The Telecom and IT sector, for nearly two decades, has been one of the few genuine private sector success stories. Companies invested in infrastructure, built networks, and created jobs with relatively little state interference. However, this trajectory began to shift after the federal government, in 2021, inserted clause 42(f) into the Public Procurement Rules 2004 through SRO 834(I)/2021, allowing government entities and State-Owned Enterprises (SOEs) to contract directly with each other without competitive bidding. The underlying concern is that Rule 42(f) has shifted the government’s IT and telecom contracts away from private businesses toward SOEs, without any transparency or competition.
This raised a fundamental question of competitive neutrality: should SOEs be granted preferential access to government contracts when competing with private-sector enterprises? This request does not represent a minor grievance. It violates the fundamental principle of competitive neutrality. Competitive neutrality does not call for the exclusion of SOEs from the market; instead, it requires SOEs to compete with private businesses under equivalent market conditions. If private enterprises and SOEs both operate under different procurement channels, competition is distorted even before a private firm reaches the bidding stage. The situation is more challenging when the state is serving as a policymaker, regulator and a market player all at once. The preferential access to government contracts weakens incentives for private investment and creates entry barriers over time.
Private businesses in the IT and telecom sectors have spent years building capacity and are now cut off from the revenue stream that was transferred to SOEs through SRO 834(I)/2021. This is not competition on a level playing field; it’s a regulatory distortion that undermines private sector participation. The collateral damage extends far beyond the loss of contracts. When SOEs receive guaranteed business, they don’t face competitive pressure to innovate or improve service delivery. The state-owned enterprise’s past performance exemplifies the risk: PIA, Pakistan Steel Mills, and the DISCOs, all of which operated with sustained government guarantees, have eventually become huge fiscal liabilities for the government.
The government’s Digital Pakistan vision is dependent on a competitive and innovative private IT sector. To improve export competitiveness and attract foreign investment, the government will need to stop controlling the markets against the private sector. These two things cannot coexist. To provide a level playing field for the private sector, there is a need to eliminate clause 42(f) of Public Procurement Rules,2004. Restore competitive bidding as the default procedure for all projects. If SOEs are actually efficient and capable, they should demonstrate it in open competition instead of using a legislative backdoor that shields them from accountability.