Under Najam Sethi PCB Sold PSL Franchise Rights to Unqualified Offshore Firms

It has been revealed that the Pakistan Cricket Board (PCB) awarded rights for PSL franchises to unqualified firms which are registered in the British Virgin Islands and Free Zone Establishment.

According to a local media outlet, a special audit was performed by Auditor General of Pakistan (AGP) for PSL’s first and second season. The audit read:

It was analysed with concern that undue favor had been extended to some firms and that the franchise contracts (ten years each) were awarded in a subjective manner.

It was revealed in the audit that PSL franchises, Karachi Kings and Islamabad United, are registered in the UAE and the British Virgin Islands respectively.

The report has also revealed that the market value of the PSL was nearly $300 million in 2017 but the PCB management sold the commercial rights to the initial franchises in just $93 million in 2015.

Requirements for Franchise Registration

According to the details, a number of requirements had to be fulfilled in order to qualify for the selection process.

The competing firms which failed either one of the requirements mentioned below were no longer eligible to apply for the franchise rights.

The requirements in place were as following:

1. Send bids to the designated email address
2. Competing firms must provide financial statements of the previous two years

Islamabad United — Failure to Meet Requirements

Despite the clear requirements, the bids against firms, namely M/s JW International, ARY Digital and Qatar Lubricants, were only received in hard form.

Moreover, M/s Leonine Global –  a British Virgin Island company – also failed to provide its financial statements but was granted the rights for Islamabad United.

Karachi Kings — Late Payments

The owner of ARY Digital, Salman Iqbal, applied for franchise rights acquisition tender as an individual. His bid was accepted despite the fact that he submitted it after the deadline.

After Salman Iqbal got the rights for Karachi Kings, and as per the agreement with the PCB, he was required to establish a Special Purpose Vehicle (SPV) or Special Purpose Entity (SPV) for his franchise within a month.

However, Iqbal failed to do so and completed the process in four-months instead. Additionally, he also delayed the franchise fee payment and PCB had to encash his bank guarantee.

Peshawar Zalmi – Non Transparent Procedure

The Peshawar Zalmi franchise rights were awarded to M/s JW FZCO in the UAE despite having an expired trading license. The audit found that the firm’s trading license expired on 26th February 2014, long before PSL was born.

The firm also submitted a financial statement of another company, M/s Haier. Interestingly, Haier neither had controlling shares nor was it a separate legal entity.

It is worth pointing out that the CEO of Haier is Javed Afridi, who is also the owner of Peshawar Zalmi.

Summary of the Audit

According to the audit details, the PCB management under Najam Sethi sold the franchise rights, which were not in line with the PCB’s values and criteria.

The media outlet which broke the news wrote:

It noted that the imprudent decision by the top management may offset the board’s goodwill besides financial loss in the years to come, which would also affect government revenue.

PCB’s Response to the Matter

Responding to the matter, PCB said that the bid committee has the right to alter the terms and conditions of the bid document and its entire process.

According to clause 4.9 of the franchise bid document:

…where the franchisee is not a substantial company in its own right, the performance of the franchise agreement must be guaranteed, in addition to the originally required bank security, by a suitable  third party in the form provided in schedule 6 of the bid document.

The PCB asked the owner of Leonine Global, which owns Islamabad United, Ali Naqvi to provide a personal guarantee regarding the financial strength instead of a suitable third party.

Audit Officials’ Response to PCB

The Audit officials claimed that the response provided by PCB was not a suitable one and does not justify the undue relaxations provided. The officials further claimed that the rest of the shortcomings were all covered up by the bid committee as well.

The audit noted:

Material tax evasion by firms and less receipt of revenue by PCB could not be ruled out as outcome of subject exercise.

Audit officials recommended that PCB should inquire the matter and take full responsibility of awarding franchise rights to the firms.

Additionally, the management was advised to:

…seek advice from the Securities and Exchange Commission of Pakistan (SECP), the Federal Board of Revenue (FBR) and the Board of Investment (BoI) regarding taxation and foreign remittances modalities of companies registered in UAE and British Virgin Island.