowledge that it was a bad system and said that the reason the rule existed that way was because, while the exchange had a very well-established procedure for companies that would be delisted due to defaults, it never occurred to them to create rules for voluntary delisting.

Ultimately, the KSE management proposed a Rs15,000 per share delisting price, which, on April 3, 2013, the Unilever management accepted. Foreign investors were absolutely livid, but since many of them had mandates that prohibited them from owning shares in private companies – and others sim-

18

ply did not want to own shares in companies where they did not know how they would be able to sell – they ended up deciding to sell.

That Rs15,000 per share price meant that Unilever Pakistan was valued at Rs200 billion ($2,038 million at the time), or about 36.4 times 2012 earnings (price to earnings ratio).

Interestingly, not all minority shareholders sold their shares. According to Unilever Pakistan’s financial statements, at the end of 2013, the company had been able to buy back nearly 3 million of the 3.3 million shares, or about 89.4% of the total shares owned by minority shareholders. Unilever’s global parent had been able to increase its shareholding in Unilever Pakistan from 75.1% at the end of 2012 to 97.4% at the end of 2013.

But that still left a stubborn 351,277 shares of the company – representing 2.6% of total shares – still in the hands of minority shareholders. Since then, the company has been making progress in buying some of those back.

By the end of 2014, it had been able to decrease minority shareholding to just 1.2% and to just 0.9% by the end of 2017. But apparently there are still 1,662 very stubborn minority shareholders who have refused to sell their shares more than seven years after the delisting.

Incidentally, Unilever had not one but two separate publicly listed subsidiaries in Pakistan. The bigger one is Unilever Pakistan, which was delisted. The smaller one is Unilever Pakistan Foods Ltd, which is still publicly listed on the Pakistan Stock Exchange.

Why delist, and what happened next?

T

hat raises the question: why spend nearly $500 million to buy back the shares of one’s own company from minority shareholders? At the time, Unilever Pakistan’s executives said that they planned on increasing their investment in Pakistan by doing so.

“The increased stake reaffirms Unilever’s strong commitment to local operations and

“In 2018, we invested a further $120 million to upgrade manufacturing operations across our four factories, and more than 98% of our products are locally manufactured” Hussain Ali Talib, spokesperson for Unilever Pakistan to Pakistan’s economic potential,” said Ehsan Malik, then chairman and CEO of Unilever Pakistan, in an interview with The Express Tribune in November 2012. “Through this process, Unilever Overseas Holdings is actually increasing its investment in the country by a substantial amount.”

The management did not want to put it in blunt terms, so we will: basically, Unilever wanted to go on an expansion drive in Pakistan and wanted to make sure that it did not have to share any of the benefits of the increases in revenue and profitability with minority shareholders. In short, to the Unilever management, spending $500 million was worth not having to share 25% of all future profits with minority shareholders.

So, let us take a look at what has happened to the company’s operating performance since that delisting. The last financial statements released by the publicly listed Unilever Pakistan were for the year ending December 31, 2013. Profit has been able to obtain the six annual financial statements since that time. (We assume it is too close to the end of the calendar year 2020 for the annual financial statements for that year to be completed by now.)

On the revenue front, the performance appears on the surface to be less than stellar.

TEXTILES

Revenue growth for the six years since the delisting has been an average of 8.2% per year.

By contrast, Unilever Pakistan’s revenue grew by a staggering average of 17.2% per year in the six years immediately prior to the delisting.

Even if one takes into account the fact that inflation in the period prior to delisting was much higher than it as since the delisting, the numbers are not a flattering comparison. In the six years between 2007 and 2013, inflation averaged 12.5% per year in Pakistan, which means that Unilever Pakistan’s inflation-adjusted revenue growth averaged 4.2% per year.

Between 2013 and 2019, inflation averaged just 5.4% per year, which means that Unilever Pakistan’s average inflation-adjusted revenue growth rate declined to 2.6% per year in the six years following the delisting.

So, what exactly is going on? Well, it is not an easy time for consumer goods companies in Pakistan and Unilever is simply dealing with the same consumer spending slowdown that other companies in the industry are facing.

The problem is not Unilever-specific: it is an economic problem for which Unilever and its competitors are facing the consequences.

What is more revealing is the part of Unilever’s financial statements it has much more control over: how much efficiency it can drive in its operations to improve profitability, and how much it is choosing to reinvest its profits into further expansion of its business? On that front, Unilever appears to be doing very well.

First, the profit margins: even in 2013, Unilever’s gross and operating profit margins were already the highest they had been in more than a decade at 40.3% and 15.2% respectively.

Since then, however, they have only continued to increase even further. In 2019, gross margins had expanded to 43.5% and operating profit margins had expanded to 21.8% of revenue.

[Gross profit margin refers to the proportion of a company’s sales that is left after subtracting the direct cost of production for the products its sells, such as the costs of raw materials and running its factories. Operating profit is what is left after subtracting overhead

costs like marketing, advertising distribution, administrative expenses like human resources, etc.]

That has resulted in much faster growth in profits than in revenues. Operating profits rose by an average of 14.9% per year since the delisting, and net income by an average of 20.8% per year. While that is slower than the six-year pre-delisting average operating and net income growth of 20.5% and 23.9% per year respectively, it is significantly faster than its revenue growth. Crucially, it has been able to sustain double-digit profitability growth off a much higher baseline, which is no mean feat.

Investing heavily, post delisting

T

he real difference, however, shows up in the level of the company’s investments into its Pakistan operations.

In the six years prior to delisting, Unilever Pakistan had invested $95 million into capital expenditure to grow its business.

In the six years since then, it had invested $241 million, a massive uptick.

“In 2018, we invested a further $120 million to upgrade manufacturing operations across our four factories, and more than 98% of our products are locally manufactured,” said Talib, in an e-mail to Profit.

It is likely too early to tell just how successful the company will be as a result of its delisting from the Karachi Stock Exchange, given just how recent the bulk of its investment has been post delisting. However, there are indications that the company remains committed to being one of Pakistan’s most desirable corporate employers.

According to one Unilever employee who wished to remain anonymous, the company has constructed a fourth floor at its Karachi headquarters in the Avari Towers complex, and the floor is dedicated entirely to a large hall where the company can hold town halls, as well as an Espresso coffee shop, a Pie-in-the-Sky bakery, a Chatterbox café, and a Neelos salon.

The move is likely seeking to emulate the “fun workplace” attitude first started by Google at its offices in Mountain View, California, though the timing might be somewhat unlucky as the whole headquarters workforce is currently in work-from-home mode. Some employees grumbled that the company would have been better off giving them pay raises rather than spending on creating such spaces.

The company is also shifting gears somewhat and beefing up its ability to attract technology talent and investing in building out tech products. As Profit has previously reported, Unilever has created a direct-to-consumer platform to help consumers get instant delivery for its products. In addition, it has created a technology platform called Oscar, which will allow wholesalers and retailers to buy its products directly from the company rather than relying on major distributors.

As a result, the company’s recruiting strategy has shifted. While Unilever used to hire mostly management employees from business schools and industrial, mechanical, and industrial engineers from engineering colleges, it has recently increased its hiring of computer science graduates.

And, as always, the company loves to emphasise the fact that since it is a multinational, it opens up opportunities for employees to pursue positions abroad. “We work in collaboration with our global teams to ensure we leverage on the global scale and capability to bring the best products to our consumers in Pakistan. Unilever Pakistan has been a key talent exporter globally and many of them occupy key global positions in Unilever globally,” said Talib.

Unilever’s direct-to-consumer moves in other markets have had somewhat mixed results, so it is unclear just how successful these ventures will be for the company in Pakistan.

But one thing is for certain: the delisting has clearly made Unilever Pakistan less afraid to invest and take risks. That will likely pay off well for the company – and the economy – in the long run. n

COVER STORY

Since the free market has failed to ensure transparency or clamp down on deceptive advertising, perhaps it is time for a regulator or a CCP-oversight trade body to step in and set the terms for social media content creators

By Babar Khan Javed

O

n the 19th of December 2020, Gourmet News Network (GNN) anchor Imran Riaz Khan published a video on Facebook and YouTube that attempted to create a case against UHT packaged milk, citing anecdotal evidence. Gaining virality across WhatsApp with the classification of “forwarded many times’’, the video attempts to dissuade audiences from using packaged milk and instead use raw milk or fresh milk.

The elephant in the room is that GNN is owned by Gourmet Foods, which in turn not only sells what it markets as fresh milk but also

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creates similar narratives against what is deems loose milk citing that the consumption of loose milk ‘can cause viral and bacterial diseases’ and that loose milk is usually collected and transported in contaminated environments.

In his video, Khan makes claims without providing scientific evidence, with statements going against recommendation of the World Health Organisation (WHO), against the regulations of global and Pakistani food authorities, against the endorsement of the Pakistan Medical Association, and against the official technical positions of scientific & technical associations.

“Pakistan Dairy Association is aware of and gravely concerned regarding a recent video made by an anchor for his personal YouTube

channel as it is not based on facts and in the time of a global pandemic can be dangerously misleading to the public at large,” said Dr Shehzad Amin, CEO of the PDA. “In the video, the anchor has tried to establish a link between the consumption of packaged milk with subsequently higher percentage of Covid-19 cases and deaths.”

Speaking to Profit, Dr. Amin expressed concerns that such a video might mislead consumers, undermine the efforts of government and regulatory authorities to control the spread of the virus as consumers may increase their exposure of infection by increasing interaction with others and compromise their immunity by consuming loose milk whose nutritional value is questionable.

Having worked in the corporate sector of media, I know how brand awareness is hammered in over a period of time, how its a much more long term strategy rather than thinking that two posts will do the trick. You have to build that association, you have to really create - call it top of mind, call it recall, brand awareness, brand likability - that’s all a long term plan Amber Javed, a telecom engineer turned Instagram influencer

According to the food and nutrition guidelines of WHO, ‘shelf-stable milk’ is one of the main items to stock up on, making packaged milk one of the best available options for consumption during quarantine and lockdown.

Dr. Amin urged the government to take notice of the deceptive content so as to ensure the health and safety of the population at large.

“There is a campaign taking place, for which lots of money is being spent,” says Khan at the 4:25 mark on the video. “And I was approached to also work for this campaign. So I don’t want the money that plays with people’s health.”

He then goes on to say that members of the Pakistan Dairy Association (PDA) themselves also got together to create a narrative that the erosion of trust around fresh milk is the path to adoption of packaged milk, adding that this was done under the guise of public service messages. He adds that in a new campaign, the PDA and its members have enlisted the help of news anchors to push adoption and consumption of packaged milk.

Speaking to Profit under the condition of anonymity, a seasoned professional in the packaged milk industry said that the use of news anchors is akin to the use of social media content creators (SMCC) for the tactic known as influencer marketing. The business case for using anchors instead of SMCC’s for this campaign is the reach of the former which is often considered to be ten to twenty times greater than the latter.

“We are looking at it and would be working on advertisement guidelines,” said a spokesperson of the Competition Commission of Pakistan in a statement Profit. “In principle, disclosure regarding paid celebrity endorsement would be appropriate as in the case of political parties’ campaigns content.”

Two years ago, the Digital Headquarters (DHQ) roped in Junaid Akram for a campaign to prove that the packaged milk by Haleeb Foods is created in an environment that is beneficial to the health and safety of customers.

Across Facebook and YouTube, the video showing Akram touring the facility and the various stages of product processing, has been viewed under a million times. In 2019, McDonald’s hyped up the launch of an “Anday Wala Burger” by using Ali Gul Pir, who at no point mentioned that he was part of the advertising campaign.

The difference between this and the current campaign featuring news anchors is that audiences on social media can supposedly tell when an endorsement is paid for whereas audiences on mainstream media cannot supposedly tell.

Instances such as the case study cited above are part of the reason that media professionals around Pakistan have called for action around regulating the influencer marketing industry, to create uniformity on best practices, set the standards around transparency, erode instances of fake news being spread for hidden backers, understand the rates across the board, and more.

Just as Airbnb and Uber were meant to democratise revenue making opportunities for homeowners and car owners respectively, historically the entry of larger enterprises has ruined the pricing model of both businesses and skewed supply. With Airbnb, homes in key cities are much more expensive to rent as inelastic pricing for tourists is preferred while the creators of Uber may have never meant for rental car companies to join their supply pool, driving up the prices of rental cars.

In a similar vein, within the influencer space in Pakistan, SMCCs that were born into wealth or live with a breadwinner that provides for them, have entered the influencer space with predatory pricing. By doing so, they have accessed projects and deals that their lower income or middle class counterparts – that look at their SMCC work as the sole source of income – cannot afford to access at low price points.

SMCCs that are wealthier enter the influencer space as a way to pass the time, a means to alternative forms of fame or attention, or as a gateway to building a portfolio outside of main-

stream media. This also sets the precedent for advertisers and agencies assuming or expecting new SMCCs to charge nothing for their work, without realising that not everyone was born with a silver spoon or a well connected spouse or in-laws.

The absence of uniformity in pricing is another reason that even influencers are calling for change and a regulator to step in, to limit the predatory pricing strategy of those who can afford to go without an income as they are the children or spouse of a principal breadwinner.

Game, set, match

A

ccording to Business Insider Intelligence, the global influencer marketing industry is on track to be worth up to $15 billion by 2022, up from as much as $8 billion in 2019. As with any industry, upon reaching critical mass there is a consensus around ‘too big to regulate or reel in’, which is why media professionals in Pakistan are aptly calling for regulation such that the influencer space follows a set of rules and guidelines during its early stages.

In 2013, the Chicago-based Starcom MediaVest Group engaged California-based online entertainment network Machinima for a campaign meant to generate interest in the Microsoft gaming console Xbox One and its games.

According to the Federal Trade Commission (FTC), in the first phase of the marketing campaign, a small group of influencers were given access to pre-release versions of the Xbox One console and video games in order to produce and upload two endorsement videos each.

The independent consumer trust agency found that Machinima paid two of these endorsers $15,000 and $30,000 for producing YouTube videos that garnered 250,000 and 730,000 views, respectively. In a separate phase of the marketing program, Machinima promised to pay a larger group of influencers $1 for every 1,000 video views, up to a total of $25,000.

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There is no need to regulate the creators and influencers in the digital environment. This space is a perfect example of demand and supply concept. Since when do celebrities on TV need to follow regulations? Social media is the great equaliser and users can like or dislike the content produced by influencers or brands Faisal Sheikh, co-founder of Jack of Digital

Machinima did not require any of the influencers to disclose they were being paid for their endorsement.

By September 2015, Machinima agreed to settle with the United States Federal Trade Commission (FTC) for engaging in deceptive advertising, while failing to disclose that the influencers were being paid for their seemingly objective opinions. An FTC spokesperson said that when people see a product touted online, they have a right to know whether they are looking at an authentic opinion or a paid marketing pitch, adding that this applies whether the endorsement appears in a video or any other media.

In subsequent settlements with companies across varying industries, the FTC has pursued charges based on the deception of audiences with media owners or influencers failing to disclose the commercial relationship between the product or service they are endorsing and the advertiser.

Besides intentionally misleading the public, the other reasons for doing so are the relative effectiveness of endorsements in driving commercial outcomes when they do not appear

to be paid for coupled with the low costs of settlements compared to the high rewards for nondisclosure.

In 2019, the FTC authored an advertising disclosures guidance aimed at SMCCs that lays out the rules of the road for when and how influencers must disclose sponsorships to their followers.

The new guide, “Disclosures 101 for Social Media Influencers,” provides influencers with tips from FTC staff about what triggers the need for a disclosure and offers examples of both effective and ineffective disclosures, while underscoring that the responsibility to make disclosures about endorsements lies with the influencer. The guide outlines the various ways that an influencer’s relationship with a brand would make disclosures necessary, and it reminds influencers that they cannot assume that followers are aware of their connections to brands.

In the absence of any regulatory body overseeing SMCCs in Pakistan, audiences are only aware of content being sponsored when the agency or advertiser has asked them to do so. Other instances can emerge from the

Pakistan Dairy Association is aware of and gravely concerned regarding a recent video made by an anchor for his personal YouTube channel as it is not based on facts and in the time of a global pandemic can be dangerously misleading to the public at large Dr Shehzad Amin, CEO of the PDA

22

SMCCs themselves, with telecom engineer turned fashion SMCC Amber Javed telling Media Buoyz that she discloses all commercial relationships due to a desire to preserve trust with her audience.

“Having worked in the corporate sector of media, I know how brand awareness is hammered in over a period of time, how its a much more long term strategy rather than thinking that two posts will do the trick,” she said. “You have to build that association, you have to really create - call it top of mind, call it recall, brand awareness, brand likability - that’s all a long term plan. I feel people need to develop that with like minded influencers who they think can represent their brand in a good way.”

Self regulation via a trade body

I

n the months leading up to the FTC publishing its advertising disclosures guidance aimed at SMCCs, the Audited Media Association established the Australian Influencer Marketing Council (AIMCO) to create a collaborative forum to develop best practice standards for companies working in the influencer marketing channel.

Shortly thereafter the American Influencer Council was formed in mid-2020. The notfor-profit membership trade association is made up of SMCCs on Instagram, YouTube, TikTok, including bloggers, podcasters, photographers, illustrators, online personalities, creatives and custom content thought leaders.

Similar to the AIMCO, the AIC seeks to advance digital marketing education as well as the art and authenticity of co-branded content as shared through social media platforms for the ultimate benefit of society.

Both trade associations seek to understand the issues and opportunities in influencer marketing and develop an influencer marketing code of practice, which includes influencer vetting, advertising disclosure, contractual considerations such as content rights usage and metrics reporting. By mid 2020,

Right now influencer marketing works on two levels: either the content you make is great or you hang out with the right people in agencies or brands. Which means the same influencers get used for competing brands and projects affecting the overall business Eisha Salim, head of planning at Mediavest in Pakistan

AIMCO published the first Code of Practice, driven by transparency, best-practice and accountability, and industry leadership. “[I want a platform where SMCCs] can be listed, their presence monitored which will help in reaching a larger brand base,” said Eisha Salim, head of planning at Mediavest in Pakistan. “Right now influencer marketing works on two levels: either the content you make is great or you hang out with the right people in agencies or brands. Which means the same influencers get used for competing brands and projects affecting the overall business.”

To achieve credibility at launch, Profit believes that the Pakistan equivalent for AIMCO and AIC would need to be co-created across the Pakistan Advertisers Society (PAS), the Marketing Association of Pakistan (MAP), and the Pakistan Advertisers Association (PAA), in order to cover the perspectives of the demand and supply side of the SMCC equation. It would help to ensure the leadership of the forum includes resellers of TikTok and Facebook in Pakistan, namely Jack of Digital and Dial Zero respectively, as platform experts.

With oversight from the CCP, policies would need to be created and followed across advertisers, agencies, and SMCCs which establish visual and language standardizations for sponsored content, a robust marketplace education program, a standard contract language to hold both advertisers and SMCCs accountable, creating a high transparency standard from post to post and platform to platform that eliminates any veiling of sponsored posts as organic content.

“There is no need to regulate the creators and influencers in the digital environment,” said Faisal Sheikh, co-founder of Jack of Digital. “This space is a perfect example of demand and supply concept. Advertisers pay for brand promotion services and creators & influencers provide such services. Since when do celebrities on TV need to follow regulations? Social media is the great equaliser and users can like or dislike the content produced by influencers or brands.”

Sheikh is making the point that celebri-

ties on TV - such as news anchors endorsing packaged milk - are not beholden to disclosing the commercial backing behind their advocacy, adding that so why should SMCCs which have a following through truly democratised platforms. Representatives of the CCP told Profit that whether the endorsement for a product was made by a celebrity on TV or on an app, disclosure matters for the sake of consumer protection.

Regulation through a multi-channel network

I

t’s worth pointing out that this article does not suggest that a regulator or a trade body create barriers on the free speech rights of SMCCs, only that rules are in place such as audiences are well aware of the commercial relationship between the SMCC and the product they are endorsing. Taking the example of the FTC, failure to do so is considered deceptive advertising.

The second form of regulation can come from the free market - which is historically a farce - through the unification of platforms such as Amplifyd, Digital Engagement Network, (DEN) and Walee which can not only create & enforce the policies stated above but also weed out fraudulent stakeholders creating follower fraud through private blogger networks (PBNs).

Sources told Profit that the Planet N Group is considering replicating the business model of CastingAsia by creating a multi-channel network (MCN) consisting of a network of SMCCs akin to the roster registered with Amplifyd, DEN, and Walee. Covering every platform in the country, the MCN will behave as both the training academy for aspiring SMCCs - think of how the government of South Korea manufactures Kpop stars - and will lock in those SMCCs as their employees, taking a large slice of any and all earnings off the top.

Similar to the deal with the Ministry of Culture in South Korea and the Kpop stars, the MCN will train the talent, hand over in-

sights to attract a niche audience, grow their following, attract advertisers and agencies, and represent the ‘talent’ for decades to come. The ‘talent’ in turn will have job security for life - or for as long as they are relevant to audiences - and will follow the strict cross-platform guidelines of the MCN. Why does this matter? Audiences seek content and on social media platforms, the SMCCs are the source of the content. Similar to how people will choose Disney+ over Netflix once Phase 4 of the MCU shows hit the platform, millennial audiences will switch to a new app if their preferred SMCC switches as well.

A recent example is the explosion of Spotify users after the Swedish audio streaming and media services provider announced that it made $100 million to Joe Rogan to move his podcast to the platform.

This matters even more as TikTok has eaten away at Facebook and Instagram so much that the American technology conglomerate was forced to create a subpar TikTok clone, which failed to attract an audience due to the poor creator experience, user experience, and an algorithm that does have create the same reach as TikTok. In response, Facebook offered TikTok SMCCs money to leave the video-sharing social networking service for Reels, which has not worked.

For the above mentioned reasons and more, the MCN that is being mulled over has been pitched as an ecosystem game changer in increasing the supply of brand safe SMCCs, controlling which platform they post content on, setting guidelines on how they endorse products and with what disclosures, and whether or not they will be available across different platforms.

It remains to be seen where the first MCN will come from and how quickly they scoop up top talent across the country, setting the rules of engagement, and industry evolution. The CCP has told Profit that it is currently working on its own advertising disclosures guidance report for the benefit of consumers and meant to hold advertisers, agencies, and SMCCs accountable. n

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Five years on, K-Electric

transaction still pending clearance of Islamabad’s absurd demands Finance Ministry refuses to give approval for the deal, resulting in now a five-year delay for the transaction

O

n the face of it, it looks like a straightforward extension update for an acquisition transaction. On December 28, investment bank and brokerage house Arif Habib Ltd (AHL) informed the Pakistan Stock Exchange (PSX), that the Securities and Exchange Commission of Pakistan (SECP) had granted an extension of 90 days until March 27, 2021.

The deal in question? Shanghai Electric Power Company (SEP) wanted to buy 66.4% or 18,335,542,679 shares of Karachi’s power provider, K-Electric (KE). In this case, AHL was the manager of the offer. The public announcement of intention had been published on June 30, 2020, but it seemed that SEP still needed some time to mull over legal matters, terms and conditions, and price before it initiated the formal public announcement of offer, which would entail an acceptance.

This would make sense, except the SEP and KE have been going back and forth over a hypothetical acquisition for the last five years.

The charade looks something like this: an intention, an extension, a withdrawal, a fresh intention. Rinse, repeat.

Ah, KE: always receiving public announcement of intention, never public announcement of offer. This sad saga is well-documented, and Profit has combed through each PSX announcement so you do not have to.

It began, innocently enough, with an enquiry. The PSX sent a letter to KE on August 10, 2016, saying that there had been rumours in ‘the electronic media’ that something called ‘Shanghai Corporation’ and Engro were to buy a stake in the company. On August 11, KE responded by saying that the news was incorrect and speculative.

But then just a few weeks later, on August 28, KE announced that Dubai-based private equity firm Abraaj was evaluating the possibility of divesting its share in KE. The now defunct Abraaj Group is today more well known for its CEO, Arif Naqvi, who is currently

24

battling extradition to the United States on account of fund misappropriation (but that drama would happen later, in 2018 and 2019).

For now, Naqvi was still the darling of the financial world. Abraaj held the majority shareholding of 66.4% in KE, along with Al-Jomaih Group of Saudi Arabia and National Industries Group of Kuwait. The three firms operated under the name KES Power, which is the parent company of KE. The government of Pakistan holds 24.4%, while 9.2% is held by others, including individual investors on the PSX. Two days later on August 30, KE said that it had received a public announcement of intention from SEP to buy out that very 66.4% share of KES Power. Turns out that ‘Shanghai’ bit was somewhat accurate. At the time, the deal was worth an estimated $1.7 billion.

So far, so good. But fast forward to June 13, 2017, and the offer had been withdrawn. It turns out that the time granted by the SECP to complete the transaction had lapsed, and certain regulatory approvals remained outstanding. No matter: exactly one day later a fresh public announcement of intention was issued.

And so on. On March 26, 2018, that intention was withdrawn. On March 27, a new one was issued. On December 20, 2018, that one was withdrawn as well. On December 24, 2018, a new one was issued, for which an extension was sought on June 27, 2019. But to no avail: that extension also came and went, another public announcement of intention was issued on September 30, 2019. An extension for that was approved from the SECP on March 25, 2020.

Then on June 30, 2020, another fresh public announcement of intention was issued. The latest extension has been for this very intention.

All in all, in the last five years, five different public announcements of intention have been declared. Each time, it is the same three parties: the SEP, KE and AHL (the manager).

The share sought is also the same: 66.4% or the entire share of KES Power. And yet, each time, the time period to make a public announcement

for offer had elapsed, by law. “The acquirer remains fully committed to consummate the transaction pending receipt of regulatory and other approvals,” AHL explained.

And that is exactly the problem: all of this drama of indications of interest, the lapses, the withdrawals, the new expression of interests, have to do with one thing: the refusal of the government of Pakistan - specifically the bureaucrats at the Finance Ministry - to give their approval to the transaction because they want to bilk K-Electric of hundreds of billions of rupees to make their budget numbers work.

You see, the finance ministry wants K-Electric to pay its outstanding payables to Sui Southern Gas Company before they will grant approval for the transaction, and they pretend to be unaware of the fact that K-Electric’s obligations will remain unchanged no matter who retains ultimate ownership of the company.

KE is acutely aware of how ridiculous the delay is. In the latest annual report of 2020, KE reiterated that “despite delays in the required approvals and a lapse of over 4 years, this strategic investor has reiterated its keenness and has also issued a fresh Public Announcement of its Intention for the acquisition on June 29, 2020.”

The company hoped that, “with an aggressive investment plan catering to the needs of the entire power value chain, SEP’s acquisition of a controlling stake in the company will prove to be a game changer in transforming Karachi’s power infrastructure and technological landscape of the local power sector.”

For its part, KE has tried to reinvest itself.

It posted a profit for the first time in 17 years in 2012. In 2005, only 6.6% of the city was loadshed free; that figure now stands at 75%. Transmission and distribution losses also decreased by 14.5% points between 2005 and 2020 (it is still pretty atrocious, at 19.1%. Pakistan’s average T&D loss is around 17%, which puts us in the top 30 countries in the world). So, what is SEP still waiting around for? n

UTILITIES

OPINION

Asif Saad

Rebuild Karachi

The city’s decline may have much to do with a lack of political ownership, but the situation cannot be allowed to continue.

The way out is for the business community to step up with a common agenda

C

ities have a big role to play in national and global economies. According to a Mckinsey report on urbanization, “The world is in the throes of a sweeping population shift from the country side to the cities and for the first time in history more than 50% of human population is living in towns and cities…underpinning this transformation are the economies of scale that make concentrated urban centers more efficient”.

This scale helps cities provide better human interaction through transport and communication, health services, water and sanitation and most importantly attracting talent and skilled labor together with managerial capability. New York, London, Istanbul, Tokyo, Seoul, Shanghai – they are all equipped with these basic attributes and are therefore vibrant places to live.

In my quest to learn where Karachi stands relative to the world, I came upon Wikipedia’s description of Karachi, some of which I reproduce here;

Asif Saad

is a strategy consultant who has previously worked at various C-level positions for national and multinational corporations

COMMENT

“Karachi is the capital of the Pakistani province of Sindh.

It is the largest city in Pakistan and the twelfth largest city in the world…the city is Pakistan’s premier industrial and financial center, with an estimated GDP of $114 billion as of 2014 it is Pakistan’s most cosmopolitan city, linguistically, ethnically and religiously diverse, as well as one of Pakistan’s most secular and socially liberal cities…Karachi collects more than a third of Pakistan’s tax revenues and generates approximately 20% of Pakistan’s GDP. Approximately 30% of Pakistan’s industrial output is from Karachi while Karachi ports handle 95% of its foreign trade. Almost 90% of multinationals operating in Pakistan are headquartered in Karachi. Karachi is considered to be Pakistan’s fashion capital and has hosted the Pakistan Fashion Week since 2009” An important point is that most businesses thrive in large cities which have these elements because of which companies prefer to locate themselves there. This in turn provides more economic activity and this pattern thus becomes a virtuous cycle of its own.

Why the deterioration?

S

o why, despite Karachi’s disproportionate contribution to Pakistan’s economy, has the city been deteriorating in terms of basic services, infrastructure and much more critical harmony between diverse social, religious and ethnic communities? The Wikipedia entry actually goes on to discuss the violence in the 80’s which started during the Afghan war and covers the clean-up operation which was carried out only a few years back.

We do not need to look up the fact that Karachi lacks political ownership, the kind of leadership which smoothens the differences and makes diversity an advantage for the city. The current struggles between federal, provincial and local governments intertwined with the Pakistani establishment’s influence over everything is only a continuation of the same pattern over the last 3-4 decades. And there is no end in sight to the quagmire.

What is more surprising is the lack of ownership shown by the business community in Karachi. Pakistan’s biggest local businesses are either based in Karachi or have a large presence here.

The Memons, the Chiniotis, the Dehli walas are just some of the big business communities whose home base is Karachi. The multinationals with their head offices have diverse interests - from chemicals and pharmaceuticals to automotive and consumer goods – representing dozens of countries. The financial markets with the stock exchange, bank head-quarters and the most important financial sector regulator – the State Bank of Pakistan, are all based in Karachi.

Collectively, these local and international organizations run some of the biggest businesses, employ the most people and have the biggest influence on economic and financial policy making in Pakistan at a broader level.

25

Even industrial associations such as FPCCI, KCCI, OICCI, PBC, ABC and many more are all based in Karachi and have a large pool of influential individuals within their ranks.

With all this business and financial power behind it what are we to make of Karachi’s continual deterioration? The only logical conclusion one can draw is that those based here have no interest beyond their own selves. As long as their own businesses continue to operate and prosper, they are least bothered with the conditions of the roads, public utilities and general infrastructure of the city.

A simple drive through some of Karachi’s “posh” localities proves the point. You will see these localities with palatial homes worth millions of dollars whose road fronts would be full of potholes, with overflowing and open gutters and mountains of trash heaped on open plots next door.

A way forward

I

f there is a way out for Karachi, it is for the business community of the city to come together on a common agenda to stop the deterioration and work to improve the quality of life for its citizens. Instead of blaming the government at all levels, it is time to take ownership and engage in collective action with the specific goals like improving mass transport, water and sanitation, public utilities, environment and air pollution, quality and conditions of labor, health services and many other aspects of life.

Let the industrial bodies mentioned above form a “Rebuild Karachi” platform and let prominent and influential businessmen lead

26

the initiative. Let them come on the media and instead of commenting upon macro-economic policies about which they know little, let them speak about the ground realities of Karachi and present solutions which they can initiate and progress.

No government would discourage financial and managerial participation by citizens who are the biggest stakeholders in this city.

If the Karachi business community was to do this, it will not be unique. It will only be joining businesses around the world who support local and state governments to build city infrastructure and contribute in creating a good quality life for their communities. We do not have to look far, even within Pakistan, Sialkot chamber of commerce and the export industry based in Sialkot are known to have played a significant role in financing and managing infrastructure development projects for Sialkot city.

Naturally, the primary responsibility for developing Karachi will always be with the provincial and local administrations. But the situation in the city, with fragmented power sharing and unclear administrative lines split between many entities, what’s required is a strong and a leading role from the business community.

Take for example the issue of the 2017 population census which both the MQM and the PPP are protesting against (for different political compulsions) and for good reason. It is counter intuitive that despite massive rural to urban population shift which has impacted Sindh more than any other province in the last 4 decades, the ratio of population between provinces has not changed from the 80’s. If this

is amongst the reasons being given for the census numbers to be inaccurate, it is a significant issue which needs to be addressed. Such errors cannot be ignored since the wrong math works against the affected populations in a drastic way and for a long time. Pakistan is supposed to have a population census every ten years but we have not been fulfilling this constitutional requirement and the 2017 version occurred after a gap of nearly 20 years!

Could this be where the business community starts taking ownership? One hopes this would be the beginning of the process.

What about the shifting of the PIA head office?

In some bizarre way, the management of the national airline is making us believe that they can fix the problems of the airline by shifting its head office to Islamabad. It’s a bit like solving the country’s problems by shifting the capital to Islamabad. We solved everything with that – didn’t we?!

Nations which don’t learn from history can never progress and I am afraid we are consistently following that path. Will the business community raise their voice for the PIA situation? It is not just jobs which are at stake. Airlines need to be located at business hubs from where there is maximum passenger traffic. It’s like Emirates moving its head office to Sharjah or British Air moving to Leeds. Does that make any sense?

I urge the business community of Karachi to come forward and stop the rot. They must think and act wisely by taking ownership of the city. The downward slide impacts businesses and unless there is collective responsibility, adverse economic circumstances will unfold even more so than before. n

COMMENT

Ansari Sugar Mills vs Anver Majid the saga continues

The desire of former President Asif Ali Zardari’s associate, and alleged partner in money laundering, to control his sugar mills from Karachi Central Jail continues to hamper the ability of the company to publish its financial statements

R

egular readers of these short reports have likely picked up on the fact that Profit aims to cover a wide variety of listed companies, and sectors. We like to think we are building up both our, and our readers’, familiarity with a subject.

And then sometimes, we deliberately cover a company again and again, because it is so ludicrous, that we can amuse ourselves just by tracking the chain of events.

This case would be the latter. Poor Ansari Sugar Mills. As we pointed out in August 2020, and again in October 2020, the company has been trying to hold its annual

SUGAR MILLS

general meeting since February 2020. But its former CEO, Anver Majid, has been fighting to make sure he remains in charge of Ansari Sugar Mills, even if Ansari Sugar Mills wants him gone. You would think this should be easy.

After all, the man is in jail.

Let us recap. A Joint Investigation Team (JIT) set up by the Supreme Court accused Anver Majid in December 2018 report of money laundering for former President Asif Ali Zardari, through ‘fake accounts’. According to the JIT, most companies in Omni Group – a conglomerate that owns several companies and, among other things, controls an absurdly large proportion of Pakistan’s sugar manufacturing companies, owned by Anver Majid

– acted as shell companies, and as a front group for Zardari himself.

Anver Majid was arrested in August 2018, and has been in jail or out on bail for health reasons since then. The case is still ongoing, for now. But what is well-documented on the Pakistan Stock Exchange (PSX), is that while sitting in jail in January 2020, Majid found out that the company was going to hold an AGM of its shareholders, and subsequently sued the company in February 2020.

Majid is not only the CEO, but he is also a director and holds 51.3% of shares in the company. Majid’s lawyers said the company was taking advantage of the fact that he was behind bars, and conducting an annual general

27

meeting without prior notice to Majid, which was a mandatory requirement.

So, a stay order was issued by the court, which prohibited Ansari Sugar Mills from holding the meeting. That stay order has been in place since February 2020. It also explains why the last annual report publicly available is from 2017, and the last financial report is from June 30, 2018.

In the latest notice issued to the PSX on December 31, Ansari Sugar Mills pointed out that the annual general meeting cannot be held until the next date of hearing, which will be on January 7, 2021. Not that that means anything: the last date of hearing was on October 25, 2020, and just about nothing has changed since then.

Even Ansari Sugar Mills’ own tone over the months has shifted from anxious to, at this point, resigned, explaining in the notice: “the said stay order is continued from time to time, and still in the field.” The company cannot submit any new accounts because of the court stay order, and asked the PSX to ‘view the peculiar circumstances of the company’.

Peculiar indeed. Anver Majid is not willing to cede control of the company he owns – legitimately or otherwise – even from his jail cell. It is a gloomy start to the new year for Ansari Sugar Mills.

To recap: in 2015, the Federal Investigation Agency (FIA) started an investigation of four suspicious accounts in Summit Bank, which went on until 2018. The Supreme Court took suo motu notice, and ordered a joint investigation team (JIT) to investigate, which went through roughly 11,500 bank accounts. In the final JIT report issued in December 2018, the JIT implicated President Asif Ali Zardari, and also Anver Majid.

According to the report, Anver Majid and his family took bribes and managed Zaradr’s money laundering. In exchange, the Omni Group – a conglomerate that owns several companies and, among other things, controls an absurdly large proportion of Pakistan’s sugar manufacturing companies, owned

by Anver Majid – benefitted, and jumping from six companies in 2007, to 83 companies by 2018, with most of the expansion coinciding with Zardari’s presidency (2008-2013).

According to the JIT, most of these companies acted as shell companies, and as a front group for Zardari himself. According to documents compiled by the JIT, between 2007 and 2018, Zardari and his family members declared a taxable income of Rs1.64 billion, while declaring personal assets valued at Rs7.74 billion.

Meanwhile, some of the money from the fake accounts was used for Anver Majid’s family. The JIT said that Rs11.12 million were paid to renovate Anver Majid’s home. Similar-

28

ly, some money was used to renovate clothing boutique ‘Menahil and Mehreen’ in the upscale Clifton neighbourhood of Karachi, owned by Anver Majid’s daughter-in-law.

And just in case you thought the JIT had not noticed Ansari Sugar Mills: it did. In its report it said that Ansari Sugar Mills has 18 complaints pending against it in the Sindh Abadgar Board, a semi-autonomous body

meant to protect the interests of farmers in Sindh, with allegations that it had not paid up to Rs11.2 million to sugarcane farmers. (Notice the pattern? About Rs11.2 million missing from the payments to farmers and almost the same amount spent on renovating his home?)

Furthermore, the JIT accused the mill of having unexplained income reflecting money laundering to the tune of Rs1,072 million. n

Isuzu’s Pakistani partner

is definitely not bringing in Chinese SUVs to Pakistan Ghandhara Industries denies story that has been circulating on social media about its supposed plans to partner with a Chinese automaker

I

t started with just one article in a not particularly well-known publication.

INCPak, is short for the Independent News Coverage Pakistan, a news aggregator of sorts that started in 2012. A cursory look at its homepage indicates a lot of news about Pakistani celebrities and a significant amount of technology related news. It also has a dedicated section for automobiles.

And on December 27, the website published the article: “Ghandhara Industries plans to introduce Chery Tiggo 8 in Pakistan.” The article went on to say that the Ghandhara Industries Ltd was to enter into an agreement with the China-based Chery Automobiles to distribute and manufacture its sports utility vehicles (SUVs) in Pakistan.

The Chery Tiggo 8, is a seven-seater mid-sized crossover SUV, first introduced in 2010, and is popular in China. According to the article, the SUV would compete with other existing SUVs in the country, like the Hyundai Tucson and KIA Sportage. After providing details of the car’s features, the

article innocently ended with “Tell us what you think of this upcoming addition of Chery Tiggo 8 in Pakistan?”

Well, we can tell you what Ghandhara Industries thought of this upcoming addition: that it was complete nonsense.

According to a notice issued to the Pakistan Stock Exchange on December 31, the company had to explain itself to the PSX (which had enquired about the news on December 28). Ghandhara Industries has not, in fact, entered into any negotiations or contract written or otherwise with any company to introduce Chery Tiggo 8.

“The media reports, including the news item in INCPAK are baseless and have no legal standing,” the company stated emphatically.

One can see why the company had to issue a statement: in the few days since the article, the news had spilled over into multiple niche websites that cater to auto enthusiasts. But the letter only seemed to cause more confusion. That is because there were now other media reports that it was in fact Ghandhara Nissan that was introducing the SUVs, not Ghandhara Industries.

But wait, are those the same com-

panies? Why are there two companies called Ghandhara anyway? Is one a subsidiary of the other? Is Ghandhara Nissan even bringing these SUVs to begin with?

Let us try and parse who is who.

First, forget about Ghandhara for just a moment. Start with, instead, the Bibojee Group. The conglomerate was started by family patriarch Habibullah Khan Khattak. Born in 1913 in Wana, South Waziristan, he had spent his entire life grooming for the top position of the Pakistan Army, the Commander-in-Chief (this position is now known as the Chief of the Army Staff or COAS).

And yet in 1958, when Ayub Khan made himself Field Marshal and President of Pakistan in the country’s first coup, he picked Muhammad Musa Khan for the top position.

Khattak, following the long standing tradition of the armed forces in Pakistan of resigning when a junior officer is promoted to the top job, was in effect forcibly retired at the age of 46.

So much for the military career. But while Musa Khan went on to lead the Pakistan Army in the 1965 war with India, Khattak set his sights on becoming an industrialist. Known as ‘Bibo’ to his friends and family, he literally named his conglomerate the Bibojee Group, which includes three cotton spinning mills

(two were measured last year), a woolen mill, an insurance company, and a construction company.

But the crown jewel of the group are the two automobile companies. While Khattak may have picked a folksy nickname for the conglomerate, he picked a grand name for the auto companies: Ghandhara, after the ancient kingdom in the Peshawar Valley mentioned in the Sanskrit epics Mahabharata and Ramayana.

The older of the two Ghandhara companies is Ghandhara Industries, which in 1963 took over the operations of General Motors Overseas Distribution Company (which had started in 1953). Initially, it focused on Bedford trucks, and Vauxhall cars. In 1972, the company was nationalised, renamed National Motors, and also started manufacturing Toyota cars.

In 1984, National Motors added Isuzu vehicles to its portfolio of products, which was just as well, since the Toyota manufacturing line had been re-privatised and handed over to the House of Habib’s joint venture with the Toyota Motor Company. In 1992, Khattak re-acquired his company, just two years before his death and changed its name back to Ghandhara Industries.

The other company is called Ghandhara Nissan Ltd, and that was incorporated in 1981.

It was started as a reaction to the fact that

Khattak’s old company had been nationalised – not knowing he would buy it back in the 1990s. Ghandhara Nissan was converted into a public limited company in May 1992.

Now, both companies are part of Bibojee Group. The group has a 58% share in Ghandhara Nissan, and a 39% share in Ghandhara Industries. Ghandhara Nissan also has a 19% share in Ghandhara Industries. The key difference is that Ghandhara Industries makes and sells Isuzu trucks, buses and pick ups, while Ghandhara Nissan manufactures JAC Trucks, and imports and sells Nissan, Dongfeng and Renault vehicles.

Neither company has announced to the PSX that it is bringing in the Chery Tiggo 8.

However, it is Ghandhara Industries that has categorically denied the fact. The jury is still out on Ghandhara Nissan: reports persist that it will introduce new SUVS. Ghandhara Nissan is tight-lipped so far, but it did send a cryptic notice to the PSX on December 24 saying only this: that they were in discussions with stakeholders on some new business prospects, and that formal arrangements had not been decided yet. That could mean, well, anything.

But clearly something is being planned at Ghandhara Nissan.

Just not at Ghandhara Industries (and don’t you forget it). n

AUTOMOBILES

Distressed

Azgard 9

to sell its manufacturing plant for Rs825 million

The transaction is part of a distressed fire sale arranged at the behest of the company’s major creditors after the company defaulted on its loan obligations

I

n business, as in life, it sometimes pays to be a little superstitious. Clearly, the management of Azgard 9 thought so, and when naming their denim company, decided to draw on all the luck from different world cultures. As they explained in one of their annual reports, the term Azgard is a reference to one of the nine worlds in Norse mythology, protected from the powers that be by the Norse god Heimdall. Meanwhile, the number nine is taken from China, where it represents ‘change’ and ‘transformation’. The

30

number nine in Ancient Greek mythology represented fulfillment of creation.

And that is how, Azgard 9, decided to officially form its company on the ninth day of February in 2004, by nine members, so that it could ‘sow the seeds for an auspicious and rewarding future’.

Fast forward some 16 years later, and one can imagine Azgard’s management wondering where their luck went. In a notice issued to the Pakistan Stock Exchange (PSX) on December 30, the company said that its garment unit

located at Ruhi Nala, Lahore, was being sold by the creditors of the company as a security enforcement action. The price of the entire unit, including plant and equipment? A hefty Rs825 million. The sale agreement was executed on December 9.

The creditors were able to do this because of a Lahore High Court order from July 2018, where a Creditors’ Scheme of Arrangement was sanctioned. Still, the company remained hopeful, despite losing a whole denim unit. “The sale of said FPS unit will not affect the business of the

company, as the company has arranged sufficient production facilities to cater to business requirements,” it said, without specifying what those requirements were.

How did it come to this? Let us look back at the history of the company.

Azgard Nine Ltd was incorporated in Pakistan in January 1993 as a public limited company. Initially, it went by the name ‘Indigo Denim Mills Ltd', and commenced business in January 1994. Just one month later, the name was changed to ‘Legler-Nafees Denim Mills Ltd’, and remained that way for a full decade, before settling on ‘Azgard 9’ in 2004.

The company is a composite spinning, weaving, dyeing and stitching unit, engaged in the manufacturing and selling of yarn, denim and denim products. It is registered in Lahore, and has been run by one man - Ahmed H. Sheikh - since the very beginning. Ahmed is the fourth generation of the Sheikh family, who have their origins in Shamkot, Punjab, where they first began their business in 1886. However, formal industrialized yarn manufacturing was started by the family in 1972, while spinning and denim weaning was started in 1995. Ready-made denim garments were started in 1997.

Asgard 9 has three units: Unit I is located in Kasur district, Unit-II is in Muzaffargarh and Unit-III is in by Ruhi Nala, Lahore. Today, Unit I is operational, but Unit II and III are non-operational. According to the company, they are being are held for sale under the ongoing Creditor's Scheme of Arrangement for rescheduling, re-profiling and settlement of the company’s outstanding liabilities towards its creditors. It is this third unit that is being sold for Rs825 million.

If one looks at the company’s sales over the years, the picture looks somewhat promising.

The company grew steadily between 1999 and 2007, before crossing the Rs10,000 million mark in 2008. It has stayed above this mark for the last 12 years. Starting in 2015, the company’s sales went from Rs13,000 million in 2016, to Rs15,982 million in 2018, and finally, its highest sales in 2019, at Rs20,214 million.

But when one looks at the company’s profit and loss statements over the same period, a very different picture emerges. Between 2000 and 2004, the company had anemic profit growth, though up till 2008 it had profit hovering around the Rs900 million mark. But in 2010, and 2011, the company had absurd losses: Rs4,702 million in 2011, andRs6,076 million in 2012. Despite a brief respite in 2013, ot had severe losses again of around Rs2,500 million in 2014 and 2015. It never really recovered from this setback, having made a small profit of Rs385 million in 2019, and a loss of Rs389 million in 2020. Objectively, the company’s multiple annual reports show the same trend: that despite the general high sales, the cost of sales are almost equal, if not higher than sales, every year.

The company had to be restructured in 2012, and the company was unable to meet

debt obligation because of a liquidity crunch.

Another financial restructuring was then started in 2014. Yet by 2020, the current liabilities of the company exceeded current assets by Rs 8,794 million, with financial liabilities including Rs15,406 million relating to overdue principal and interest. Meanwhile, accumulated losses stood at Rs11,752 million.

On July 31, 2019, the Lahore High Court approved the scheme, by which the principal and interest of the debt would be paid off by selling some of the company’s assets. This was meant to happen by June30, 2020, but was delayed because of Covid-19.

It is a long game: as the company noted in its latest annual report, once these non-core assets are sold then the settlement of debt obligations will start, after which the company’s debt level will [hopefully] become sustainable. n

Two and a half years after applying,

PTCL’s licence

has still not been renewed

The country’s second-largest telecommunications company – and the biggest one owned by the government – is facing significant delays from its own regulator

A

h, PTCL. The company has existed in some form since 1949, two years after the existence of the country.

This explains why Pakistan Telecommunication Com-

pany Ltd, seems so ingrained in society, as part of the social fabric as other random Pakistani things that have been around for decades: PIA, the army, chai – you get the picture.

That is why it is easy to forget that

TEXTILES

like many other companies in Pakistan, PTCL is operating off the goodwill of the regulator. In this case, that would be the Pakistan Telecommunication Authority (PTA), which issues licenses.

It was PTA, who in 1996, issued a license to PTCL to operate for the next 25 years, which it did happily. In a notice issued to the Pakistan Stock Exchange on the first day of the new year, PTCL explained that its license – which ran from January 1, 1996, to December 31, 2020 – had expired, and that it required a renewal of its license.

Knowing this, PTCL had initiated the process on June 29, in 2018, a full two and half years before the expiry date of the license.

And like clockwork, the PTA responded a few months later, in October of that year, saying that it would renew the licence according to government policy.

And then? The PTA sat back, and did... nothing. This is what explains how two and half years later, PTCL – which is the national telecommunications provider, has the largest fibre cable network, and employs 16,000 people – suddenly finds itself unable to operate in the new year.

Just to hammer that home: the PTA is a government body. The PTCL is majority government-owned. Those 16,000 employees are government employees. You would think that someone at the PTA’s licensing division would have paid attention to the upcoming renewal.

For those readers scrambling to check if their PTCL connection is still working, PTCL has taken action to make sure it can still operate. That involved filing a literal lawsuit against PTA in the Sindh HIgh Court on December 18, two weeks before the end of the year. PTCL has requested a permanent injunction against PTA, which means that PTA

32

cannot take any adverse action or “interfere in the business of PTCL and the provision of services on the basis of license”.

What is going on? On the surface, it seems like bureaucratic inefficiency, once again. According to the notice, PTCL and PTA and the federal government are still in talks to decide on the terms and conditions of the license.

PTCL, as mentioned before, began its life in 1949 as the Post and Telegraph Department, before morphing into the Pakistan Telephone and Telegraph Department in 1962. But in actuality, PTCL should be viewed through the prism of the 1990s: that decade was the beginnings of Pakistan’s data and telecommunications networks.

In fact, even the PTA was set up in the 1990s, as part of a range of telecommunications and internet companies and bodies introduced during the (very, very slow) digitisation process of Pakistan. Consider: the internet was introduced in Pakistan in 1993. Pakistan got its first submarine fibre optic in 2000, which was also the year it set up its first IT policy at national level.

PTC (Pakistan Telecommunication Corporation) took over the department in 1991, which was also the year the federal government announced it would partially privatise the corporation. That happened five years later, PTCL was given its original license for an agreed licence fee of Rs249 million, and also listed on the Karachi Stock Exchange.

PTA has over the years agreed to amendments in the license. In 2005, the PTA modified the license, to include a spectrum license for a fee of Rs3,647 million, which means that PTCL can provide wireless local loop (WLL) in Pakistan for 20 years. Then in 2008, PTA allowed PTCL to establish and maintain a telecommu-

nication system in Azad Jammu and Kashmir and Gilgit-Baltistan. This was for an agreed license fee of Rs109 million. In 2015, WLL was also allowed in those territories, from Rs98 million.

But by far the most interesting thing that has happened to PTCL, is that it was partially acquired by a foreign shareholder in the mid2000s. In June 2005, the Dubai-based company Etisalat acquired a 26% share in PTCL – with management control – for $2.6 billion. And in March 2006, it was also promised some 3,384 PTCL properties.

However, only 3,248 were transferred, while 136 properties were simply not. There is some confusion over why this happened: according to one account, the properties never existed, and PTCL’s asset management wing had bungled, owning only 3,248 properties but weirdly mentioning 3,384 in the privatisation agreement finalised in 2006. According to another account, the properties were in fact partially owned, or owned by provinces, despite being occupied by the federal government.

Either way, Etisalat was not amused.

The company was given five years to pay the acquisition price in installments, but citing non-compliance over the properties, Etisalat refused to pay the last $799 million chunk.

In January 2020, Etisalat offered to pay $300 million, but the matter is still pending, having now been taken up by the Economic Coordination Committee (ECC) and the cabinet.

Every year, the government of Pakistan duly lists that $799 million as a source of revenue for that year, and every year, Etisalat – like Lucy with Charlie Brown and the football – refuses to pay.

Is this long-standing squabble perhaps the reason for the delay in the licence’s renewal delay?

TELECOMMUNICATIONS

OPINION

Asghar Leghari

Provincial subjects and their discontents

tax the provision of services from the federal domain, and also remained silent on its allocation amongst the provinces. This causes two problems, the first of which is that certain subjects may be considered both a good and a service.

There is no clear distinction which leaves this a spectrum with grey areas. Take, for instance, a standard, mass-produced, software that a person buys on a compact disk. Is it categorised as a good? Arguably so. Now take the compact disk out of the equation, and instead imagine simply downloading the software.

Does it remain a good? Not so much. Now imagine a software customized to your needs. Is it a good? Most likely not. Similar arguments can be made for toll manufacturing.

The second problem arises in cases where a service originates from one province and terminates in another, which province has the right to tax it? Under the current constitutional ith the passing of the Eighteenth Amendscheme, each province exercises legal and executive autonomy on ment, the responsibility for the imposition matters not expressly covered under the Federal Legislative List of sales tax on services was handed over to within its territorial jurisdiction. Naturally, there is a structural the provinces. Similarly, labor welfare, preoverlap in this scheme, as a service may originate in one province viously a concurrent matter, also became and terminate in another, meaning that two provinces lay claim part of the provincial domain. The results on the tax chargeable on the same service. of this devolution have, however, not been free from discontents.

Two situations emerge from this, the first of which is that Unsurprisingly, the domain of taxation has seen prompt legisthe taxpayer is subjected to double taxation by each government, lation and the establishment of administrative infrastructure by the or the governments agree upon a mechanism to split revenues provinces. Unfortunately labor welfare has witnessed lethargy, and amongst themselves. For this purpose, the provinces and the what was a transitional arrangement still remains intact. The govfederation have attempted to harmonize their respective sales ernment’s action in one case, and its inaction in the other has created tax regimes under the garb of the ‘National Tax Council,’ but legal complications for businesses. seemingly little headway has been made as of yet. The point being Taxation made here is not what is right or wrong, rather it is important The Eighteenth Amendment carved out the provincial right to to underscore that each government has legitimate claims that overlap with each other.

In this period, businesses receiving tax notices from various governments for the same subject matter have approached the courts and obtained stay orders against tax recoveries. Their arguments have ranged from direct challenges to double taxation to larger constitutional arguments about constitutional demarcations including limitations in Asghar Leghari provincial powers while regulating or taxing trans-provincial entities. In most cases, courts have is practicing lawyer restrained recoveries in the interim stage and permitted governments some time to resolve these and partner at Leghari matters. An indirect consequence of this has been the political and legal undermining of the Eigh& Darugar. He can be teenth Amendment. reached at asghar.leghari@ Labour welfare legharianddarugar.com Prior to the Eighteenth Amendment, labour laws including labour welfare contributions to the Workers Welfare Fund, the Companies Profits (Workers Participation) Fund, Social Security Institution and the Employees Old Age Benefits Institutions fell within the concurrent jurisdiction of the federation and the provinces. However, the legislation and infrastructure holding the

For all of the good it has done, the 18th amendment has not been properly utilized and implemented by the provinces, particularly in the case of taxation and labour welfare.

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COMMENT

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field was primarily federal.

After the passing of the Eighteenth Amendment, the provinces, with the exception of Sindh, have been slow to act and have either not yet enacted the necessary laws or have not set up the infrastructure required to take over such matters. As a consequence of this inaction, and despite the lapse of almost a decade, the federal infrastructure given protection as a transitional measure still holds the field.

Essentially, to ensure smooth transition, the amendment protected all existing laws on matters being devolved and also provided that the devolution process must be completed by 30 June 2011 by an Implementation Commission to be constituted by the Federal Government. Meanwhile, although the laws became provincial in nature, the federation’s executive authority continued.

The legal complication resulting from this inaction is that the laws were crystalized in time and could only be amended by the appropriate legislature while the federal infrastructure continued in place. Over time,

the federal government has enhanced its rates of contribution and demanded the same from businesses arguably falling within the provincial domain.

Aggrieved businesses have approached courts challenging this primarily on two grounds. One stream of challenges is based on the idea that after the cut-off date for completing devolution i.e. 30 June 2011, the federation’s executive authority in respect of the law as applicable to the provinces stands extinguished.

The other kind of challenges claims that although the federation’s executive authority subsists until appropriate legislation is made by the provinces despite the cut-off date having passed, the rate of contributions chargeable cannot be enhanced by the federation and the rates provided and applicable at the time of the Eighteenth Amendment should be applied.

Simultaneously, the Council of Common Interests has also passed a decision stating that the WWF and the EOBI shall remain with the federal government until appropriate mechanisms have been developed by the provinces.

Unsurprisingly, the domain of taxation has seen prompt legislation and the establishment of administrative infrastructure by the provinces.

Unfortunately labor welfare has witnessed lethargy, and what was a transitional arrangement still remains intact. The government’s action in one case, and its inaction in the other has created legal complications for businesses 34

The decision has ostensibly been passed under the garb of matters of inter-provincial coordination but it is unclear what authority the CCI has to pass this decision. Once again, the indirect consequence of this is the political and legal undermining of the Eighteenth Amendment.

The issue Any entrepreneur would and should realize the value of certainty for a business.

The amount of taxation it will be subjected to and the amount labour welfare contributions it has to make can be the difference between its financial viability or lack thereof. In an atmosphere of uncertainty, discontent businesses are constrained to approach the courts and seek resolution.

Although their intention may not be to challenge the Eighteenth Amendment and the provincial autonomy ensured under it, the challenges invariably do raise questions about its effectiveness. Litigants approaching constitutional courts for resolution are bound to frame issues that go to the very core of the amendment as enacted and occasionally expose its shortcomings. We must appreciate that the law does not function in a vacuum and the underlying considerations are not always legal. Courts constrained to find workable solutions for those rightfully discontented may, unwittingly or not, disrupt what was originally intended under the amendment.

It may certainly be too soon to ring the alarm bells, but the prolonged inability of the provinces to take decisive action and negotiate a workable scheme within the federalist structure may turn into an undoing project for provincial autonomy.

COMMENT

As the government seeks to end its contract with Turkish waste management companies, it is heavy handed in how it sees them off

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By Shahab Omar

n the night of the 21st of December 2020, reporters across Lahore began getting vague calls from Turkish companies working in Pakistan, asking them to attend an emergency press conference. Dedicated as they are to their jobs, some of the reportes managed to get up from their greasy dinners or sleepless slumbers and went over to the hastily organised presser.

What they found there was astounding. Officials from the company milled about looking rather annoyed and as if they had not been the ones to call up this meeting with such short notice.

It was not clear what had happened, but a small crowd had gathered, and they did not look happy. It quickly became apparent that something was not right.

The companies in question were Al-Bayrak and Ozpak.

The two Turkish waste management companies had come to Pakistan nearly a decade ago under the invitation of then-Punjab Chief Minister, Mian Shehbaz Sharif of the Pakistan Muslim

WASTE MANAGEMENT

League Nawaz (PML-N). Back then, they had been portrayed as saviours of the City, helping turn Lahore into a dynamic, modern city. But here they were late at night condemning the Lahore Waste Management Company (LWMC) for a raid conducted on their workshops with assistance from the Punjab Police.

So how did relations between the LWMC and Lahore’s former leading lights sour so much that the LWMC felt it necessary to bang open doors with a police escort and start pulling out drawers and confiscating files? Profit looks at what went bad with Lahore’s waste management system.

Waste is a problem

M

anaging solid waste is actually one of the biggest problems and considerations that urban planners have to deal with. Since it is not a particularly glamorous topic of discussion, the hard work that goes into keeping cities clean often happens behind the scenes and out of the public eye. And a lot of the time, the technique used by administrators is out of sight, out of mind. Of course, at

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We are the first and the largest waste management company in Turkey and have been serving for the past 30 years in the waste management sector around the world and with this rich experience, we came to Lahore in 2012 to modernise the waste management services for the citizens. Our investment in Pakistan is not merely fiscal as we are emotionally invested in the country whose people stood with the people of Turkey in the trying times Çagri Özel, project coordinator of Al Bayrak Pakistan

some point or the other, it stops being out of sight and starts being on the mind as well, and people begin to complain.

Something of the sort had been happening in Lahore around 2011. While the City had never had the sort of issues that Karachi has faced on a waste management front (partly because it does not have as much commercial activity or people), the cracks in the system were beginning to show as Lahore’s population began to grow and as new settlements began to form.

Eid started becoming a sore spot, particularly Eid ul Azha, which would lead animal entrails in unseemly places. The City was slowly turning into a garbage dump. The collection and management of solid waste in the city had previously been overseen by City District Government Lahore (CDGL), which had also been of the see no evil, hear no evil school of thought. Naturally, Solid Waste Management (SWM) suddenly became very important to Shehbaz Sharif in 2010, and the LWMC was formed as a government-owned company under section 42 of the Companies Ordinance 1984.

This was a very encouraging step and it seemed that for once a problem would be tackled before it got too late. Now, the LWMC is a government-owned company. The idea of a government-owned company is a simple one: they are a legal entity that undertakes commercial activities on behalf of an owner government.

The idea is that these state-owned enterprises will have a higher standard of corporate governance. As such, the company is limited by guarantee and has no share capital, and is formed not for profit. However, it is governed by a Board of Directors (BODs), headed by a Chairperson, and has all the functions, assets and responsibilities of the SWM department of the CDGL. But this is where things began to change.

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The LWMC, instead of operating on its own, under the direction of the Chief Minister, signed an agreement with two Turkish companies, Al-Bayrak and Ozpak, in November, 2011 to outsource its trash collection operations in Lahore.

This is the time when the PML-N was sitting on top of a gold mine of political capital.

In Islamabad, they were watching the Pakistan Peoples Party (PPP) led government flounder and criticised them from the opposition benches as Shehbaz Sharif released one shiny project backed by China or Turkey after another. But now, a decade later, it still remains unclear what the exact agreement between the LWMC and these Turkish companies was, and whether either side kept up their end of the bargain.

What we do know is that the contract began in 2013 after details were sorted out, and the seven-year agreement with Al-Bayrak set a total cost of $146 million, excluding withholding income tax. The agreement was for garbage and solid waste removal using a variety of techniques. A similar agreement was signed with Ozpak for $174 million.

It was also decided with both the Turkish Companies that the contract price, including the increases that may occur due to the additional work, shall be paid by LWMC. Lahore was divided into two parts for cleaning purposes, and both Turkish companies had to purchase the machinery themselves, after which the companies would set up their offices at six different places in the city and were bound to pick up 600 million metric tons of garbage from all over Lahore for seven years.

What happened

T

he raid that was conducted by the LWMC and the police on the offices of Al-Bayrak and Ozpak happened around 10 days before the seven year

contract was due to end. Since then, the tussle has been a very public and very messy one.

The Project Coordinator of Al Bayrak, Çagri Özel, told Profit that after 8 years of dedicated services in the waste management sector of Lahore, on Dec 20, 2020, the LWMC accompanied by the police, raided the workshops under the use of Albayrak and Özpak without any legal document or just cause.

“This treatment was utterly unfair, illegal and a gross violation of our rights. We have initiated legal proceedings regarding the incident and have already filed a criminal complaint against the relevant executives of the LWMC,” he said.

“We are the first and the largest waste management company in Turkey and have been serving for the past 30 years in the waste management sector around the world and with this rich experience, we came to Lahore in 2012 to modernise the waste management services for the citizens. Our investment in Pakistan is not merely fiscal as we are emotionally invested in the country whose people stood with the people of Turkey in the trying times. Although we came to Pakistan for a commercial activity, our main motivation has always been to share our experiences with our Pakistani brothers.”

The undertaking has not been a small one. Just Al-Bayrak has engaged 4,000 required sanitary workers, and deployed 1,500 additional workers. They have lifted 6,898,254 tons of waste as per their agreement with the LWMC. Going beyond the scope of their contract at times to get the job done, the company deployed 64 additional mini dumpers, one container disinfectant vehicle worth millions of rupees and more than 5,000 additional containers.

They also introduced electrical sweepers, have carried out more than 3,500 awareness drives in Lahore, provided waste bags, distributed literature, and worked on Eids with extra machinery and workforce. What is particularly strange about the whole raid is that while

Our company had told LWMC that we would give the imported machinery to LWMC as a gift. If there was any machinery that we bought at the request of LWMC and were reimbursed for it, then of course the machinery would have been owned by LWMC and we would have returned it to them but it never happened. We were given 11 tractor trolleys by LWMC to start the operational work and they were definitely owned by them which they had to get back Naeema Saeed, spokesperson for Al-Bayrak Pakistan

their contract expired in February 2020, they continued to provide services on a month to month basis on the request of the LWMC. Özel claimed that despite plans, the LWMC failed to roll out the tender process and could not finalise any plans to take over the waste management services of Lahore.

Consequently, the current contractors were forced to provide the services through two more extensions. The extensions and certain issues of the past eight years were incurring commercial loss to their company.

“Nonetheless, we continued to serve so that Lahore would not return to the old days and the citizens were not deprived of cleaning services. While accepting the last deadline in July, we had communicated to our client that Dec 31st would be our last working day as the worn out machinery and current contract price were a menace for the waste management operations of Lahore. Moreover, since last year, we have only been partially paid. Despite this, we managed well to cover the wages and other expenses of the waste management services.” Özel went on saying that for the past two years, at least seven officers have joined and left the position of the Managing Director of the LWMC. The previous management of the LWMC always looked forward to resolving the issues via dialogue, a policy that was shockingly dismissed by the current management.

After taking the office, the current management closed the door on the contractors.

They did not formally convey their reservations about their operations. Essentially, it is another example of the Pakistan Tehreek-e-Insaf (PTI) led Punjab government wanting to remove any trace of the projects initiated or built up by the PML-N government that preceded it.

“We had requested them to take over operations in phases by Dec 31, 2020. Instead, without replying to our letters and without

informing us, they raided our premises while there were only 10 days left in expiration of the contract. This forced us to seek legal remedy and redress. We would like to reiterate that the requirement of delivery of the equipment claimed by the LMWC is completely fabricated, and the contract we signed clearly states that all equipment, except those delivered by the LWMC to our company at the end of the project, belong to our company,” said the company in a statement.

“We have had no equipment at our disposal that was property of the LWMC. The LWMC illegally seized our company’s equipment and committed a serious crime. We had stay orders from court regarding workshops and equipment dated Dec 21, 2020 and Dec 8, 2020. In the city where we have worked for eight years and were a subcontractor of the LWMC, we were misbehaved with. Our Pakistani and Turkish staff, who worked day and night were mistreated, illegally evacuated and harassed,” it added.

The other side of the story

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hen contacted by Profit, LWMC spokesman Jamil Khawar insisted that no illegal action had been taken by the company. According to the LWMC narrative, now that their agreement with the companies had expired, twenty-four days before the end of the contract, on December 7, these companies wrote a letter in which they said that they could not work with the LWMC from December 10th, and that they should be paid.

After this letter, the chairman, CEO and other senior officers of the LWMC called the officials of these two companies for a meeting and told them that since our agreement is till

December 31, you should complete it.

For this, a provisional payment of Rs170 million per company was also made to both the companies. However, the companies refused to work, saying that the amount was small and that workers and sub-contractors could not be paid. The LWMC then insisted that the companies had been paid and the remaining amount will be paid keeping in view the forensic audit report.

“We did not want to end on a bad note.

We told them, you complete your work and when the contract expires, you will also be given a farewell party by us and for the payment you are demanding, a Dispute Resolution Committee will be formed and we will abide by the decision of the committee,” says Khawar.

“About 93 percent of the payments have been made to these companies and the remaining six to seven percent will be released soon.

These companies are demanding Rs2.5 billion, while the forensic audit report says that we have paid them more than Rs7 billion excess payment. However, they stopped working on December 10 and the situation was very serious for us. About 5500 tons of waste is collected daily from Lahore, and due to non-collection of this waste for ten days, 55,000 tons of waste was present on the streets and roads of the city, which is when we decided that it was in the public interest to seize their machinery, because after ten days the machinery was to become our property as per the agreement.

The government continues to be a bad business partner

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hat does all of this mean?

Essentially, here is what happened. Obsessed with Turkey, Shahbaz Sharif decided to outsource Lahore’s waste management to

WASTE MANAGEMENT

We did not want to end on a bad note. We told them, you complete your work and when the contract expires, you will also be given a farewell party by us and for the payment you are demanding, a Dispute Resolution Committee will be formed and we will abide by the decision of the committee Jamil Khawar, spokesman for Lahore Waste Management Company

two Turkish companies. This was going well enough, even though it would have been much better to form Pakistani companies for this.

When the PTI came into power, they decided they did not want anything to do with these companies and asked them to leave.

When the companies asked them for their dues, the government responded by confiscating their machinery and raiding their offices while they were still occupying them.

Because of the contract being unclear, it is unsure whether the government has any recourse to confiscate machinery even after the contract ends since the companies were responsible for buying it themselves and thus own it.

Even if there is some senseless provision in which the ownership transfers to the government at the expiration of the contract, the trigger happy administrators at the LWMC could not wait 10 days for it. And as per Jamil Khawar’s own statement, all of this was done under the direct orders of the government, which is once again proving itself to be an unreliable business partner.

The communication manager of AlBayrak, Naeema Saeed, told Profit that the agreement between LWMC and the Turkish companies did not stipulate that the companies would hand over their goods to them after the expiration of the contract.

“Despite this, a responsible officer of our company had told LWMC that we would give the imported machinery to LWMC as a gift.

If there was any machinery that we bought at the request of LWMC and were reimbursed for it, then of course the machinery would have been owned by LWMC and we would have returned it to them but it never happened.

We were given 11 tractor trolleys by LWMC to start the operational work and they were definitely owned by them which they had to get back.”

According to the Turkish companies, there was nothing in the agreement that would give the impression that all their machinery would be given to LWMC, whereas according to the LWMC, all the machinery was to be returned to them. If we look at Article 29.1 of the

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agreement, it is clear who was wrong in both. Özel expressed grief over the situation and said that the Al Bayrak Family in Pakistan did not deserve this treatment as the Al Bayrak has made Pakistan its second homeland. “In this time of misery, our only consolation is to know that this illegal attitude and unjust mindset of the LWMC administration is not shared by our Pakistani brothers and friends.

We filed the case against the LWMC because they have tried to damage and harm the brotherhood of Pakistan – Turkey and tried to sabotage the trade relations between two countries,” he said.

“They also have tried to set obstacles in the way of foreign investors’ activities in Pakistan and tried to harm the commercial reputation of our company and because this behavior is the breach of contract, a breach of trust, a violation of fundamental rights and contempt of the court.”

“Our confiscated machinery is being misused by LWMC. The machinery that had been busy polishing the city’s streets for the past nine years is now in a state of disrepair.

The officers of LWMC are stealing parts of our field vehicles which will be sold in the markets later and removing names of our companies from our vehicles and affixing stickers of LWMC. No proper inventory has been made of the machinery they seized, nor is it known where they are being used.”

“Why would LWMC steal spare parts of vehicles?” Khawar questioned, adding that vehicles have completed their life after running for almost nine to ten years, but now that they have to operate them with these vehicles, 300 out of their 450 vehicles are in the field while some vehicles are in the workshop for repairs.

The excuses from the LWMC are typical.

They claim that the companies were not doing their job, and that the waste collection from these contractors was costing them Rs2,200 per ton while the waste collection from the new contractors was costing them Rs900 per ton. To be fair to the companies, it will cost less to the new contractors when they have someone else’s machinery made available to

them. And if the government did make a bad deal a decade ago, it is the duty of the incumbent government to keep its word.

Meanwhile, referring to the payments made by the government to the Turkish companies, Naeema informed Profit that since the collection of garbage was to be done using different techniques, they had offered a price per ton of garbage.

“In seven years, we had to collect six million tons of waste, while we collected 6.8 million tons of waste. We did not have to pay against the dollar price because the contract set a ratio in our payments. According to this ratio, we had to receive 30 percent of our total amount at the dollar rate on the day of the contract, while the rest of the 70 percent of the payment was to be against the fresh rate of dollar.”

This meant that if the companies collected 100 tons of garbage, the payment of 30 tons of it would have been at the old price of the dollar, which was Rs88 at that time, while the payment of 70 tons would have been at the new price of dollars because the value of the dollar in Pakistan has been increasing day by day.

“The price of waste collection set in the agreement was reduced by five dollars per ton by the then government and 53.21 million dollars were directly and voluntarily reduced as a result of negotiations. In return, when we imported our machinery, the LWMC had given us relaxations in customs duties from the FBR, but that did not mean that the machinery would be theirs later,” she said.

“We imported 62 Special Purpose Vehicles (SPVs) for garbage collection and a letter was written to the FBR by LWMC in which it was clearly stated that the said vehicles are to be used for the work of LWMC. Therefore, their duty should be forgiven while the FBR waived customs duties and issued instructions that we cannot use or sell these vehicles for any other purpose for five years. But five years later, when this condition expires, what we do with these vehicles is up to us and no one can claim ownership of them.” n

WASTE MANAGEMENT