Pakistan's M2 provokes some jealousy across the border....

Indians have at least something to envy or to be jealous about Pakistan. Although both countries have different identities, they have so many things in common also. The corrupt practices of the public functionaries wherever there is involvement of contractors, is something which both can equally boast about. In the area of corruption, the public “servants” of both the countries have a common DNA.

Over the decades, the public works have consumed so much of the capital outlay that it bled the economy profusely without any tangible returns. The budgetary deficit was caused by corruption wherever construction was involved. Eventually, funds for development fell short of resources forcing borrowing. It is a common belief that works completed by public works department are 50% more expensive and 50% more unreliable as far as the quality of construction is concerned. 35% of the project funds are pilfered by functionaries with 15% paid to contractors in excess of his rightful claim. These are rough statistics of Pakistan and India would be no better.

It is for this reason that roads are built and rebuilt many times over making “them” rich at the cost of taxpayers. And as the ratio of indirect taxes dominates direct taxes, we can safely assume that 100% population of Pakistan pays taxes. These roads are built and are “maintained and repaired” every year then rebuilt after every five years but these are never of any international standard and are never in good conditions on both sides of the border.

However, there is one road,  which impressed even Indians and that is M2, Pakistan first motorway between Lahore and Islamabad completed in November, 1997. But alas! We have hardly any reason to be proud of because this road was never built by Pakistani Highway money minters, it was built by South Korean engineers. Wall Street Journal has reported that a major conundrum to those who visit both India and Pakistan is why the roads are so much better in the latter. For all its problems, Pakistan’s 367-kilometer-long M2 motorway between Lahore and Islamabad strikes a visitor as being streets ahead of India’s decrepit inter-state roads.

For one, there’s a disciplined motorway police that patrol Pakistan’s highways and don’t take bribes. If you go above 120 kilometers an hour, and are caught on camera, a fine awaits you at the toll gate. Nonpayment means you can’t get out. The M2 motorway passes through the densely populated Punjab countryside but there are no cows, rickshaws or motorbikes coming at traffic on the wrong side of the road which is a common experience in India. The M2 road was built in the late 1990s by South Korean firm Daewoo, whose name is still emblazoned on the modern service stations that line the route.

Sunita Kohli, a New Delhi-based interior designer who recently did work on a boutique hotel in Lahore, says she was impressed with the road compared to similar developments in India. “We really lag behind on infrastructure,” she said. “Now we’re trying to make up for lost time.”

That’s not to say Pakistan doesn’t face its own infrastructure challenges. Its most pressing need is to build more power plants and stop people from stealing electricity to avoid hours of blackouts across the country. And Pakistan’s motorways — at just over 600 kilometers in combine length — are only a small fraction of the total road network, much of which is old. Ms. Kohli says she sees the M2 as a “showcase.” India still slightly edges out Pakistan in the United Nations’ Human Development Index, which measures per capita GDP, literacy, life expectancy and other development criteria.

Until a couple of years ago, Pakistan’s economy was booming and there was plenty of public and private money for infrastructure spending. Now, foreign direct investment has dried up and the government, running a large deficit, has had to turn to the IMF for more than $11 billion in loans. But first-time visitors to Pakistan, many expecting a failed state, are surprised by some of the modern infrastructure. Apart from the roads, Pakistan’s broadband and wireless roaming speeds also compare favorably with India. Doing business in Pakistan is easier than in India and China, according to the World Bank.
With regular Taliban suicide bombings, though, Pakistan is unable to capitalize on these positives and continues to generate only negative headlines. [Article courtesy: Wall Street Journal]

Monopoly comes back to South Asian telecom markets, thanks to Etisalat ...

Pakistan is not the only monopoly of Gulf states, as apprehended in one of the previous posts in a sister blog. Etisalat, UAE's telecom corporation, is now fully geared up to take the entire South Asian telecom market under its monopolistic wings. It first bought Pakistan Telecom (PTCL) when Pakistan was selling family silver at throw-away prices. It won the bid and when the seller was totally entrapped, it dictated its terms and paid at will, not according to commitment. As it did not have any experience of operating in the competitive market, it brought with it the monopolistic practices of UAE’s over-regulated market, thus totally defeating flawed and tilted Telecom Deregulation Policy of 2003. Private sector companies who had obtained licenses were driven out making Pakistan a monopoly of UAE once again.

After successfully “buying” Pakistan telecom, Etisalat bought 45% stakes of Indian Swan Telecom. Financial Times has now reported that this state-owned Gulf monopoly is close to buying a 26 per cent stake in Reliance Communications, India’s second-largest mobile operator. In an attempt to overcome a number of regulatory hurdles, the two groups are also considering merging Reliance with Swan Telecom, the Indian company in which the United Arab Emirates-based group holds a 45 per cent stake.

The deal – which is estimated to be worth about $3bn – would give the government-controlled group known as Etisalat a big step up in the world’s fastest-growing large mobile market with more than 600m subscribers. On Friday, the market capitalization of Reliance, which has more than 100m subscribers, was $8.3bn, according to the Bombay Stock Exchange’s website. The alliance between the two groups could be completed as soon as mid-August. Another person said it could take up to the end of the year. Reliance and Etisalat declined to comment on any specific negotiations.

Financial Times has further reported that a successful outcome hinges on how fast Etisalat can free itself of the stake in Swan Telecom, a joint venture that it acquired in 2008, as Indian regulations do not allow one company to own more than 10 per cent in two telecom groups. “Once Etisalat has freed its hands the deal could happen very quickly . . . both sides are very keen to join forces,” said one person familiar with the matter. Another person said the two groups could merge to facilitate and speed the completion of the operation. Rajiv Sharma, a telecom analyst at HSBC, said a “merger may be a better option both for Reliance Communications and Etisalat”. However, he added that it would not be simple, as merger and acquisition regulations in India discouraged a union between the two groups.

Etisalat invested $900m in Swan Telecom, which has licenses for 13 areas of India, however, it has been unable to launch full services and since the beginning of this year it has been looking for alternative investment routes in India. Reliance has been working hard to cut its net debt, since it acquired the 3G mobile spectrum in 13 regions for Rs85.9bn ($1.8bn). The group has a net debt of Rs330bn, primarily due to a very competitive domestic environment that ate into its margins.

It now seems that Etisalat wants to turn the entire South Asian region into a literal monopoly. It seems that the price it is known to have agreed with the Reliance is much more than it paid for PTCL which has far dearer assets in the form of prime land in posh locations of Pakistan’s major cities. PTCL was far healthier than Reliance as it had no financial liabilities as a result of domestic competitive market because it had no competitor at all.