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Islamabad, August 31, 2006

Referring a news report in the daily "NEWS" dated 31st August 2006 regarding privatisation of PTCL, a Spokesman of the Privatisation Commission (PC) said that as per the terms of the Share Purchase Agreement (SPA), the consortium led by Etisalat (EIP) is bound to make full payment of US $2.599 billion as per their original bid. Accordingly the Spokesman stated that the allegation that EIP will pay US$2.205 billion only instead of the full original amount of US$2.599 billion is incorrect.

He said that it may be recalled that the bidding for PTCL that took place on 18 June 2005 was a historical event both for Pakistan and the United Arab Emirates (UAE) as the consortium led by Etisalat, a major regional telecom player and in which the Government of United Arab Emirates is the majority shareholder, emerged as the highest bidder at US$1.96 per share equivalent to Rs. 117.01 per share (total US $2.599 billion for 26% shares) in an internationally acknowledged transparent bidding process between three reputable telecom operators i.e. Singtel of Singapore, China Mobile from China and Etisalat from UAE.. This heralded a new era of economic and technical cooperation between the two Muslim countries and enhanced the image of Pakistan as a safe destination for foreign investment especially from brotherly Islamic countries, he stated.

The PC Spokesman added that the Cabinet Committee on Privatisation ("CCOP"), in its meeting on 20 June 2005 approved EIP's highest bid of US $1.96 per share. The Letter of Acceptance of the bid was, therefore issued to EIP. EIP paid the first installment of 10% of the bid price and the Share Purchase Agreement ("SPA") was signed on June 30, 2005.

He further stated that the terms of the sale including the revised terms relating to VSS and Technical Services Agreement were equally available to all of three qualified bidders i.e. EIP, Singtel and China Mobile to ensure transparency. However, Singtel and China Mobile declined to participate further in the process after being given an open and fair chance to do so. It may be noted that the price offered by EIP was higher than the combined bids of Singtel and China Mobile, he clarified.

The Spokesman drew attention to the fact that just the initial payment made by EIP i.e. US $1.4 billion was in fact equivalent to the second highest bid by China Mobile. The remainder amount i.e. approximately US $1.199 billion will be paid by EIP in nine equal semi- annual installments. Hence, it is reiterated that EIP will pay US $2.599 billion in full.

He further stated that it is also important to note that concerns that the new owner of PTCL would misuse the land and sell it as real estate are misplaced. The properties acquired by PTCL are primarily for the usage of telecommunication services or to accommodate the employees of PTCL. These properties are classified as either freehold or leasehold properties. Any decision by the Company for disposal of any of its properties deemed to be surplus, has to be on a commerical arms length basis and as per the stipulations in the Companies Ordinance and in accordance with relevant zoning requiremetns and municipal and other laws. It may also be pointed out that the sale proceeds of any property will accrue to the Company i.e. PTCL. Any profits after taxes will be distributed to all shareholders through dividends including the Government of Pakistan ("GOP") which still holds 62% shares and the public shareholders of PTCL ( i.e. 12%).

He said that these facts may also be noted that the bid from EIP for 26% shares in PTCL of approximately Rs.117 per share from EIP, which is substantially higher than the listed price prevailing in the market (currently around Rs. 42-45 per share) and that the transaction structure i.e. sale of 26% B class shares along with transfer of management control has been successively approved and endorsed by all the governments since 1991. There was no change to the broad principles of the transaction structure since then i.e. sale of 26% shares along with transfer of full management control. On October 17, 1996, the new Pakistan Telecommunication (Re-Organization) Act (Act XVII of 1996) was promulgated which re-affirmed the privatization of PTCL through the sale of 26% shares in PTCL. In May 1997, Council of Common Interests, inter-alia, approved the privatization of PTCL through divestment of 26% strategic stake along with management control, the spokesman concluded.

The News stands by its story and has all the documentary proofs to substantiate the facts mentioned in our report.

Undoubtedly, the PTCL was sold to Etisalat UAE at the loss of Rs 23.64 billion ($ 394 million) with share price falling from original bid of $1.96 per share to $1.66. As a result of hectic negotiations and shuttle diplomacy at the highest level, the net financial impact of the bid offered in June 2005 ($2.599 billion) was lowered ($2.205 billion) in March 11, 2006, in total violation of procedures.

The net financial impact of the bid would reach Rs 48 billion when Etisalat acquires additional 25 per cent shares of PTCL.

The PC admitted in its clarification that the deal was not cleared by the Council of Common Interest after its finalization in March 2006. The CCI approval is constitutionally required as upheld by the Supreme Court of Pakistan.

Here is the break up of the 'Adjusted PTCL Sale Bid' and concession granted to Etisalat:

The direct gains for Etisalat include financial benefit of $167.4 million ($0.13/share) in terms of deferred payments in nine equal semi-annual installments; impact to GOP of VSS sharing (incremental effect due to direct cost) $61.8 million ($0.05/share); decrease in PTCL share from payments of Technical Services Agreement (TSA) $88.1 million ($0.07/share); Tax impact of TSA $76.5 million ($0.06/share). The total amount of adjusted PTCL sale bid adds to make $2.205billion at the rate of $1.66 per share price.

Regarding disposal of land of PTCL, the approved documents and agreements don't use the word of 'SPARE' property. Rather the PTCL's new management has been given a freehand to dispose off the properties at will.

According to sources, PTCL's top management is currently stocktaking the properties more than anything else. In another drastic concession, Etisalat has been given the right to withhold the payment of remaining installations to government if all properties of PTCL are not transferred with clean titles and possession.

The PC has also surrendered the upper limit of VSS which means that government has to pay all the amounts exceeding previous limit of Rs 3.708 billion on payment of golden handshakes to its to-be-laid-off employees.

The government has also bowed down to another demand of Etisalat by issuance of a policy directive by Ministry of IT&T to PTA on placing a moratorium (ban) on issuance of any new licenses to private telecom operators. This in fact nullifies the widely publicized Telecom Deregulation Policy of the Government and clear a violation of Pakistan Telecommunication (Re-organisation) (Amendment) Act, 2005.

Interestingly, the PC clarification ignores the fresh approval of lowered bid price by the CCOP in March 11, 2006 where the entire process was given the final go-ahead.