KARACHI: Three of the five telecom operators have reached out to the State Bank of Pakistan (SBP) for the reversal of the recently imposed 100 per cent cash margin requirement for the import of “almost all” telecom-related equipment that these companies usually source from abroad.

In a recent letter to the Banking Policy and Regulations Department of the central bank, representatives of Jazz, Telenor and Ufone said the requirement that became effective from April 7 is “extremely detrimental” to the industry.

A 100pc cash margin requirement means telecom operators must deposit the total dollar amount of the transaction value with their banks before the opening of letters of credit. The move is aimed at restricting the quantum of imports as companies find it difficult to arrange cash up front.

“Nearly 85-90pc of telecom imported equipment now falls under this new circular and, therefore, it will have a severely adverse impact on the liquidity situation as well as the funding requirements for telecom companies,” the three firms said in their joint correspondence to the SBP.

The telecom sector depends heavily on imports for its equipment, which can’t be categorised as “luxury” items. The revised list requiring 100pc cash margin includes items like power equipment, lithium batteries, routers, mobile phones, main telecom equipment, telecom parts, hard disks and servers.

The change in margin requirements has resulted in liquidity shortage in telecom companies, which are “not cash rich”. Their funding plans are based on their cash cycles in which vendor payments are assumed as per the contract credit terms. “With the sudden and immediate change in regulatory requirements, the cash outflow that was supposed to happen on a future date has to be made immediately (upfront to banks as cash margin) which has a direct impact on the liquidity and financial health of the companies,” it said.

The three companies also threatened to either reduce their network expansion plans or obtain new financing from banks, which is a time-consuming process needing a “completely different plan of expansion”.

Complying with the SBP requirements will have a direct impact on the telecom capital expenditure rollout plans for the year, which includes network capacity enhancements to increase services penetration and modernisation as well as the upgrade of base transceiver station sites from 2G to 3G/4G technology, they said.

They demanded that the SBP should remove the telecom-related HS codes from its circular to avert the “potential crisis”.

Separately, IT infrastructure firm CNS Engineering and Technologies Ltd also approached the SBP to lift margin restrictions imposed on IT-related equipment imports.

“All IT equipment consumers, including banks, software houses, call centres, business process outsourcing units, data centres and cloud operators and manufacturing industries on the digital transformation route use these devices to operate their equipment for the delivery of their products and services,” said company CEO Najam H. Mian in his letter to the SBP governor.

The Overseas Investors Chamber of Commerce and Industry, which represents nearly all blue-chip multinationals operating in the country, has also recorded its formal protest with the SBP against the imposition of 100pc cash margin against the imports of IT and telecom-related equipment.

Published in Dawn, May 1st, 2022