Telecom Operators Demand End to G2G Contracts, Warn of Private Sector ‘Dismantling’

ISLAMABAD: The Telecom Operators Association has demanded repeal of a provision in the Public Procurement Rules that allows government agencies to directly award contracts to state-owned entities, warning that the policy is squeezing private businesses out of the government’s lucrative IT and telecom market.

In a letter to Finance Minister Muhammad Aurangzeb, Planning Minister Ahsan Iqbal and IT and Telecommunication Minister Shaza Fatima Khawaja, the association called for abolition of clause 42(f) of the Public Procurement Rules, 2004, which permits direct contracting with state-owned entities for time-sensitive works and services in the public interest.

The association said the provision was introduced through S.R.O. No. 834(I)/2021 on June 28, 2021, and has subsequently enabled federal and provincial governments to award numerous IT and telecom-related projects through direct government-to-government contracting without competitive bidding.

“After these 2001 amendments to Public Procurement Rules 2004, the Federal and Provincial Governments have strengthened existing SOEs and also setup new dozens of SOEs which have awarded numerous IT and telecom related projects by the federal and provincial governments in last 5 years through direct G2G contracting without competitive bidding,” the association said.

The TOA claimed that the practice has “severely crowded out private sector”, despite private companies having invested billions in infrastructure and services over the past two decades and making substantial contributions to the national tax exchequer.

The association argued that the issue has become more significant as Pakistan’s telecom industry is rapidly moving beyond conventional connectivity and infrastructure towards digital services, including data centres, cloud computing and artificial intelligence.

“All operators have massively invested in datacenters, clouds, AI and digital services and many of them are aiming to tap into export market which cannot grow without a strong local technology ecosystem,” it said.

According to TOA, the government is one of the largest buyers of IT, telecom and digital services, making access to government projects particularly important for local technology companies seeking to establish a domestic track record before entering international markets.

“Pakistani digital products and services businesses need a space in home market to deploy their products and services before they’re able to compete in the global market,” the association said, warning that the loss of this domestic market was severely hampering the ability of local businesses to compete globally.

The association also alleged that direct G2G contracting creates an uneven competitive environment in which state-linked entities can enjoy advantages unavailable to private companies.

“State-linked entities or preferred G2G contractors frequently receive regulatory exemptions, preferential licensing, or implicit government guarantees that private companies cannot match,” TOA said.

It further warned that the expanding role of state entities in the commercial market could discourage innovation and private investment.

“When the state acts as both regulator and dominant market operator, private businesses face high entry barriers, reducing the incentive for independent commercial R&D and entrepreneurship,” the association said.

TOA also questioned the efficiency of projects awarded without open competition, arguing that the absence of competitive pressure could reduce incentives for state-backed entities to improve their performance.

“State-backed or G2G contractors often underperform compared to competitive private peers due to no competition and no incentive to improve because they are insulated from market failure,” the association said.

It added that many state-owned enterprises eventually become a burden on the economy, citing PIA, Steel Mills and DISCOs in this context.

The association also highlighted the potential impact on employment, particularly among educated youth, arguing that small and medium-sized private enterprises are a major source of job creation.

“Because small and medium private enterprises drive the majority of job creation particularly for educated youth, starving them of business inhibits their growth,” TOA said.

Another concern raised by the association was the alleged subcontracting of G2G projects after their award to state-owned entities.

“After award of G2G projects, many SOEs subcontract the work to their preferred private subcontractors without due process of competitive bidding,” the association alleged, saying this “effectively bypasses whole process of transparency and accountability in public procurement.”

The association also referred to Prime Minister Shehbaz Sharif’s publicly stated position that “there’s no business of government in running a business”.

TOA argued that state-owned enterprises were largely established using resources generated by taxpayers, including the private sector, but were now being allowed to compete with the same private businesses while receiving preferential access to government contracts.

“Government then diverts this tax money into funding businesses that compete with the private sector and then gives them privilege of direct contracting,” the association said.

“By doing so, government is effectively dismantling the private sector that contributes to national economy with taxes, job creation and innovation,” it added.

The association has therefore urged the government to repeal clause 42(f) and require state-owned enterprises to compete for government-funded projects on the same basis as private-sector companies.

“SOEs should compete in government funded projects just like any private sector entity,” TOA said.

The letter was signed by TOA Secretary General Kamal Ahmed.