Profit E-Magazine Issue 72 by Profit (by PT)

QUOTE

“World bank can work on any financial arrangement looking at objective need and assessment of policy matrix” World Bank Country Director Patchamuthu Illangovan

“More than 700MW of power can be produced through huge quantity of solid waste generated in Karachi daily” Federal State Minister for Maritime Affairs Syed Ali Haider Zaidi

Rs15.4b sanctioned by planning ministry for PSDP From July through August 9, the planning ministry authorised to release Rs15.4 billion for spending under Public Sector Development Programme (PSDP) 2019-20, according to details issued by the ministry on Friday. The releases were only 2.2% of the annual PSDP allocation of Rs701 billion, showed the releases status.

$440mn in fresh loans acquired in July by Pakistan

2.5mn tax returns filed for tax year 2018 A record 2.51 million income tax returns have been filed for tax year 2018 reported the FBR. With 1.49 million filed in 2017 an increase of 67% was recorded. The target for 2019 filing is 4 million returns.

LSM growth contracts for first time in 10 years

Moving away from China as a financing source Pakistan received $440 million in fresh loans in the month of July from multilateral creditors. The shift from Chinese loans is due to the completion of many CPEC projects. Unlike last fiscal year when the share of Chinese assistance was nearly half of the total disbursement, Chinese loans shrank to slightly over one-tenth of the total disbursement of $439.8 million in July, the sources said.

With reduction recorded in output of almost all large-scale manufacturing (LSM) industries an overall contraction of 3.6% has occurred for the first time in 10 years. The LSM output decreased 3.64% in July-June period of fiscal year 2018-19 as compared to the previous year, reported the Pakistan Bureau of Statistics (PBS) on Monday.

Current account deficit contracts by 73% in July Pakistanâ&#x20AC;&#x2122;s current account deficit narrowed a significant 73% to $579 million in July, the first month of the current fiscal year. The contraction in the deficit is a combination of a 26% drop in imports and an 11% improvement in exports. Improvement in both heads is on the back of IMF conditions in the latest bailout package.

The ongoing cases of income tax and sales tax against businessmen will be sent to the Federal Board of Revenue and notices recently issued to owners of flour mills by the anti-corruption watchdogâ&#x20AC;&#x2122;s Multan office are suspended with immediate effect, National Accountability Bureau (NAB) Chairman, Justice (r) Javed Iqbal

Hajj operations fetch PIA Rs7-8bn The Pakistan International Airlines (PIA) has earned a revenue of Rs7-8 billion out of the anticipated Rs25 billion from Hajj operations. Around 250,000 people went to perform Hajj from Pakistan this year. Pakistan and Sauid Arabia divide this traffic. PIA flew PIA flew more than 82,000 pilgrims, which is 20% more than the previous year when 68,000 people had flown with the national airline.

Rs1.2tr debt added in order to provide cash buffer: Hammad Azhar Minister for Economic Affairs Hammad Azhar on Thursday explained that the government added Rs1.2 trillion to public debt in the last fiscal year in a bid to build a cash buffer for timely debt repayments in future after the International Monetary Fund (IMF) placed a ban on fresh borrowing from the central bank.

FBR to inspect large retail markets for smuggled goods

Rs208bn in dues to be waived for industrialists by govt

With effect from September 1, special joint teams of the FBR may be visiting major shopping areas, especially large retailers, in major cities to check import documents for imported goods available for sale to consumers, according to instructions issued by the FBR.

The PTI government in one swift move will write off a minimum of Rs 208 billion for certain industrialists as it has been- like previous governments- unable to recover dues on account of gas infrastructure development cases (GIDC).

BRIEFING

welcome

Can PTCL’s new CEO turn back the clock? Does he even need to? The market just isn’t big enough for these many players. This is a statement that is thrown around a lot these days, whenever the profitability of Pakistani cellular companies are discussed. But of late, it is discussions on Ufone specifically, that this is used most often on. The company isn’t doing all too well. Slow to the highspeed internet game (where it still doesn’t have 4G proper) the company has taken a serious beating, most prominently at the hands of Zong, who poached away the largest number of its active users. Read more about the tribulations, and possible promise, of Ufone in this edition’s cover story. But I want to speak more about the stateowned telecom giant PTCL, which wholly owns Ufone. Back when it was launched, it was decided that Ufoneis going to be run not only by a different set of people but also in a manner starkly different from that of its parent company. Ufone was to have a corporate culture similar to that of the other cellular operators instead of the sarkari mahol over at PTCL. However, back in 2016, Dr Daniel Ritz, the recently hired boss of PTCL, was also given some control of Ufone, in that the latter’s boss, was to directly report to him. A curious dynamic has arisen when, after Dr Ritz’s departure, Rashid Khan (the CEO of Ufone) was given the PTCL’s charge. In one fell swoop, Khan has turned from a chief executive representing his company in the best light to the parent company, into the boss of the parent company with a complete insider’s knowledge of its subsidiary. If the management of Ufone wished for its man over at PTCL, it should have been careful what it wished for, since that man knows the company inside out. If Rashid Khan like Dr. Ritz belives that Ufone is only going to keep haemorrhaging PTCL - and also buys into the argument that the cellular game is a three-player market - then he might decide to continue with the status quo. Specially after realising that there is no way it could compete with the deep pocketed Zong, which is even

about to go into 5G. He could also use its synergies with PTCL (which still provides the infrastructure backbone to all the other cellular companies) to remain competitive. Or he might surprise and decide to invest in 4G and later 5G technology. We can’t know any of this for the time being, because the two men are poles apart as far as doing press is concerned. Dr Ritz - who made it to the cover of Profit’s inaugural edition - was a refreshingly candid CEO. He was pretty clear about the considerable challenges that he had at PTCL. But he seemingly set his eyes on the right way out of the mess: improving poor customer care (PTCL has the lion’s share of the complaints lodged at the PTA) and replacing the legacy infrastructure that the company was riddled with. On the former, he even made considerable headway, with complaints coming down not just in nominal terms but also as a proportion of the total complaints. Still, something wasn’t sitting right with the board (presumably) and he was replaced. It remains to be seen what Rashid Khan’s strategy is going to be. Insiders say he will speak to the press only when he has executed his plan. Till then, we can only make educated guesses.

Babar Nizami

Executive Editor

Executive Editor: Babar Nizami l Managing Editor: Farooq Tirmizi l Joint Editor: Yousaf Nizami Reporters: Syeda Masooma l Muhammad Faran Bukhari l Taimoor Hassan l Abdullah Niazi l Ahmed Jamil Bilal Hussain l Director Marketing: Zahid Ali l Regional Heads of Marketing: Muddasir Alam (Khi) l 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 EXECUTIVE EDITOR

How greed, bad work ethic and an Asian-values deference towards the elderly led to the creation of a generation of cheaters

By Syeda Masooma

onventional wisdom dictates that automation, such as bank transfers for pensions and other government benefits, can help alleviate and might even solve the problem of fraudulent draws in the name of pensioners who are no longer alive or eligible. A new government scheme that has been in place for almost three years proves this assumption wrong. In 2016, the Ministry of Finance decided that it would adopt a Direct Credit Scheme

(DCS) to pay pensions for its full-time employees who retired as officers from Grade 17 through 22. Regular pension payments would be transferred directly into the pensioners’ accounts instead of them having to wait in long lines for hours with pension books and forms to get their monthly payments. The procedure to convert to the DCS system of pension payments was simple although one had to follow several steps that could be time-consuming. First, eligible retirees had to collect their disbursement portion from the National Bank of Pakistan (NBP). To do so, they needed to acquire an authority letter from the

office of the Accountant General of Pakistan (AGPR), which has branches in Islamabad, Lahore, Karachi, Peshawar, Quetta, and Gilgit. Then, the DCS form would be verified from the bank of the pensioner’s account. The verified form and the disbursement portion was submitted along with the pension payment order to the AGPR office. An indemnity bond drawn on a Rs.20 stamp paper, against the verified form and attested by a notary public, was required to be provided to the pensioner’s bank. Finally, both of these documents were to be processed by the department of the pensioner’s service (PPO) and the pension

is directly credited to the chosen bank of the pensioner. “Legally, NBP is not the required banking institution for pensions,” an executive official at the bank told Profit on condition of anonymity as they were not permitted to speak to the media. “But, because the salaries of government employees are paid through NBP, pensioners are already familiar with the staff and the procedures of the bank so they prefer to continue with what they know,” the executive said. In essence, this new system — the Direct Credit System of Pension Payments (DCS) — provided two benefits at the same time: convenience for pensioners and more control over the process for the government. However, there is a major part of Pakistani culture at play here — our deference towards the elderly and their convenience. According to a director of NBP, speaking on condition of anonymity, before pension payments were directly transferred to the accounts,

pensions on behalf of retired officials even when they had passed away, using forged signatures and fake attestations.” According to the officials of the NBP, when this new DCS system was implemented, it eliminated most, if not all, deceased or fake pensioners in one go. When the biometric verification system for accounts was implemented, it is likely that the remaining fake pensioner accounts would also have been removed. The actual data for this latter move is yet to be compiled and released by the State Bank. However, even this will not stop the creation of new fake pensioners. The official informed that when the DCS system was put into place, approximately four to five hundred thousand pensioners never turned up to activate their accounts, according to the bank official, who were then written off as fake or deceased. But did this put an end to the problem? Unfortunately, no. With the modernization of pension payments system, the

service or retired, the remaining family members become legal recipients of a proportion of the pension, provided some conditions are met. The first contender of the pension of the deceased government employee is the remaining spouse (husband or wife) or spouses (wives), who receive 75% of the total pension amount. In case a male officer had more than one wife, the pension amount is divided equally among the family members as long as there are less than four members in total. In case the family members are more than four, each widow gets onefourth of the share of the pension amount and the remaining is divided among the eligible children equally. The eligibility for sons is less than 21 years of age. For daughters the conditions are being unmarried, divorced, or widowed, and up till they get married or remarried. Daughter-in-law of a deceased officer can also receive pension payments, up to ten years, in case there are no surviving spouses or children of the pensioner. If there is a surviving grandson, and he is less than 21 years of age, or surviving grand-daughter as long as she is single. In case there is no above family member of the deceased pensioner, his or her father gets to receive the pension till death, in the absence of father as the contender, the brother of the deceased pensioner gets the pension until the age of 21, or unmarried, divorced or widowed sister. The brother and sister are legally eligible to receive such payments for up to ten years.

Monetising the scam

S there was a much higher number of “ghost pensioners.” “Older pensioners sometimes have family members accompany them to the bank to collect their pensions. Sometimes, when the bank staff is familiar with a pensioner and their family members, they would allow a member of the family to bring signed documents from the pensioner out of courtesy, instead of forcing the condition that pensioners themselves be present [to collect the payment],” he said. “This led to a fraud of hundreds of thousands of rupees from the national exchequer as family members continued to withdraw

problem of fake has in fact not decreased. But before we discuss the menaces that still remain, let’s try to put some things in perspective.

How the Pension system works in Pakistan?

ension can be defined as a periodical payment made by the government local or federal - in consideration of past service rendered by a government servant. Pension can be for compensation, invalidity, or retirement - by choice or superannuating. In case of the death of a government servant, in

o how do we know what these 400,000500,000 ghost pensioners could have meant for the national exchequer. First of all, like most other statistics in Pakistan, there is no official record of the exact amount of pensions paid or payable in a given month, or even a year. A call to the AGPR office will lead you to check with different departments that issue pensions and calls to those departments, such as post office, will bring you back to the AGPR office holding you in an endless loop of hoping between officials either refusing to share data or simply sending you someone else’s way - much like the blame game when it comes to their official responsibilities. Therefore, we will try to estimate this amount from the data that is available publicly online. The federal government and the four provinces together had budgeted for Rs565 billion in 2017-18 for pension payments. The Federal government’s share from this stood at Rs342 billion, out of which the retired civilian employees of the federal government were to receive Rs82.22 billion in the current fiscal year. The current fiscal year saw the government announcing an increase of 10 percent in the pensions of all civil and armed forces pensioners of federal government, thereby giving an estimated

PENSION FRAUD

“At my previous bank, this regulation was implemented [as if it were written] in stone. At NBP, things are less stringent. You have to understand we are catering to a much wider population, including those who have much less expertise with all the documentation and requirements” A senior NBP official

amount of Rs90.44 billion for civilian pensioners. As per a circular issued by the Finance Division on July 3, 2018, the minimum pension of a civil pensioner of the federal government was revised to a minimum of Rs 15,000. Since the pension fraud has been before this revaluation, to get a very conservative estimate for a possible ghost pensioner, we will take Rs 10,000 to be the average pension per month. Considering that the NBP official said at least 4 to 5 lac pensioners never showed up to transfer their pension to DCS system, the number for the payments per month to these pensioners (averaging 450,000 payments) will be (10,000 * 450,000) Rs 4.5 billion a month. The “hundreds of thousands of rupees fraud” then does not even come close. This pension fraud had been a thing going on since decades, but with these estimates even a single year’s loss equals Rs 54 billion. There is another side to this story, that of family pension. Two-thirds of the pension of a deceased government officer is transferable to the remaining widow or widower, or divided among the surviving sons less than 21 years old, or unmarried, divorced or widowed daughters until their remarriage. What this means is that if a deceased officer does not have a remaining spouse, a son who is younger than 21, or a single daughter at home, the family will be better off not declaring the death of the parent. There are several ways this fraud had been committed, and while the ghost pensioners might have been wiped out by the DCS system, the remaining means are still up and running. Loopholes remain So, for example, NBP no longer allows

joint accounts for pensioners, but ATM cards and debit cards are still issued for pension accounts. This means that anyone in possession of a card and its associated PIN number can continue to withdraw a pension payment. There is a law that seeks to stop this sort of fraud: bi-annual submission of proof to the bank showing that the pensioner is alive and, in the case of widows, proof that a woman hasn’t re-married. However, like many laws, this one is not implemented very strictly either. “At my previous bank, this regulation was implemented [as if it were written] in stone. If the account-holding pensioner did not submit a legal, attested certificate every six months, the account was blocked automatically,” says another senior NBP official who also worked at a senior position in a private, multinational bank, also on condition of anonymity for lack of authority to speak to the media. “At NBP, things are less stringent. But you have to un-

derstand that we are catering to a much wider population, including those who have much less expertise with all the documentation and requirements.” But is it just sheer laziness and incompetence at NBP’s end or is it, as some people claim, a way to make extra money for some members of the NBP branch staff? A pensioner, who didn’t want to be identified claimed that he has heard of some bank staff asking for a monthly cut from families of deceased pensioners in exchange for relaxing the rules. Then there is also no denying the fact that not only the process of transferring a deceased pensioner’s pension to his widow or children an extremely cumbersome task, but also that the amount is halved. There is obvious comfort and better money for the living remaining relatives of the pensioner to simply not declare their death. But on the other hand are those who are committed to following the law, and they are the ones who keep the system running. “I am here to submit the [required] documents, but I agree that many people do not care about these requirements,” said Ahmed Khan Niazi, a customer who was there to submit a death certificate for his recently-deceased father who had been a school principal and retired as a Grade-20 officer. “[These requirements] protect the bank’s customers as much as they protect the bank and the government’s money.” The key point at this hour is to realize that DCS system has cleared fake pensioners and ghost accounts accumulated over decades. Biometric verification lend a helping hand to further the same cause. However, simply legislating is not going to put a permanent end to this fraudulent activity. There is still room, much smaller than before, but nevertheless still room for unlawful claims on pensions. The State Bank, and the National Bank in particular, would be remiss if they did not bring up a policy to nip this new nuisance in the bud before this one blossoms into another huge mess of ‘notdead’ dead pensioners. n

PENSION FRAUD

Over the years, Dignosco has developed a fascinating business model that has made them a lot of money, and gotten their clients places. But good business is not always ethical business 16

By Taimoor Hassan

et’s think of two scenarios. In the first one, you’re rich. Scratch that, you’re filthy rich. Your kid is a middling student at Aitchison, or LGS, or American Lyceum or Lycetuff or something - one of those schools with the huge campuses and fancy A level programmes that promise to give you the world in exchange for a whole lot of money.

Your kid wants to go to America,or the UK, anywhere but Pakistan for that matter - and you want to oblige, because college is important, and you want what’s best for your son or daughter. They aren’t getting into Harvard or Oxbridge, they made sure of that with their grades, but you can send them to one of the smaller universities. Not as famous or prestigious, but still leagues ahead of anything in Pakistan - and of course, the label of a foreign education counts for much in Pakistan. You can easily afford the tuition of course, even if the dollar is over 160 rupees. What you can’t do for them are the tricky parts of the admission process: writing a college essay, filling up their supplementary essays, giving them a personality, and crafting a story that someone in admissions will look at and think, yes, this candidate would fit. What do you do? In the second scenario, you’re not so rich. In fact, you’re struggling every day to maintain a certain kind of life. Your kids have been put through the entire O level gambit, but from one of the lower tier schools - and even there you’re scratching and clawing to keep up with their fees and the costs of their books. But you’ve got one hope. One of your sons or daughters is brilliant. They’ve got flying grades in their O levels, and they managed to get a scholarship to one of the big schools. Their grades are up and they’re bringing home debates trophies like flyers. Your kid comes up to you, a little reluctant, but still they do. They want to attend university abroad. They’ll be applying for aid or hunting for scholarships of course, but even doing that is going to cost money. Not to mention, asking for financial help means all kinds of complexities that come with the foreign admissions process. But you want the best for your kids. What do you do? The answer to both scenarios is the same, you go to Dignosco, an all purpose academic consultancy firm that has made the foreign admissions cycle its business. Providing a range of services that cost anywhere between Rs 2,000 and Rs 1.5 million, Dignosco has been operating for a decade. And since its founding in 2009, it has established itself as the go to academic counseling service in Lahore, and developed a formidable business model. Recently it has also started operations in Karachi and plans to open up an office in islamabad too. The best thing about Dignosco, on the surface at least, is that it is accessible for people in both scenarios. Anyone can get a meeting, they have different levels of service, and most importantly, they offer subsidised rates for students with strong academic credentials who can demonstrate genuine financial need. While the competition for these slots is fierce, there is

always an opening for the best of the best. But what exactly is it that Dignosco does? What are these services that they provide, and what do the different levels of services mean? More importantly, how true is the impression that professional college counselling is dirty and cuts corners in exchange for money? Dignosco is hands down the most reputable college counselling service out there. It has, within groups and behind closed doors, been accused of dubious tactics to try and improve chances for admissions. Their response has been that they aren’t dirty, but the schools you’re sending your children to are the ones actually cutting corners. Profit, takes a look.

The moneyed and the not so moneyed

he class difference is palpable, of course. The concept of privilege should not be lightly thrown around in a business and economics magazine, but it is an uncomfortable reality that comes to mind when you think of Dignosco. Going to a foreign university is already a rigged game from birth, where years of elite, expensive education plays the main role. An expensive counselling service like Dignosco means the process becomes even easier than it already is for people with money. Dignosco, however, answers this with their claim that they are ‘need blind’, which would mean that if a candidate had outstanding academics but also had money, they would still have to pay in full. But if a candidate had those kind of grades but no money, they would be subsidised by the first person. While the opportunities are harder to get and few and far in between, they are still there, and are good for Dignosco as well. Because the more successful candidates they take in, the more they can advertise on facebook. And having too many losing candidates, no matter how much money they bring in, is never a good idea for the future. Perhaps the greatest response to such queries is that while Dignosco may do everything and make a student’s life easier, they can’t sit their exams for them or ensure a high standardised test scores. Those things a student, with or without money, will have to ensure themselves. But it still holds true that it is a quicker way to do things, and that is why people are willing to fork over the cash. “This suggests that students who come from affluent backgrounds are not bright students, which in my experience is very far from reality,” says Abrar Rahman, the founder of Dignosco. “Most of the students who go abroad to top end colleges from Pakistan are very bright regardless of whether they are paying the full fee

of a college or have received a scholarship” he goes on to say. And as Abrar explains further, one must look at it as an investment. He gives the example of a girl they helped, who went on to study at Trinity College in the US and she just had to pay $200 a year and the rest of the cost of tuition and living was covered by the university. For four years of undergraduate programme at the university, that is less than a $1,000 she would pay for her entire programme, which would otherwise cost $200,000-$400,000. This sounds like a win win situation. Where you pay Dignosco, and they make things happen which will save you money because you will get aid or a scholarship. Yet they are quick to point out that admission can never be guaranteed, and they can only hope along with you. In which case, it is a risky investment that could very quickly go down the drain.

What in the world do they do?

etting admitted to a foreign university is a surprisingly complicated process. For starters, there are all the different kinds of essays and personal statements you have to right. Forms you have to fill, recommendations you have to collect and if you’re applying for financial aid, all of the proofs of poverty you have to com bearing. And the most important factor that brings Dignosco most of its business is a lack of understanding. When you walk into their offices as a student looking for help, the first step is always the initial meeting with one of the counselors. This walk in meeting can cost Rs 2000, but from then onwards, the client can choose what kind of service they’re looking at for affordability. The agency is hot mostly among A level students, who are trying to get into foreign undergraduate programmes. But contrary to popular belief, Dignosco caters to all kinds of foreign applications, and takes in students from a very young age, and even deals with much older candidates looking to pursue higher level degrees. “We target students from grade 6 onwards and cater to individuals till about 45 years of age. Advice mostly focuses on academic and extracurricular activities” Abrar Rahman tells us. A Yale graduate, Abrar founded Dignosco after spending a few years bouncing around as a counselor for different schools. Having gone through the grueling process of applying to an Ivy league and getting in with a scholarship, that too figuring it out himself along the way, Abrar knew that there was a market for people looking for guidance. “The biggest factors are that there are inherent, deeply rooted defects in Pakistan’s education system - even the private education

EDUCATION

sector. The second issue is of awareness. People simply don’t know the options they have, and that’s where we come in” he says. “We hire a team of people experience with the admission processes in the US and the UK and the Middle East and other places. We bridge the gap.” “Our job is to ensure an individual’s personal development as well as research and discussion on global higher education opportunities available to them, and what an individual is required to do for competitive admission at these universities. We deal with undergraduate, graduate, and MBA applicants and younger students for their personal development,” he explains. “Within Pakistan’s educational institutions, only a few schools have dedicated full time college counselors so information is hard to come by.” So in theory, a student confused about his options could come and have them cleared up by the Dignosco team. If the student feels overwhelmed, he can pay them and receive services such as advice, guidance and general help. If the student still feels like they can’t keep up, they can simply ask for more help. This might involve assistance on college essays, provision of internship opportunities and other such services. The possibilities are endless.

How much is too much?

f course, while the concept of guidance is something no one can possibly hold against anyone, there remains the question of how much of an application is the student’s doing and how much is the person counselling them responsible for it. Dignosco’s biggest money maker is naturally the A level market. To apply to the US for an undergraduate degree, you have to go through the common application process - a uniform application form that all universities in the US use. The sister to this in the UK is the UCAS. Both of these require personal statements, and supplements written for each specific college so the candidate can show their aptitude for the particular place they are applying to. This is where the murky bit comes in. For student testimonies and people working for Dignosco for some time admit that the staff at Dignosco often write essays and supplements from scratch, and thus provide less than truthful information to colleges. While it would be understandable for Dignosco to be a guiding hand, one that nudges and prods and suggests, often times in applications, it is impossible to tell where the student begins and the agency ends. Other things include engineering internships, by which Dignosco often hires the people paying them as interns so they have something

“The reason a student from even a top school in Pakistan seeks independent third party advice from firms like ours is linked to the issue of favoritism and lack of transparency and accountability in schools” Abrar Rahman, Founder and CEO, Dignosco

to put on their resumes. Brighter students, usually the ones that have battled their way through the financial aid screening, are often found writing for other students - ones who pay in full. Another fascinating cash cow for the agency have been their trips. They arrange trekking and scuba diving trips for their customers, for which they charge them in lakhs, which are much higher prices than normal, and take them on these excursions so they then have something exciting to write about in their applications. What foreign universities want is personality. And if you’re looking for financial aid, then you better be bringing some serious diversity points to the table. So that is what Dignosco does, they create diversity and experiences in exchange for money. No one can begrudge a company for making money. Nothing that Dignosco is doing is illegal. In fact, as we will see later in this piece, they are more trustworthy than many other counselling services. Whether their patterns of behaviour are right or wrong, moral or immoral, ethical or unethical, that is for the conscientious consumer to decide. In his response to our questions regarding the possibility of their services being morally dubious, Abrar responded with a passion. For starters, he completely denied the writing of essays from scratch, which is one of the main complaints in the testimonies. To the matter of engineering internships, Abrar finds nothing strange about it, which is fair enough. Even the trips make sense, especially if someone can pay for them. “These testimonies reflect the narrative promoted by certain schools that actively discourage their students from seeking advice from Dignosco as we openly question the unfair practices at these schools” Abrar Rahman tells us in an email.

This is where the beef really is - in the competition. You see, Dignosco doesn’t like the A levels schools that most of its clientele goes to. And the schools, well, let’s just say there’s no love lost between them and Dignosco.

The competition

ignosco is at war with the schools. And when we say the schools - we mean those fancy A level places. We mean the pompous elite airs of Aitchison college, the scrappy up and comers of LGS JT and everything in between. You see, when a student gets admitted to a good university, the school wants to plaster their face on billboards and stake their flag in the student. They are a prize to be shown off proof that the school works. But if the student has been going to a place like Dignosco, the credit will be divided. That is essentially why the schools don’t like Dignosco. Because they take their students and make them their own. But for Dignosco, they are simply doing what the schools cannot do. And moreover, not only do they deny unethical practices themselves, they level similar allegations against these schools. “The reason a student from even a top school in Pakistan seeks independent third party advice from firms like ours is linked to the issue of favoritism and lack of transparency and accountability in schools” says Abrar Rahman. This is where Dignosco has an edge. Where a handful of people would provide counselling to large batches of students at school, Dignosco can provide more one on one attention to each student. “Firms like ours give students and parents different perspectives to think about and logically evaluate the advice they have been given in

school to make an informed decision,” he says. And in addition to being better at and having more counselling resources than the schools, Abrar Rahman claims that the schools are the ones that are crooked, not his firm. And he doesn’t hold back from naming names Aitchison, LGS JT, KGS and the likes, he seems to have dirt on all of them. “In the case of Aitchison College, counseling services are provided by an individual who also runs a private college counseling firm that he uses to advise students in other schools. Given that students from other schools are competing with students at Aitchison, it is natural for students at Aitchison to think about whether their school counselor has a conflict of interest or not.” “There have been instances where reputed universities like Harvard and Yale have written letters to schools in Pakistan, such as Lahore Grammar School Johar Town Branch, asking them to explain why their internal record of a student’s academic performance and the grades they predict a student to achieve in their external examinations do not correlate with the student’s actual performance in external A Level examinations” he adds regarding the famed LGS JT boys branch. He also relates how the Aithochison admin actually took the battle between counselling firms and schools and issued circulars to their students, warning repercussions if they took Dignosco’s services. “The last comment about Dignosco arranging “trekking and scuba diving trips for their customers, for which they charge them in lakhs, which are much higher prices than normal” reminds me of a letter sent by Aitchison College on August 21st, 2015 to the parents of all the students enrolled at Aitchison College at the time” he says in his email to us. “This letter accused private counsellors of unethical practices, similar to the allegations highlighted in the testimonies you shared, and criticised the remunerations of such private counsellors. To give you an idea of the kind of hostility Dignosco faces from schools such as Aitchison College I will share an extract from this letter that specified that students working with private counsellors “will not be allowed to apply for financial aid to different universities, the school will not be processing their documents, they will not be allowed to get teachers’ recommendations from the school and the admission counsellor will not be writing their school reports or recommendations.” Abrar Rahman’s elaborate response was an indictment of the corners that are cut by large, private schools in such a process. However, they were not a defense of the practices that take place at his firm. While he has denied Dignosco writing

essays from scratch, he does say that colleges expect students to be helped in their personal statement process by their family, friends, and indeed, teachers. Again, it is important to remember that whatever Dignosco does is perfectly legitimate business, and the schools inserting disallowing their students from going to them through threats are in the wrong. But at the same time, the business that Dignosco is in, is one that will always be dubious and hard to digest.

The larger world of academic counselling

ow education consultancy businesses operate is that they will counsel students to secure admissions at partner or non-partner universities. Under the partnership model, the counsellors would acts as agents for foreign universities they are partners with against a percentage driven commission paid by the partner university based on the number of kids they send to a particular university or college. Non-partner universities are the top ones in the world such as Stanford University, UC Berkeley or Ivy League universities in America, and Oxford or Cambridge in the UK. These universities do not need partners because of a very high global demand of these universities among students, which makes the process of getting into these universities highly competitive. Only the right sort of application would get a student into the top-tier universities across the globe and that is what counsellors help a student build and charge for their service. “Different universities appoint agents across the globe to help with international student recruitment. This practice originated in the UK and has now been adopted by a lot of colleges in Canada, Australia, Turkey, Malaysia, and even in the US. Normally the agent gets a percentage driven commission based on the number of kids they send to a particular university or college,” says Abrar Rahman. Why foreign universities appoint partners is because globally, most countries have tried to attract international students to their universities not only to attract talent but also to stimulate the economy by getting an influx of funds from other countries in the form of tuition costs and living expenses of international students. “It is in this background that some countries promote the agency models in third world countries to recruit international students,” he adds. According to International Consultants for Education and Fairs (ICEF), a German market intelligence firm dedicated to the international education industry, Pakistan sent nearly 40,000 students abroad for higher

education in 2013. The number has only swelled and estimates now put the number of Pakistani students going to foreign universities each year to be roughly 50,000 or more at present. Assuming that 40,000 students go abroad each year from Pakistan to study in different countries, and assuming that the cost of studying abroad would on average be $30,000 per student per annum, it comes out to a conservative estimate of $1.2 billion spent by Pakistani students on foreign education. That is the sum that flows out of a ‘third world’ country like Pakistan and gets injected into ‘developed’ economies, simply because Pakistani universities aren’t perceived to be good enough in comparison with foreign universities. Dignosco does not operate in the local admissions space but does provide guidance about local universities to students working with them for foreign admissions. “We don’t deal with students who are just targeting local universities. People who apply abroad also apply to local universities as a backup and in some cases, they decide to stay in Pakistan. So we have such cases but we don’t cater to students who are just applying in Pakistan,” he says. Abrar tells Profit that Dignosco operates in an advisory capacity and the business is mostly focused on the non-partner segment, but they also entered the partnerships segment only a few years back. But at the same time, where Dignosco has managed to establish a name for itself and for its services, there are others out there trying to ride the wave and make a quick buck along the way. In fact, there are numerous firms and individuals operating in this space unregistered, with all the incentive to scam a student with the lure of sending him abroad. In such a space, Dignosco does provide a professional environment. They have also created a fascinating business model for their venture. Despite all this, there remains a feeling of discomfort surrounding their activities. Perhaps it is the uncomfortable realisation that those with money have it much easier than those that don’t in some ridiculous ways. But all around the world such services exist. For a similar service consultants in UAE charge an average of $25,000 and in China firms charge up to $60,000 according to Abrar. Or maybe it’s the thought of their methods to get admissions not being fair. What they have done for sure is make college counselling a profitable business, and create a demand for it that is bound to breed further supply. And perhaps serious competition might sober up Dignosco’s worse impulses as well. n (With additional reporting and editing by Abdullah Niazi)

EDUCATION

OPINION

Asif Saad

The real accountability

capability. Knowing this, where would one start if one was to start a process of reform? How can we improve the credibility of these organizations viz their consumers and public in general. How can these organisations make themselves more accountable to their consumers? I would like to address these difficult questions from a simple starting point. Data i.e. measurement of performance over time is the best place to start. Everything else follows. We hear the government and the press mention numbers for Using data to judge performance for GDP, exports, foreign debt or reserves and other similar informaservice delivery is the much needed tion which may be of interest to some, but are Greek to a common real accountability man like me. And frankly, why would a common man be interested in these. I am not interested in budgets, growth rates, and fiscal ccountability is a damaged word in Pakistan. deficits. To me, these are all terms created by clever economists Recent rains in Karachi brought out various to befuddle me. No, I am much more interested in the crime rate aspects of public service delivery in this large in my city or my locality. I am also interested in utilities supply to city and people clamoured for accountability my area. How did they do in the previous years and how are they of various organisations involved with service performing now? I want to understand what is the benchmark or delivery. The voices raised against the govtargets that these service organisations are pursuing as surely, they ernment and other service organisations have mainly been must all be striving to achieve certain goals. But nothing like this hysterical cries of anguish. While the frustration is easy to is available- via a website or otherwise. Even the data which is understand, some of us would like to use the opportunity to available on a few websites is not presented in a user-friendly way, see how reform can take place to improve the situation in the making it more difficult to ascertain true performance. Numbers coming days. Public service is a difficult job that is made even must tell the story-the correct story-otherwise they are meaningmore complicated by local, provincial and federal level politics. less! The organisations which are supposed to cater to these basic Most public service organisations have some sort of basic daily needs are severely handicapped with resources and data about their service delivery. It is a matter of collecting, organising and presenting this information in the right manner. I looked up some large cities elsewhere to see how they judge performance. It is a long and varied list, but the most frequent measures which come up are; Public safety, service delivery, mobility, environment, business friendliness, arts and culture and many similar heads. There are strategic goals defined for each area and the main heads are divided into sub-components. Asif Saad Many cities are deploying the latest information and communication technologies using data for is a strategy consultant their smart city projects. But let us not get carried away. Letâ&#x20AC;&#x2122;s start at home from the very basics. who has previously worked Here is what we can start measuring and sharing with Pakistani citizens; at various C-level positions Public safety & Crime for national and The most valuable information for Pakistani citizens is about safety. Everyone should be able multinational to see the numbers for road and public safety accidents in their cities. Crime rate, broken up into corporations various categories, ought to be shared. Number of burglaries, car jackings and mobile phone snatching incidents occurred this year as compared to previous years. This information should be broken into various areas of the city so everyone can see the results for their respective locations. If I live in Gulshan in Karachi, I should be able to see the data for all of the above-mentioned in my locality. In

this context, the more micro level the data, the better.

Utilities supply

itizens should know the quantity of water supplied to their homes or apartment buildings. How many areas in their city and locality have proper sewage and how many gutters remain open? They should be told about the frequency of electric supply disruptions and their duration in their areas. How many times have they been impacted by unplanned shutdowns? What has been the gas supply into their home and how many times has there been low pressure which makes the supply irrelevant. All of this data should be available from the various utilities.

Transport

lthough many readers of these pages may be fortunate enough not having to deal with public transport, the common person should be informed about the public transport available for them. How many trains and buses are available? What is the departure and arrival schedule and accuracy for these? How many accidents, if any have occurred and on which routes?

Garbage collection

his is a subject close to the hearts of Karachiites as there is much media attention being given to it and ministers are flying in from Islamabad to clean up Karachi overnight. While the concern of the government is appreciated, could they possibly start a process of sharing data on the quantity of garbage Karachi generated this year and how much has been picked up versus last year. Could they ensure that this is measured and reported every month? Could they also break this up into

different geographic locations within the city? I could go on as there are numerous other fundamental services which may be missing from this list. But consider this as a bare minimum-a starting point. I have tried to create a small scoreboard, as an example only to demonstrate what could be developed for a city or a metropolitan area or a tehsil and be shared with its citizens every month; A few things to keep in mind when collecting data. First, in order for the data to be meaningful, it should be of several time periods (months/years) with each new period being compared to the previous ones. Second, the information ought to be broken into as small or as micro a level as possible. It would be great if citizens could see information about their own street and neighbourhood and not just the city. But the biggest challenge in this endeavour is to ensure the accuracy of the data being presented. I have

seen organisations struggle with this despite the earnest desire to have accurate data. Sometimes the organisation does not have the capability to collect accurate data while at other times the accuracy suffers from limitations of instruments and technology being used. And there is always the chance of the numbers being fudged! As most people will understand from this discussion, performance analysis using accurate data is a fundamental tool for improvement for any organisation. Cities are to be no different when we expect their performance to improve over time. State and city administrators at all levels will need to educate themselves to use new methods to improve. They could do this by undertaking training from various universities and institutes which should be creating curriculums for data studies. The other and perhaps more fruitful way could be to recruit younger IT/ data personnel into their folds. The young are more technology and data savvy and could create value from areas where the older generation wonâ&#x20AC;&#x2122;t venture. Legal and regulatory ways will also need to be found to ensure that accuracy of the data would not be threatened under political pressure. I am sure there are experts in this area who could improve on my suggestions and I would encourage for this to happen. My only point here is to urge governments to start taking steps in this direction. For governments which care about performance and their own political future, this is the only genuine accountability and a no brainer for them to provide evidence that they have been able to improve service delivery to the ordinary citizen. n

COMMENT

In 2016, the state-owned telecom giant became the only one in the country to not offer 4G data to its customers, and lost market share. What was behind that decision, and did it make sense?

By Farooq Tirmizi

n the surface, it looks like a clear cut mistake: the state-owned Pakistan Telecommunications Company Ltd (PTCL) owns Ufone, which until just a few months ago, was the only mobile communications company in Pakistan not to own 4G spectrum, a decision that has resulted in revenue growth for the company to stall and profits to plummet into losses even as its competitors continued to see growth.

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“PTCL is the carrier of carriers. In a way, the rapid data volume growth of the mobile operators is a blessing for PTCL, because these operators need a lot of capacity for data traffic. The most efficient way to carry this traffic is fiber, and PTCL has the largest fiber network in the entire country. So, while these mobile operators are competitors for Ufone, they are at the same time a great opportunity for PTCL” Daniel Ritz, former CEO of PTCL The story practically writes itself. From 1947 until 1989, PTCL was virtually the monopoly provider of communications services in the country, and until 2015 remained the largest communications company in Pakistan by revenue. With that hubris came the ingredients of what appears to be its misery: a failure of management to adapt to changing consumer demands driven by technological evolution resulting in the erstwhile state-owned giant being overshadowed by its newer, nimbler privately-owned competitors. While there is some truth in that narrative, reality is significantly more complicated. The truth is that while PTCL has certainly fallen behind in the consumer-facing mobile telecommunications industry in Pakistan, it remains the critical backbone of the national communications infrastructure. And it is the provision of that infrastructure that remains a highly lucrative business for the company. In other words, PTCL appears to be losing in the mobile game because it has decided to focus on playing a completely different game. Is this the right strategy? Will PTCL really be able to survive in an era of increasing technological change, particularly as one of its competitors – China Mobile, which does business in Pakistan as Zong – is gearing up to launch 5G mobile internet? Maybe. But it will have to be very clear about what kind of company it wants to be. And it would help to know how winners and losers in the industry have been determined in the past.

A history of Pakistan’s mobile industry

he story of Pakistan’s mobile industry begins in 1989, when the government first granted licences for mobile operators. Two companies won bids for that spectrum: Instaphone and Paktel, and both were able to launch service at almost exactly the same time in October 1990. Instaphone was a collaboration between the Swedish telecom

company Millicom and the Arfeen Group (a Karachi-based trading and industrial conglomerate). And Paktel was a collaboration between the UK-based Cable & Wireless and the Hasan Group of Companies. Both of these companies, however, operated at a time when per capita income in Pakistan was very low, and the global telecommunications industry too small to make a dent. Pakistan did not get a taste of a mass-market mobile company until Mobilink finally launched its services in 1998. Mobilink was a joint venture of Motorola and the Saif Group (owned by the politically prominent Saifullah Khan family, originally from Lakki Marwat). The advantage Mobilink had was timing: it came right as the cost of communications equipment (both mobile handsets as well as the infrastructure for the cellular towers) was beginning to drop enough to become a more mass-market product and Mobilink had the good sense to come in with GSM (Global System for Mobile Communications), the standard beginning to take over Europe and what would soon become the global standard for communications. In 2000, Orascom Holdings of Egypt bought a controlling stake in Mobilink and began investing heavily in building the company into a truly national carrier rather than simply one that focused on the major cities. Mobilink consistently had a greater than 50% market share during this period in Pakistan’s telecom history, both in terms of revenue as well as number of subscribers. In 2001, more than a decade after the emergence of a Pakistani mobile industry, PTCL decided to enter the fray with Ufone and quickly began to take market share. By 2006, within five years of its launch, Ufone had gained a 21.7% share in terms of the number of subscribers and 17.9% in terms of revenue. In retrospect, however, that may have been Ufone’s high-water mark. The pioneers in the industry – Paktel and Instaphone – continued to die a very painful death. Instaphone was bleeding itself into the grave because it continued to stick with Digi-

tal-AMPS technology even as GSM had become the dominant technology even in North America, the birthplace of AMPS. Paktel tried to save itself by converting to GSM in 2004, but it was too little too late. Meanwhile, two new players had entered the industry. Telenor, the Norwegian telecom giant, launched its services in Pakistan in March 2005. And then came Warid, a new company that had the backing of the Abu Dhabi Group (owned by members of Abu Dhabi’s ruling Nahyan family), launched its services in Pakistan in June 2005. And the race was on. And Ufone did not know what hit it. By mid-2008, Telenor had caught up with Ufone in terms of the number of subscribers. Perhaps even more impressive for Telenor was the fact that they did so while having a higher average revenue per user (ARPU) than Ufone. The year 2008 was when Telenor became the second-largest mobile operator in Pakistan and Ufone never regained that title since then. The year 2008 was also the year China Mobile officially launched the Zong brand in Pakistan. The company had bought a dominant 88.9% stake in Paktel a year earlier, in January 2007, for $284 million. China Mobile increased its stake to 100% by May of that year. And thus began the era of the five mobile operators in Pakistan that continued for almost a full decade. Ufone was comfortably middle of the pack for almost the entire time.

The beginning of Ufone’s struggles

ven while it was allowing new companies to gain market share, Ufone’s financial position remained relatively stable, and it even gained some share of wallet. The peak for the company came in 2011, when Ufone accounted for 21.9% of the industry’s revenues. In hindsight, that was probably as good as it was going to get. In the eight years between 2003 and 2011,

Ufone’s revenue grew by an average annual rate of 46.6% per year, from Rs2.7 billion in 2003 to Rs60.5 billion in 2011. This was significantly faster than the already very rapid growth in the industry’s revenue, which grew at an average annual rate of 38.2% per year during this same period, from Rs19.8 billion in 2003 to Rs263 billion in 2011. Since then, however, growth has effectively stalled at Ufone, with revenue growing at an average of just 0.5% per year between 2011 and 2018. The industry grew at an average pace of 5.5% per year during that same period. Ufone’s market share was down to 15.6% by the end of 2018. So what happened? Well, the rules of the game changed, and on the surface it looked like two players were caught off guard: Warid, and Ufone. Warid was ultimately bought out by Mobilink (since renamed Jazz). Ufone continues to struggle on. Was it really that bad? In hindsight, it appears so. But if you look at their decision-making at the time, Ufone was not necessarily making mistakes.

The spectrum auctions

n April 2014, years after having first broached the discussion of auctioning 3G and 4G spectrum in Pakistan, the government finally decided to conduct the auction that would allow mobile telecommunications to evolve to the next logical stage in the country. It was an auction that appears to have been designed to winnow the field of mobile operators in Pakistan. Five national operators was just too many. Even in the United States, four national operators feels like too many, let alone five in a small market like Pakistan. So the government decided it would only auction off four 3G licences and two 4G licences. At the time, most Pakistanis still owned feature phones, and the few people who owned smartphones had to make do with 2G Edge connections, which could only charitably be described as a mobile internet connection. So even a move to 3G would have felt like a big move for most consumers.

In other words, it would be completely rational for the mobile companies to assume that getting 3G spectrum would be enough and that there was no need to bid an absurdly high amount for 4G spectrum, particularly when the base price for 3G spectrum itself was set at $295 million for each licence. Everyone knew that Warid – as the smallest and least financially stable of the mobile operators by subscribers – would not have enough money to bid and would likely not even participate in the auction, meaning the other four were guaranteed a 3G licence at the base price. Unfortunately for the other three, Zong had other ideas. Its parent company, China Mobile, was keen to change the game for itself in the Pakistani market. By 2014, Zong had grown to become the third-largest mobile operator by

In the eight years between 2003 and 2011, Ufone’s revenue grew by an average annual rate of 46.6% per year, faster than the growth in the industry’s revenue, which grew at an average annual rate of 38.2% per year during this same period. Since then, however, growth has effectively stalled at Ufone, with revenue growing at an average of just 0.5% per year between 2011 and 2018. The industry grew at an average pace of 5.5% per year during that same period

subscribers, but it was seen as the low-cost option and had an ARPU significantly lower than all of its competitors. Zong was gaining market share, but at the expense of profitability. The company saw data as its potential game changer and effectively decided to act like a poker player going all in on its last hand at the game. Zong had the highest bid for the 3G spectrum at $307 million, which rendered it eligible to get a 4G licence at the base price of $210 million. (It was not possible for a company to bid for just 4G spectrum without also seeking a 3G spectrum licence.) China Mobile spent $517 million (then Rs52 billion) getting those licences, even as all of its competitors chose to get 3G licences at barely above the base price (Telenor and Ufone actually bid just the base price). And soon after the auction was over came another surprise: Warid had not skipped the auction for no reason. When it had first bought its spectrum from the government in 2004, it had requested a “technology neutral” licence, meaning it could launch 3G and 4G mobile internet on its existing spectrum, which it announced it would promptly begin investing in. So at the end of the auction, there would be two companies that had 4G spectrum, and three that had 3G spectrum. What happened next should have been predictable, but nonetheless appears to have caught the industry off-guard. Between 2012 and 2015, the mobile indus-

TELECOMMUNICATIONS

try saw its revenues increase by Rs18.5 billion. During that same period, however, Zong’s revenues grew from 20.4 billion to Rs47.8 billion, an increase of Rs27.4 billion. Yes, you are reading that correctly: Zong’s revenues grew by more than the entire industry combined, meaning Zong gained market share at the actual expense of its rivals’ revenues. Needless to say, that caught the attention of just about everyone in the industry. In 2016, when the government put more 4G spectrum on auction, both Telenor and Mobilink leapt at the opportunity to buy some for themselves, in order to ensure that they would be able to offer 4G services to their consumers and stop losing market share to Zong. Ufone, however, was not among those companies that spent any money on 4G spectrum, which is surprising because of the Rs8.9 billion in revenue that Zong took from its competitors in 2015, Rs6.0 billion came from Ufone, with much more minor declines from Mobilink and Telenor. Meanwhile, Warid’s play for 4G was floundering since the company simply did not have enough cash to build out its infrastructure. In November 2015, Mobilink bought out Warid and, in January 2017, renamed the combined company Jazz. At this point (mid-2016 or so), Ufone’s problems appeared to be getting worse. Because the largest mobile operator in Pakistan had just gotten larger, and all three of its only competitors left offered 4G services. Would Ufone end up like Instaphone and Paktel? For a while, it certainly looked like it.

The ‘strategic alternatives’ rumours

ccording to sources familiar with the deliberations at PTCL’s senior management, soon after the Warid-Mobilink merger was complete – and having 4G services became table stakes for being a mobile operator in Pakistan – PTCL seriously considered exiting the mobile operator game altogether. Sources tell Profit that there were at least initial discussions about possibly selling a stake in Ufone. It is unclear how advanced the talks were before ultimately falling through. But the mere fact that such deliberations occurred suggests that PTCL management were clearly aware of just how much trouble their mobile subsidiary was in during 2016. The rumours grew so persistent that in September 2016, Etisalat, the UAE-based telecom company that owns a management stake in PTCL, put out an official statement denying the rumours. “PTCL on confirmation from Etisalat would like to categorically state that no discussions regarding sale of Etisalat’s stake in PTCL and its subsidiary Ufone to any company have taken place,” the company said in a statement released to the press. This was about six months after Daniel Ritz had been brought onboard as the first non-Pakistani CEO of PTCL. Ritz, a Swiss citizen, joined PTCL in March 2016, after having worked in Dubai for four years as the Chief Strategy and M&A Officer for Etisalat. Needless to say, having an M&A specialist take over

as the CEO of a company did not help quash rumours about possible M&A activity involving that company’s struggling subsidiary. In an interview Profit conducted with Ritz in February 2019, shortly before he was ousted, the then-CEO tried to downplay the troubles that Ufone was in. “Ufone has increased its customer base, grown revenues and won back market share in every single quarter. It’s a focus of the management and employees on growth. They have started believing in it again, and have become more aggressive in customer acquisition. And at the end of the day, Ufone has a good network. It doesn’t have 4G, but if you look at the last quality survey done by PTA on voice, Ufone scored very high. They might have fewer customers than others, but less customers also mean better quality on your network.” But besides the unconvincing statements that Ufone was somehow thriving, Ritz made an interesting and important point: that unlike all of its other competitors, PTCL is not solely reliant on offering 4G data services to consumers to profit from the growth of mobile internet usage in Pakistan.

The infrastructure behind 4G

et us say you are sitting in Islamabad and want to do a WhatsApp video call with your friend who is currently in Karachi. Your smartphone will transmit the 4G signal to the nearest cell-tower from which the signal ultimately needs to pass through WhatsApp’s servers before it is routed back to

your friend’s phone through the 4G cell-tower closest to them. In order for that to happen, the signal is not transmitted wirelessly across the whole world. It is transmitted through fiber optic cables, a network of which spans all of PakiPakistan, the globe. “PTCL is the carrier of carriers,” said Ritz. “In a way, the rapid data volume growth of the mobile operators is a blessing for PTCL, because these operators need a lot of capacity for data traffic. The most efficient way to carry this traffic is fiber, and PTCL has the largest fiber network in the entire country. So, while these mobile operators are competitors for Ufone, they are at the same time a great opportunity for PTCL.” “The IRU [indefeasible right of use] contract with Zong was the first of its kind, and since then we have done more of the same. We have also signed a deal with Telenor in 2018. And there is more to come,” said Ritz. In other words, even if Ufone did not exist, PTCL has a business that would take advantage of the fact that more Pakistanis are using data: instead of selling data services directly to you the consumer, they can sell data infrastructure services to Telenor, which in turn can sell them to you. From the PTCL management’s perspective, the question then is this: you have a limited amount of cash flow generated by operations of the company, which are available for capital expenditures. Which business would you put them in? According to Profit’s analysis of PTCL’s financial statements, the core infrastructure

business is yielding a 16.3% return on equity, while the mobile operator business currently has a negative return on equity: -5.7% for the 12 months ending June 30, 2019. The solution is obvious: invest in the business that has a higher return, which in this case is the infrastructure business.

Ufone is still a headache

he problem, of course, is that just because it makes more sense for PTCL to invest in its core operations does not mean that Ufone ceases to exist. PTCL has invested tens of billions of rupees in that business and cannot afford to just let it wither on the vine. In such circumstances, usually selling an underperforming business is the optimal option. It may not make sense for an integrated telecom operator like PTCL to invest in its mobile arm, but a company that competes only in the mobile sector – or does not have an infrastructure business – would have more use for Ufone’s assets. Of course, based on information from Profit’s sources, that option has already been explored and went nowhere. Which means that PTCL is stuck with Ufone, whether they want it or not, and that, in turn, means that the company needs to invest in its 4G infrastructure. Ritz admitted as much in his interview with Profit. “At some stage Ufone will require 4G spectrum to remain competitive. If, when and how that spectrum will be made available is for PTA and the government to decide,” he said.

This interview was conducted just a few days before it was noticed in February 2019 that Ufone customers in Islamabad and Rawalpindi were already able to use 4G LTE services. In a statement to ProPakistani, Ufone officials claimed that the company has all regulatory approvals needed to launch 4G LTE services in Pakistan, albeit on existing spectrum. The hunger for 4G services in Ufone’s existing customers appears to have been pent up for quite some time. Between February and June of 2019, Ufone has managed to convert 1.9 million of its 22.6 million customers (about 8.3% of the total) to 4G, and perhaps not a moment too soon. By the end of fiscal year 2020, 4G users in Pakistan will outnumber 3G users for the first time. It is still unclear how much PTCL is willing to invest in Ufone’s 4G rollout, which most accounts suggest is still not available in most of the country. And there is also the matter of PTCL – still majority-owned by the federal government – appearing to get the special favour of being able to roll out 4G services without paying the $200 million or more in licence fees that all of its competitors have paid. For now, however, PTCL appears to have realised its earlier mistake: the Pakistani consumer is no longer willing to make do without 4G internet on their smartphones. And so long as PTCL owns Ufone, it will have to cater to those consumers, even if the infrastructure business is more profitable. With additional reporting by Syeda Masooma

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The Competition Commission of Pakistan says the pharmaceutical industry is colluding to hike prices. Big Pharma says that they are too over regulated to collude even if they wanted to. Is the truth somewhere in between?

By Bilal Hussain

he tale is an old one. Medicine is one of those things that all humans need, and that need is what has allowed it to turn into one of the largest, most lucrative, and powerful businesses the world over. Wherever it is, and it is everywhere, big pharma has sway. But thereâ&#x20AC;&#x2122;s always someone, a lawyer, or a government agency that decided every now and then they are no longer going to stand for pharmaceuticals pushing them around and doing as they will. After all, the regulation, or lack thereof, of medicine prices often has critical and fatal consequences. Recently, this old tale played out between

the Competition Commission of Pakistan (CCP) and big pharma. The accusation against pharmaceutical giants in Pakistan are essentially the same as the accusations are against them all over the world: That the industry is colluding to engineer price hikes. But much like the rest of the world, big pharma has money, and the power and influence that comes with said money. In the path of the CCP stands the industryâ&#x20AC;&#x2122;s own body meant to represent and protect their interests. Pakistanâ&#x20AC;&#x2122;s Pharma Bureau is an association and representative body of more than 20 multinational pharmaceutical companies. The Pharma Bureau has been campaigning for deregulation of the industry, and ascribe to the old libertarian argument that prices are best left determined by

market forces, even for products as important as medicine. At the same time, it also vehemently denies any collusion between pharmaceutical companies and sit poised to respond to any such accusations. In the most recent episode, the CCP seems to have felt that sitting by passively was no longer an option. After receiving reports that they felt were conclusive enough to pursue the case, they went after the Pharma Bureau and the two bodies have been at loggerheads ever since. And while the CCP had felt strong about their case and wanted to pursue it, the cookie crumbled as was expected, with the CCP unable to gather enough information to take the Bureau to court. Despite this failure, however, the CCP

seems to have taken the back and forth to heart, telling pharma companies not to rest easy yet, since they are still following the trace that they believe will lead them to an unholy alliance pharmaceutical companies to jack up medicine prices. But what exactly makes the CCP feel so strongly that the pharmaceutical industry is in cahoots with each other to keep prices on an upwards trajectory? And if they are indeed involved in such practices, what is their defense? If the pharma industry can come together in the form

of the Pharma Bureau to represent their common interests, what is stopping them from working together to float prices up and cause mutual benefit? Profit, takes a look.

Too good to be true?

o hear the Pharma Bureau speak of it, there has never been an organisation as squeaky clean and well intentioned as they are.

“The Pharma Bureau has been campaigning for deregulation of the industry, and ascribe to the old libertarian argument that prices are best left determined by market forces, even for products as important as medicine. At the same time, it also vehemently denies any collusion between pharmaceutical companies and sit poised to respond to any such accusations”

The rationale they provide for deregulation is that it is the only true way to bring down medicine prices and encourage competition. According to them, competition will increase healthily once the government stops intervening. And while they do admit that the government should be able to intervene to look into the quality aspect of medicine, that is as far as the government should be involved in regulating medicine. Full stop. Ayesha Tammy Haq is the Executive Director of the Pharma Bureau. She tells Profit that rather than controlling prices of all drugs, the government should come up with a reasonable ‘Essential Drugs List’ and control the prices . “The rest should be left to market forces to determine prices. Deregulation will ensure competition which will not just drive prices down but will also ensure quality,” she said. One wonders, once more, why the pharma industry would want their prices to go down. Even if they are no colluding to drive them up, what would they get by suggesting deregulation if it will indeed drive the prices down? And if

PHARMA

“That is absolutely incorrect. In an industry where the prices of every single drug, more than 70,000 of them, are controlled by DRAP (Drug Regulatory Authority of Pakistan), there can be no question of collusion. The CCP had conducted an inquiry and found that there was not only no sign of collusion, but that there had been absolutely no violations of the competition laws” Ayesha Tammy Haq, Executive Director, Pharma Bureau

they are fine with prices going down, then what is the problem with the government fast tracking the process a little through regulation?

The back-and-forth

ut as one industry expert explained to Profit, the argument is hogwash. According to the expert, that government controls drugs price by putting a cap that medicines shouldn’t be sold above. The companies then have to compete with each other by selling their drugs below that cap, which is what actually drives drug prices down. “The government has kept a ceiling price, not a fixed price. There’s plenty of space below the capped price to compete and bring down prices. Why aren’t they competing?” they questioned.

However, they said that profit-making is an important part of any given business.“There has to be a balance. It is complicated of course, but a company should make profits by making it sustainable, and yet the government also has a responsibility to ensure that safe and quality drugs are affordable by the masses. This is what WHO (World Health Organization) recommendations entail.” Currently, despite the fact that there are price controls, prices have shot up over the last three years. According to a drug-store owner, Mohammad Umair, there are drugs which have observed a tripling in price in this time. “There is a tablet box of Concor 5 mg, which was sold for Rs75 two to three years back and it is now selling at Rs234.” The Concor medicine is now being produced and marketed by Martin Dow after it acquired Merck operations in Pakistan in 2016.

“The medicines first vanish from the market and then it again comes in the market with increased prices,” he added. Another salesperson at a drugstore, Hasib Rafi, said that top companies like Abbott, Searle and GSK haven’t increased prices as much as other smaller companies did since this government came in. However, he mentioned some products of the top companies, which saw their price surge. For instance, Abbott’s Duphaston tablets saw its price move up from Rs540 to Rs 840 and price of Urixin 400 moved up from Rs1010 to Rs1500 for 100 tablet box. GSK’s Kenacomb cream price has been increased from Rs74 to Rs174 and Augmentin 625 price has been increased from Rs120 to Rs164. Searle’s Nuberol tablets box price has moved up from Rs350 to Rs500. The Pharma Bureau’s response has been that it is actually over regulation and unsustainable prices that result in medicines being driven out of the market, and that is why they then return at higher rates. This results not only in shortages of drugs, but creates room for smuggled and counterfeit drugs. “Often, patients end up buying drugs that come into the country through gray channels at way higher prices. This is exactly what is happening in Pakistan. Considering India and Bangladesh as examples, where 300 and 120 drugs are being regulated respectively and rest are deregulated, both countries are achieving exponential growth in local markets as well as exports.” However, the fact remains that the Pakistani market has been different from other free markets like those of Europe for example. They have industry code of ethics, something that seems to be completely missing in the

operations of Pakistani companies. “Unless there is transparency and the free market is fully operative, price control regimes should be there to keep checks and balances,” says our unnamed source. “I remember the companies went to Sindh High Court to take stay order against Federal government’s Drug Act and raised drugs price. The case then went here and there, bouncing around the courts while the prices kept going up.”

The state of the industry

ut the Pharma Bureau continues to vehemently deny any such collusion. In fact, Ayesha claims that the pharma sector is already in the doldrums, and that such accusations and investigations only make matters worse. “That is absolutely incorrect. In an industry where the prices of every single drug, more than 70,000 of them, are controlled by DRAP (Drug Regulatory Authority of Pakistan), there can be no question of collusion. The CCP had conducted an inquiry and found that there was not only no sign of collusion, but that there had been absolutely no violations of the competition laws.” “What is worse is that it is the pharma industry that has been struggling thanks to irrational policies and an over regulated industry. These are the actual biggest challenges for the pharma sector in Pakistan,” she went on to say. “The industry right now has been hammered in terms of inflation, currency devaluation and fuel prices The costs have gone up exponentially, but the industry has only been allowed 7.3 percent in terms of CPI. More regulation is the last thing we need.” “Currency devaluation alone has been close to 40% in one year. The industry would prefer devaluation to be incorporated in price revisions, which is currently not the case,” Ayesha said. According to the former Special Advisor to the PM and the Minister of State for Health, Dr Zafar Mirza, there are 900 companies registered in Pakistan with a total market size of $3.3 billion. Abbott, Searle, GSK, GSKCH and AGP account for 85% of the total market

capitalization of the listed pharmaceutical companies. Their combined market capitalization is Rs137 billion and the total by the listed pharma companies is Rs 162 billion. GSK and Abbott are the market leaders with annual revenues of Rs Rs 34 billion and Rs 29billion respectively. Infact an analysis of the last five year financials of the three largest pharma companies shows a steady 9% average growth in revenues and an even healthier 14% growth in the bottom line numbers. Out of a total of twelve listed companies, only one, Wyeth Pakistan Limited did not turn a profit in 2018 with the rest operating at profit margins as high as 30%.

What now?

espite the CCP’s suspicions, the Pharma Bureau seems hopeful. Perhaps because despite everything, and all the suspicions and efforts of the CCP, they feel they will come out of this relatively unscathed. Whether this is because they are innocent or powerful, is to be seen. “It is not all bad. We finally have a drug pricing policy in place. This came out last year and was the result of months of consultative

“One wonders, once more, why the pharma industry would want their prices to go down. Even if they are no colluding to drive them up, what would they get by suggesting deregulation if it will indeed drive the prices down? And if they are fine with prices going down, then what is the problem with the government fast tracking the process a little through regulation?”

meetings between all the stakeholders. For a drug pricing policy to work it must ensure the availability of quality medicines at affordable prices” explains Ayesha. “There was also a realization that prices had been frozen since 2001. The cheapest drugs were the ones being most impacted and the ones disappearing from the market. The then health secretary got all the stakeholders to sit together and work out something whereby you would have a policy that could sustain not just the pharmaceutical industry but also patient interests.” “One of the leading challenges is policies pertaining to Toll manufacturing in Pakistan. At present the tremendous potential of the Pharma industry to boost exports, create thousands of more jobs and earn much needed foreign exchange is being ignored. The current legal and regulatory framework doesn’t facilitate this at all.” Toll manufacturing is an arrangement in which a company, which has a specialized equipment, processes raw materials or semi-finished goods for another company against a fee. Pakistan pharmaceutical exports stood at $197.62 million during 2018. It rose by 8% in 2018-19 to $211.674 million. Bangladesh recorded 27% export growth in the sector to reach exports of $130 million in 2018. “In every developed economy, including our region, favourable policies help support industry. We need to deregulate the industry in Pakistan and let the competition come into play. Toll manufacturing should be promoted and the only area where the government should be regulating is the quality aspect.” Ayesha insists. n

PHARMA

OPINION

Nadeemul Haque

Recipe for sustained growth of jobs in Pakistan to meet youth bulge

have shrunk despite subsidies. Growth of the economy and jobs has happened in the services sector: education finance, telephony and media. We can learn something from these facts. 1. Policy and our thinkers have been stuck in a groove. Despite mounting evidence, they lack originality and innovation. 2. Growth does not follow government, policy or the consultant. 3. Jobs are mostly being created in places that policy and consultant don’t expect. hey ask me to give ideas for increasing employ4. Growth happens and jobs are created where there is ment in Pakistan. The answer they are expecting demand even if government is trying to move the economy in is build more industry, more industrial parks, another direction. build SEZs and seek more FDI. And of course, What few understand is that jobs are created in don’t forget to give everybody a low-quality edumarkets and not sectors or other fanciful thoughts of clever cation and then pray graduates get a job! speakers. Policy in Pakistan has danced to the music of these clichés What then can policy and government do? emanating from donor consulting jobs. The results are there for Create competitive markets with proper regulation all to see, galloping debt, declining productivity and repeated based on monitoring and evaluation. Such markets must seek IMF programs. to reward innovation and entrepreneurship. This will require The only real employment and poverty reduction opporthoughtful and well researched policies and regulation. It tunity that our poor have got is from migration and sending will require a reinvention of our government procedures that remittances back to their families. currently are very suspicious of the market. Pakistan economy has grown on average at about 5% per To see this, consider the growth drivers of the last 2 deannum not because of government policy but despite it. The cades: education, telephones and TV. Growth and entrepresectors that policy has favored — agriculture and education neurship opened up in these areas as they were opened up. History has shown us that jobs open up in vibrant cities. For this reason, rural populations flow into cities. If cities are unfriendly to migration and development, there is no space for markets entrepreneurship and innovation. We have seen badly regulated cities deny space to poor housing, offices, commerce, trade, entertainment and other city spaces. Nadeemul Haque Historically market have situated in cities to host innovation and entrepreneurship. Such cities is an economist and the are a hotbed of commerce, trade and ideas. Such dynamic cites are an everchanging amalgam of tower former Deputy Chairman of cranes signaling the continued construction of fresh space that economic activity wants. the Planning Commission of It is immediately obvious what is holding back both market development as well as vibrant Pakistan, and the former Vice city development is the centralized hold of the persisting colonial administration, judicial and legal Chancellor of the Pakistan system. Institute of Development The consultant approach is to draw up long to do lists, ranging from rearranging the room to Economics. He previously a laundry list of large expensive projects. But our systemic view here shows that deep reform is the worked for decades at the areas of governance, market and city reform will generate sustained growth rates north of 8% for over International Monetary Fund. 20 years and quite likely meet the employment needs of our youthful population.

COMMENT

The PTI wants to give 30% of the Punjab budget to local govts. But has it overcome the issues that caused it to crash and burn in KP

By Abdullah Niazi

n May 1 this year, two pieces of legislation were bludgeoned through the Punjab Assembly that put out of commission a staggering 58,000 elected representatives in the province. Claiming it was the dawn of a new era for democracy in the country, the Pakistan Thereek i Insaaf (PTI) government rushed the Local Government Act, 2019, and the Village Panchayat and Neighbourhood Councils (VPNC) Act, 2019, through the provincial assembly on the insistence of Prime Minister Imran Khan. The Pakistan Muslim Leageue Nawaz (PML-N) called it a legislative coup. Whether the move was heavy handed or prudent, the PTI was always going to take a stab at local body governments at some point or the other. After all, while the Prime Minister’s reformist credentials were put to the test in KP, his true battle ground, and the apple of his eye, was always going to be the Punjab. That the Premiere is pulling all the

Courtesy: Azhar Jafri white star

punches is not strange or unexpected, After all, his party will still be licking its wounds after it failed to implement an ambitious local government plan in KP between 2013-18. Local government reforms have been on Imran Khan’s agenda from the early days of his much hyped 22 year political struggle. But the thing is, campaigning for local governments is not unique to Imran Khan. It’s just one of those things that everyone seems to support but still somehow never agree on. For starters, the concept of having local government bodies instinctively makes sense. After all, it would be a more efficient administrative system and would add another tier to the democratic process, making accountability and access to said administrators a less arduous process than it currently is. It would also allow communities to look out for and administer themselves in accordance with their own best interests, and leave legislators in the assemblies to the more important task of actually legislating instead of being caught up in gali mohal riff raff. But more than just being a third tier of democracy, having a local bodies system means having a new economic process. In essence, it is not just a new administrative stratification, but also involves the dispensation and spending of money. Things such as education and health that people automatically look towards the provincial government for would now be handled by local representatives. This of course means big provincial and federal level politicians loosening their grip on the purse strings, and allowing money to flow directly into each district. In the Punjab, this would not only lead to the formation of small scale economies in every district but also creation of local conditions conducive for individuals and society to achieve better levels of economic development . It would mean different levels of performance and efficiency in the handling of money. Then why is it that despite more than seven decades of existence, Pakistan continues to experiment with one local government system after the other? The answer is simple - money and politics. Local body governments can only be effective if they are empowered, otherwise they are toothless as a Duma. The key to an empowered local bodies system is funding, and that means the provincial government, specifically the MPAs that constitute it, letting go of the purse strings and agreeing to equitably split the spoils among the districts. The PTI’s claim, for once, is a strong one. Though they may have taken the leap back in 2013, the PML-N’s local government system was far from empowered. District councils worked on a project to project basis, did not get regular funding, and were heavily depen-

dent not only on the Deputy Commissioner (DC) of the district, but also how well connected they were to the local MNAs and MPAs. The current government has a bold new plan, one that provides smaller, more easily managed divisions. Their hook is a guaranteed 30% cut from the provincial budget to local governments. One thing is clear, on paper, the PTI’s propositions are much better than what the League proposed and put in place. It distributes money not just more evenly to the districts and with a lot more checks and balances, it also distributes a whole lot more of it - and in turn dishes out many more responsibilities. The problem, however, is that in their aggressive blustering and posturing, the PTI has not allowed the (formerly) incumbent local representatives to complete their five year terms. And even after the passing of the Punjab Local Government Act 2019, the government will need at least a year, by their own estimates, to hold fresh elections, during which time districts will be ruled by the DCs - now without even the facade of some kind of local elected oversight to their actions. And with court cases already raging, the implementation of the new proposed system could be delayed until further notice. But the greatest concern keeping followers of the local bodies saga up at night is the KP analogy, where the PTI had also tried to implement a similarly groundbreaking local bodies system and failed miserably, with money not coming through and their own legislators standing as hurdles. As things stand, there are currently no local representatives in the Punjab, and the DCs reign supreme - untouched and unmoved, waiting out the storm of the National Accountability Bureau (NAB) and letting their charges fester for now. The PTI has undoubtedly made a bold move. But will it pay off? Politically, they have taken away the last bastion of remaining PML-N electoral authority in the province in one fell swoop. Financially, if implemented, their system could just be a stroke of genius. But the cost-benefit of the equation, at least as per the league, becomes a question of the democratic process and financial viability. And even if the PTI were somehow able to conduct elections within a year, their ability to implement this system and inject 30% of the provincial budget into district governments is what has everyone worried, especially since they have been keeping mum on the topic in recent times, as well as delaying the existing court cases against the PLGA 2019. How feasible is this plan? What are the implementation issues standing between the PTI and an empowered local body government? And what, if any, is the cost to democracy? Profit, takes a look.

POLITICAL ECONOMY

The anatomy of a democracy

hen the history books are written, one of the turning points in Pakistan will be the 18th amendment. In 2010 after the long years of the Musharraf era, the country finally seemed to be on a democratic track. And while the 18th amendment will always first and foremost be remembered for limiting the powers of the President and bringing Pakistan into a purely parliamentary form of democracy, it will also be remembered for bringing about the dissolution of certain powers from the center to the provinces. When these powers were first being handed over to the provinces, Ahmad Iqbal was still an aspiring public policy maker with stars in his eyes waiting for a similar dissolution of powers to take place inside the provinces, and for local district level representatives to be empowered to tackle head on the specific issues of their localities. After all, once powers that should have been provincial from the beginning were finally handed over to the provinces, one would expect the provinces to follow suit and do the same on a district level. Article 140 A of the constitution brought in by the amendment said as much, legitimising local bodies as a necessary third tier of government. What happened instead was provincial governments taking control of what should have been local issues and forming bloated health, education and other departments. Then, in 2013, the Punjab government led by the PML-N passed the PLGA of that year. For one reason or the other, elections could not be held until 2017. It was in this year that Ahmad Iqbal decided to pursue his interest in local bodies not as a policy maker, but as a candidate, being elected for council from Narrowal and going on to be nominated and elected as the council’s chair. Today, he is one of the 58,000 local representatives put out of commission by the Buzdar government. Speaking to Profit at his home in Lahore, he has no illusions about the realities of the PML-N’s local body systems and the issues that came with it. He is a staunch League hand, among a crop of new leaders that were working their way up the party ranks and are currently reeling in the face of their party’s recent woes. But despite his fierce loyalties, he is candid about the realities of the system he was a part of. Mild mannered but well informed on the subject he has made his own, his main contention is that the PLGA 2019 is an unnecessary move - a case of thunder and no rain. “There was absolutely no need for this,” he says. “This is little more than a change in nomenclature. If the government really wanted

“If the PTI wants to give 30 lakhs to every small council, I am the biggest supporter of this cause. But starting from scratch just sets us back and undoes so much work” Ahmad Iqbal, Former Chairman District Council, Narowal

to empower local government’s, they simply would have funded the existing representatives.” According to Ahmad, increasing the funding for local governments was simply a question of calling a meeting of the Punjab Finance Commission - the body consisting of provincial and local representatives as well technocrats that assigns funds from the provincial budget to districts. “The biggest issue of local government is funding, and funding is not a function of legislation as the PTI is trying to make it out to be. We did not require this new experiment, and could have simply empowered the existing system” Ahmad explains. “If the PTI had really believed in local governments, they never would have sent elected representatives packing before their tenure was over. Instead, regardless of what party they belonged to, they would have backed and bankrolled them.” “The reality, however, is that the PML-N had around 90% of the local representatives, and this new act coming in at such a time is not only suspect but is a simple rebranding” he goes on to say. But while he thinks that the new system being introduced by the PTI is unnecessary, he is under no false pretenses regarding the issues with the system he was a part of until very recently. He admits that a number of the powers that the 2013 act had given to local governments were in fact retained by the provincial and were only shared in name. These included the larger fish like health and education, but even smaller issues such as forestry, livestock, dairy and development. Once again, to tackle these issues, the key was money - money and in turn power that the provincial government and its representatives were unwilling to give up. “The PML-N government had already been looking into these issues. I was part of the empowerment committees, and there was a lot of drawing and redrawing we had to do

because of legal issues, bureaucratic issues and other very technical issues - but we were determined to fix these problems” he explains. “If the PTI wants to give 30 lakhs to every small council, I am the biggest supporter of this cause. But starting from scratch just sets us back and undoes so much work.” Clearly Ahmad Iqbal believes in the concept of local governance - to hear him speak of it, it is the be all and end all of democracy and where the problem starts and ends. It is an attractive proposition after all - people elected directly for a small area that know the people and know the problems, empowered and financed with help from designated professionals is a dream combination to solve specific community issues in accordance with the wishes of the community. It also leaves the legislature to do what it is supposed to do legislate. This, of course, is the perfect local government scenario. Perhaps it is this belief and hope that drove Ahmad to take the Punjab government to court once the local bodies elected in 2017 were abolished. The case itself has not challenged the legality of the PLGA 2019, although doing this is also a distinct possibility according to lawyers. Instead, it is simply bringing up how elected assemblies could be so easily dismissed before their term ended, thus breaking the covenant between voter and state. At the center of the League’s argument remains the single driving point: yes, their system was flawed, but they were working on it. The PTI acted rashly, and should have renovated not bulldozed. But despite Ahmad’s claims that most of the changes are a what’s-in-a-name sort of situation, the PTI’s proposed system truly is leagues ahead of the League. But how exactly does it differ, and is it anything more than a pipe dream?

“Financially speaking, this Act introduces checks in balances. It requires audits and oversight by the finance commission. But at the same time, these local councils will not be able to pull any of this off without the help of the DC since they are untrained. And if the government wants to use its officers nefariously, then nothing will stop it” Dr Sameen Mohsin, Expert on Punjab local government system

Revenues and expenditures

he cold hard truth is that the PTI’s plan is scrumptious - the sort of idealistic reforms that you just want to eat right up, lick your lips, and go back asking for seconds, and thirds. 30% of the budget goes to the local bodies, of this, a significant 10% to village councils and the remaining 15% to be divided amongst the districts. But despite just how good the deal sounds, the government doesn’t seem particularly keen to talk about it. The mastermind behind the plan, of course, was the former Senior Minister Aleem Khan. Back in March, a couple of months before the Act was passed, he had been interviewed by this reporter for Pakistan Today. The minister had seemed hopeful, promising major changes and to fight tooth and nail with his own colleagues in the assembly to take forward the vision of Imran Khan. Now, he shied away, perhaps because of his arrest by NAB and removal from office. Despite being back in the field, however, he first ignored messages on whatsapp and later deigned it beneath him to comment on his own designs. Taking over from him had been the Law Minister Raja Basharat, but he too refused to comment, saying the local bodies charge had been taken away from him by the CM himself. Profit attempted to contact Chief Minister Buzdar, but to no avail, we are assuming because he may have been busy fighting the good fight, selflessly offering rides to people stuck in rainwater. Even his spokesman, Dr Shahbaz Gill, did not seem interested in being a person that speaks. But once again, he is a busy man with much on his schedule. While he did see our messages, perhaps he simply forgot to respond in the heat of making videos on the opulent nature of houses in the province. The person that Profit was able to speak to was Dr Sameen Mohsin, an Assistant Professor at the Lahore University of

Management Sciences (LUMS) who has been researching local governments in the Punjab since 2016 and has written extensively on the topic. An expert at traversing the complicated geography of the PLGA 2019, she cautiously agreed with Ahmad Iqbal, saying that the PTI could have handled the situation with more care instead of taking the wrecking ball approach. But at the same time, she was clear that the system proposed by the PTI was a much superior one - the question once again remained one of implementation. Ideally, local bodies would be expected to collect their own taxes - such as on property sales. But this amount is insignificant, and could also increase disparity between districts depending on what sort of infrastructure exists in and around them. “In the PML-N system, taxes had been centralised, and local governments did not have control over them. They were also not getting the money they were supposed to” Dr Sameen explains. During the PML-N time, local governments were working on a project to project basis. They would apply to the DC for a grant for a certain project, and then it would be processed. “In the new system, the government is pledging 26% from the budget for the first year to local governments. This amount is fixed, and can go up but not down. Of this, 10% goes to the village panchayat councils and the rest to the districts” she says. “In theory this money should be divided equally, but the Provincial Finance Commission (PFC) also has a role to play over here, and if it determines that, say, Faisalabad should get more money on so and so indicators - that would be the call of the commission.” While Profit was unable to get the government to comment on this, even though up until this point their plan seemed impressive, Dr Mohsin was kind enough to share some of her conversations with the former secretary

who had drafted the 2019 legislation. According to him, and in turn the PTI, the PFC was not there to meddle, but a safeguard to ensure that not only was the budget being allocated, but that all areas were being treated equitably rather than equally. The argument is sound, after all, some areas might be able to raise their own money through taxes because of say, them being important points near the motorway. Other more isolated areas might thus need help, and a mixed PFC with provincial and local representatives as well as technocrats could possibly keep things in balance. In essence, the PTI government has handed over a lot more revenue to the local bodies. Not only this, but instead of approving project to project, they are also empowering the councils by giving them a free reign. But what this ends up doing is also making local governments responsible for a lot of their own expenditures, and thus putting a lot more responsibility on their shoulders - with apparently little thought given to any training that these political novices might require. This, of course, is a concern. But one that is easily brushed away by the PTI since they have always branded themselves as an idealistic party. While one may worry about the lack of experience and training of local representatives with handling this much money and dealing with this issue, the PTI has time and again said that this is their method to build up Pakistan’s future leadership. It is a question of trusting the people of Pakistan, and a difference on a more ideological and fundamental level than it is a technical one. The provincial government would thus no longer have to worry about things such as zoning, waste management, forestry or dairy. They would simply hand over the money, and the local government would do with it as it thinks best. Even education and health would

POLITICAL ECONOMY

ideally fall under the local government category, but because of the complicated nature of such departments, the powers here will be shared - with an aim to eventually devolve these to district government’s as well. “This time there is a lot more responsibility. The third schedule of the act explains the functions - things like education and health in part 1 are to be done in coordination with the provincial govt, which basically means by the provincial government. Part 2 is the sole domain of the local govt. Once money has been transferred, the expectation will be higher” Sameen Mohsin explains. But despite all these new responsibilities, and their idealism, the PTI has maintained one major check on the powers and freedom of these legislators, and a dangerous one at that: the bureaucracy.

Azeem ush shaan Shahenshah

hile the revenue-expenditure model being proposed by the PTI captures a pretty picture, one of empowered local governments with funds at its disposal, there remain certain structural issues, that may just have become even more pronounced than they were in the previous system that the PML-N had brought in. Enter the DC, the MPA, and the Chief Officer. The DC and the MPA are household terms - princely figures in local politics and the distribution of money. But what the PTI’s plan introduces is the concept of a Chief Officer, a figure now verging on the Kingly in his district. You see, in the new system, the PTI has argued that a district is too large to be run by a single body efficiently, so the largest division in the new local bodies system will be a Tehsil. “You see they’ve place local governments in a very awkward position by not having a district head. You would automatically think that this would mean we’re doing away with the position of DC, but instead they’ve only given them even more power” says Ahmad Iqbal. And he’s right. Other than the DC having the power to decline moves made by the local government, there will also be a new position called ‘Chief Officer.’ This bureaucrat will be responsible for coordinating between tehsils, and be the de facto and de jure head of the district. “The people of Gujranwala are the real stakeholders of Gujranwala. The DC of Gujranwala is no one. This is a transient office, and it cannot be allowed to rule the roost” Ahmad continues.

SALIENT FEATURES PLGA 2019:

PLGA 2013:

A guaranteed 30% of the provincial budget is allocated to local body governments, with 10% going for sure to the smallest level of government - village councils.

No guaranteed money to any of the local governments. Council expected to collect their own tax and go to the DC to ask for release of funds on a project to project basis.

More money means more responsibilities - government to hand over powers for things such as forestry, planning and dairy. However, no guarantee on how these local legislators will be trained or have what it takes to run these programmes.

Government to hand over powers for things such as forestry, planning and dairy. Government to keep a close eye and work with them and approve all moves. Money only handed over with approval to each project.

Larger issues such as Education and Health to be worked on with help from provincial government.

Devolution of larger issues such as education and health not made complete. Provincial government still to keep control. Local representatives doing very little.

Directly elected mayor, removable only by complaint of the DC or the Chief Officer. Would in theory be empowered and hold executive power and responsibility over a City.

Council Chairmen at district level elected indirectly. Voting within local council level assemblies to form a district council with chairman elected by the local representatives.

Abolished the existing local bodies set up without them completing their five year tenure. Elections to take place soon, but DC maintains complete control in the meantime, both fiscal and administrative.

Assemblies were elected after a few years of the passing and given some powers. PML-N claims committees were formed to improve and empower local governments, but first priority was to have them elected at least.

Sameen agrees that this is a lapse, and could in fact be used by the government to control districts in case of inadvertent results in local body elections. “The CO has a lot of power. He is basically responsible for everything. Is there going to be a meeting? The CO will be in charge. Paperwork? The CO needs to sign off on it. In turn, the DCO is going to want to be cosy with this new officer, and local government representatives without much political clout will be left without the influence that their mandate should grant them” she explains. An example she cites is that of Saira Afzal Tarar, an MNA from Hafizabad whose father was the District Chairman in the city. Because of this close relationship, the DC would listen to Ms Tarar’s father and approve his projects. If a young, unconnected up and comer was to become District Chairman, they would not be able to move paper and get things done as effectively. As the then secretary in charge of the Act had explained, however, the Act introduced checks and balances onto the role of the bureaucracy. It makes sure that the bureaucracy is answerable to elected representatives as much as they are accountable to bureaucrats. This, however, might raise the possibility of deadlocks on key matters of spending. “Financially speaking, this Act introduces checks in balances. It requires audits and oversight by the finance commission. But at the same time, these local councils will not be able to pull any of this off without the help of the DC since they are untrained. And if the government wants to use its officers nefariously, then nothing will stop it” she said. However, another concern expressed by Sameen was an interesting one - that with so much power in the hands of the COs and DCs - development would essentially be paralysed, because none of these officers would be willing to sign anything. “Even if the PTI is somehow able to implement this, these bureaucrats still have a lot of power. This means that nothing can happen without them. And if the current process of accountability goes on as it is, then no one will be willing to sign anything as it has been happening in recent times. No bureaucrat wants to risk the wrath of NAB.” One way that the PTI had been planning to circumvent this issue was through a directly elected, and empowered Mayor in certain larger districts. This Ahmad Iqbal at least declared a foolish idea, questioning where candi-

Courtesy: Geo

dates would get the money to run such a huge campaign and questioned that only those with money would be able to contest the election. He also said that it was democratically inconsistent, and that the Mayor of Lahore would end up having a larger electoral mandate than the Prime Minister of Pakistan. Sameen, however, thinks this is not detrimental to democracy, and in fact might just be a good idea. “Direct election means there is one person solely in charge of all of the urban concerns of Lahore - and if that person is an empowered mayor like say they have in London or Istanbul, then they have the capacity to make great changes and be a major player in politics. I don’t think mandate is a reason to not have a directly elected mayor. And the benefit is that direct elections mean direct accountability.” While the two are at loggerheads on the issue of directly elected mayors, the point they seem to be missing is that as per the 2019 Act - while the mayor wields significant financial powers, the DC can still refuse him. In fact, if the mayor is unable to explain himself before the DC, the DC can move the provincial government for the removal of the mayor - a one man, bureaucratic impeachment. In the PTI’s defense, the Mayor and the council can also have the DC or the CO investigated if they find enough cause. Accountability in this system works both ways, but considering how Pakistan works, the system still leaves some room or the other for there to be political pressure exerted through the bureaucracy - if it isn’t paralysed by the crippling fear of accountability watchdogs of course. But the organisation aside, there is one other fear: that the PTI will simply not do any

of what they have promised, and that the DCs will continue their lazy reign of not signing anything. And that is where KP comes in, and the disaster that the PTI’s local government reform efforts were in that province.

The KP story

t was a trainwreck. It was a dumpster fire. It was a trainwreck inside a dumpster fire. The PTI has tried many things in KP that have been disastrous - the BRT project comes to mind for example. But the much touted local government reforms are where they really did outdo themselves. “They simply just didn’t hand out the money they were supposed to” explains Muhammad Saleem, a KP based developmental economist. “In KP they also promised a 30% cut of the budget to local governments, but when the time came, they just didn’t hand out the money.” Education was supposed to devolve completely to the local tier of government, but instead it became one of the most powerful and boasted about ministries in the provincial government. Similarly, there was a finance commission in KP as well, but without any money to allocate, their annual meetings became little more than catch ups over tea. As a number of local government representatives explained, their election had increased their social standing, but without any money at their disposal, they were unable to do anything. “The conspiracy behind this, so to speak, of course was the PTI’s own MNAs and MPAs. You see the local MPA was basically playing the role of the DC here, and these legislators did not want to give up control of the money and

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discreatonary funds, so they just didn’t let it happen” explains Muhammad Saleem. Along with this, the local governments were unable to collect any taxes even, since even this bare basic operation required money that they did not have. In addition to this, property that they owned in Swabi for example, was the cheapest in the area and went practically for peanuts. Back in March when Pakistan Today had interviewed Aleem Khan, he had admitted that the biggest task would be reigning in the party’s own MPAs, who were already feeling disenfranchised by the empowerment of local bodies. While Profit had been able to get some answers from here and there representing the PTI’s defenses of the possible problems in their act, this is one question no one was interested in answering. Whether this refusal to speak on the matter now indicates that fear becoming a real problem or not is for the PTI to answer but it is certainly a possibility.

The verdict

t the end of all of this, despite the drawbacks and the PTI’s plan having the fail safe of bureaucratic oversight, the PLGA 2019 still sounds like a dream plan. The sheer amount of money being promised to the lowest tiers of government along with the authority to spend it is inspiring. But will they ever get the money? And if someone other than the PTI is elected and in charge, will the CO ever let them use that money if they actually get it? The possibilities are endless, but then again, so are the pitfalls. The current reality, however, is that there are no local bodies in Punjab. And as things stand - the DC rules in seclusion, trying their best to keep away from the long reaching claws of accountability. While Ahmad Iqbal has not challenged the legality of the PLGA 2019, it is only a matter of time before that happens, and judges are quick to grant stays.

The PTI must remember, they are in power only for five years unless re-elected. If they are unable to fight the court battles or arrange elections, the DCs could go on ruling in their self induced stupor. They would not suffer. The PTI would not suffer. Even the League wouldn’t. Just the districts. And until third tier representation is ensured, Article 140 A of the constitution via the 18th Amendment remains unfulfilled, and Punjab remains in the grips of a colonial administration system. The money remains undisturbed, and the functions are unmoved. Perhaps Ahmad Iqbal is right. Flawed as the PML-N system was, perhaps it was hasty to dismiss it completely instead of giving it the heavy reforms it quite clearly required. Money could have been injected into it rather than spent on something shiny and new. You never know, of course, the PTI might just have a few tricks up its sleeve. But looking at KP, and looking at the facts, one shudders to think of all that could go wrong. n

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