The Telecom Operators Association (TOA) has urged the government to repeal a procurement rule allowing direct government-to-government contracting with state-owned entities, warning that the practice is increasingly shutting private companies out of Pakistan’s expanding IT, telecom and digital services market.
In a letter addressed to Finance Minister Muhammad Aurangzeb, Planning Minister Ahsan Iqbal and IT and Telecommunication Minister Shaza Fatima Khawaja, the association called for the abolition of clause 42(f) of the Public Procurement Rules, 2004.
The clause, introduced through S.R.O. No. 834(I)/2021 on June 28, 2021, allows government agencies to directly contract state-owned entities for time-sensitive works and services in the public interest.
TOA claimed that the provision has subsequently facilitated the award of numerous IT and telecom-related projects by federal and provincial governments through direct G2G contracting without competitive bidding.
The association warned that the growing use of this mechanism was severely crowding out private-sector businesses despite their having invested billions of rupees in infrastructure and services over the past two decades and making substantial contributions to the national exchequer through taxes.
The association said the issue had become more critical as Pakistan’s telecom sector was evolving beyond traditional connectivity and infrastructure towards data centres, cloud computing, artificial intelligence and other digital services.
“Pakistani digital products and services businesses need a space in home market to deploy their products before they’re able to compete in the global market,” TOA said, arguing that government contracts provide local technology companies with the domestic track record needed to compete internationally.
According to the association, telecom operators have made substantial investments in data centres, cloud services, AI and digital technologies, with many now seeking to enter export markets.
TOA said the government is one of the largest purchasers of IT, telecom and digital services, making access to public-sector projects particularly important for local companies trying to establish a market presence.
The association also raised concerns about what it described as an uneven competitive environment created by direct G2G contracting.
It alleged that state-linked entities and preferred G2G contractors can benefit from regulatory exemptions, preferential licensing and implicit government guarantees that are not available to private-sector companies.
“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 further 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 performance.
The association alleged that state-backed or G2G contractors can become insulated from market pressures because of the lack of competition, potentially resulting in weaker performance compared with private-sector competitors.
Another major concern highlighted by TOA was the alleged subcontracting of government projects after they had been directly awarded 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, arguing that such practices effectively bypass transparency and accountability requirements in public procurement.
The association also warned that an expanding commercial role for state-owned entities could discourage private investment, innovation and entrepreneurship in the technology sector.
TOA linked the issue to employment as well, particularly for educated young people, 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,” the association said.
The association also questioned the broader economic implications of expanding the commercial role of state-owned enterprises, citing Pakistan International Airlines, Pakistan Steel Mills and distribution companies as examples of SOEs that have eventually placed financial pressure on the economy.
TOA also referred to Prime Minister Shehbaz Sharif’s publicly stated position that “there’s no business of government in running a business”.
The association argued that state-owned enterprises are largely established and financed through resources generated by taxpayers, including private businesses, but are subsequently allowed to compete against those same businesses while receiving preferential access to government contracts.
It claimed that directing government-funded projects towards state entities through direct contracting effectively allows public resources to finance businesses competing with the private sector.
TOA has therefore called for state-owned enterprises to be required to compete for government-funded IT, telecom and digital projects on an equal footing with private-sector companies.
“SOEs should compete in government funded projects just like any private sector entity,” the association said.
The letter was signed by TOA Secretary General Kamal Ahmed.
