Pakistani Army moves into the oil business

The business conglomerate that is the Pakistani Army, which has fingers in multiple pies across the business spectrum, has now moved into the oil business.

Recent growth of businesses controlled by the powerful army has been spectacular. In 2016, for instance, the Pakistan Senate was informed that the army’s commercial wings, namely the Fauji (Army) Foundation, the Shaheen Foundation, the Bahria Foundation, the Army Welfare Trust and the Defense Housing Authorities, owned around 50 business concerns and housing property worth over $20 billion. Three years later, this number now runs into the hundreds of businesses with net investment reportedly exceeding $100 billion.

Dr. Ayesha Siddiqa, a Pakistani military scientist and author of the acclaimed book “Military Inc.” told the Asia Times: “The army’s total stake in private businesses in the country is more than $100 billion. They are underestimating their investment and disguising their involvement through public sector organizations like (the) National Logistic Cell, Special Communications Organization and Frontier Works Organization, which are exempt from annual audit and scrutiny.”

She said one of the leading military-business conglomerates in Pakistan was the Fauji (Army) Foundation. In 2005, she recalled, the elected parliament was snubbed by the Ministry of Defense after it questioned a controversial business transaction that undersold sugar mills.

Siddiqa revealed that “Milbus-related” resources do not follow the norms of accountability prescribed for government institutions: “The term ‘Milbus’ refers to military capital that is used for the personal benefit of the military fraternity, especially the officer cadre, but is neither recorded nor part of the defense budget. In this respect, it is a completely independent genre of capital.”

Dr. Siddiqa, who also serves as a research associate at the SOAS South Asia Institute, University of London, said that military involvement in socio-economic activities undermines professional competence by focusing on non-military commercial activities instead of devoting themselves to core military duties and responsibilities.

The newest expansion of army business is a move into the oil sector. It is in addition to dozens of businesses the military already runs in Pakistan including companies in the spheres of banking, food, retail superstores, cement, real estate, housing, construction, private security services, and insurance.

The Frontier Oil Company (FOC), a subsidiary of the army-managed Frontier Works Organization (FWO), has now been granted a contract for the construction of a 470km-long oil pipeline estimated to cost $370 million.

Ironically, the Economic Coordination Committee (ECC), which granted the contract to the FOC in mid-February, violated its own decision made in April last year. The then prime minister Shahid Khaqan Abbasi had approved the granting of the contract for the white oil pipeline to the government entity Inter-State Gas System (ISGS). The former government of Abbasi was of the view that since ISGS was already involved in the execution of the proposed TAPI and North-South pipelines, they should have no difficulties in the execution of Machike-Taru Jabba High-Speed Diesel and Motor Spirit pipeline.

An official of the state-run ISGS told Asia Times upon the condition of anonymity that the ECC failed to honor the decision of the previous government that awarded the pipeline contract to ISGS.

“It is strange that the Oil & Gas Regulatory Authority (OGRA) granted a construction license to FOC well before time without informing the previous government, while the ISGS, which is part of the petroleum ministry, is yet to be considered for a license,” the official said. He pointed out that OGRA violated the cabinet decision of April last year in which the ECC empowered the federal cabinet to vet and approve the proposals for oil pipeline projects. Whatsmore, he said, “The previous government had approved the pipeline at a cost of $280 million which is $90 million less than the projection of FOC, but the contract was still awarded to FOC.”

Pakistan People’s Party (PPP) Secretary General and former Senator Farhatullah Babar told Asia Times, “The parliamentary proceedings show that all is not well with the manner in which business contracts are awarded to military-run enterprises.” He claimed that lucrative toll collections at motorways was acquired by the Frontier Works Organization on a long-term basis without inviting bids. Babar said that massive involvement of the army in non-military business activities has attracted the attention of Parliament as well as of the Supreme Court.

“The military’s institutional strengths and advantages are well known. Backed by these strengths the military commercial wings always use unfair means to compete with other competitors and acquire commercial enterprises and get contracts in a non-transparent manner. Potentially it will have negative consequences for business as a whole because private businesses (are not competing on) a level playing field.” Babar added.