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Military Industria Welfare Complex

At the height of the Second World War, the British took into consideration the post-war requirements of the servicemen from the South Asian sub-continent taking part in the conflict and from 1942 onwards made a contribution to a “Military Reconstruction Fund” for both combatants (Rs 2 per month) and non-combatants (Rs 1 per month). Pakistan’s share came to a princely sum of Rs 18 million, which it received at independence in 1947. After a period of 13 years, the original amount plus interest thereof was converted into a Post-Services War Reconstruction Fund (PWSRF) under the management of the Army. In 1967, it was re-named as the Fauji Foundation. In 1972 Zulfikar Ali Bhutto, fresh from having unseated the then COAS Lt Gen Gul Hassan and the CAS Air Marshal Rahim Khan, and with a very obedient COAS in the form of Gen Tikka Khan, took the organisation from the sole purview of the Army and put it under the control of the Ministry of Defence with the Secretary Defence as the Chairman of the Committee of Administration (C of A). The other Members are ex-officio the four Principal Staff Officers of GHQ i.e the Chief of General Staff (CGS), the Adjutant General (AG), the Quartermaster General (QMG) and the Master General of Ordinance (MGO) with the Deputy Chief the Naval Staff (DCNS) from Naval HQ (NHQ) and the Deputy Chief of Air Force (DCAS) from Air Force HQ (AHQ) as the other Members. The Secretary of the Central Board of Directors (CBOD) officiates as the Secretary of the C of A. The CBOD functions under the C of A with the Secretary Defence as its Chairman with the Managing Director (MD) of Fauji Foundation as the Vice Chairman and Managing Director. The MD is the Chief Executive of the Corporate Body for all day to day running of the Foundation. The other Directors are of Finance, Planning and Development, Personnel and Administration, Welfare, Sugar and Industries. The MD has overall control and supervision of all of Fauji Foundation activities such as Industrial, Commercial, Welfare or otherwise including coordination and implementation of all decisions and policies of the CBOD. As an independent legal entity operating in the private sector the Foundation is a Charitable Trust that receives no financial assistance from either the Federal or Provincial Government or any other organisation, it also does not accept donations or contribution of any kind from any individual or agency. All the funds are generated from Fauji’s own industrial activities.

The prime mission of Fauji Foundation is to benefit ex-servicemen and their families. Since obviously funds are required for expenditures on welfare activities, all the needs are met with funds generated by its industrial and commercial projects. Starting with the purchase of a sugar mill from PIDC in 1960 called the Fauji Sugar Mills, Fauji Foundation now has a number of fully owned projects, among them two more sugar mills at Khoski and Sangla Hills, an Experimental and Seed Multiplication Farm at Nukerji, Fauji Cereals at Rawalpindi and Corn Complex at Jahangira, Polypropylene Products at Hub Chowki and Foundation Gas at Rawalpindi. Among the share-holding projects are a Fertiliser Company at Goth Machhi (43.98%), Oil Terminal and Distribution Company (FOTCO) at Port Qasim (42%), Mari Gas at Mari (40%) and Lifeline at Rawalpindi (40%). Projects in the pipeline includes (1) a Cement Plant at Fatehjang (3000 M/T per day) with Danish collaboration (2) Power Project at Kabirwala with US collaboration and (3) Dia-Ammonia Phosphate (DAP) Plant at Port Qasim with Jordanian collaboration. The success of the ventures can be judged from the fact that in 1985 on total assets of Rs 2998.07 million, Fauji’s net worth was Rs 1975.16 million. On sales of Rs 1887.39 million group earnings were Rs 447.76 million. In 1990, the assets increased to Rs 5135.00 million and net worth to Rs 4165.86 million, almost double of 1985. The group earnings were Rs 851.44 million on sales of Rs 2074.67 million (i.e a healthy 42.5% performance). By 1996, the last financial year assets had gone upto Rs 8005.87 million net worth had increased to Rs 5872.45 million. Earning had increased to Rs 1425.39 million on sales of Rs 3632.97 million (again a healthy 40% performance). While in 1996 the book value of assets would be around Rs 800 crore (i.e Rs 8 billion), the actual value is estimated to be around Rs 80 billion i.e US$ 2 billion, both in real terms and stock market performance. In the last 3 financial years, contrary to general perception that Fauji Foundation does not pay taxes, they have paid in duties, taxes and levies to the government amounting to Rs 458 crore in 1996, Rs 563 crore in 1995 and Rs 688 crore (almost Rs 7 billion) in 1997.

A major portion of the money earned every year is earmarked for welfare (at least 65-75%) while the remainder goes towards further investment in projects or kept as liquid reserves. Welfare is directed mainly toward medical, education and the technical fields. In the medical field Fauji Foundation has 900 beds in three hospitals at Rawalpindi (600 beds), Peshawar (164 beds) and Karachi (146 beds), in addition there are 9 more hospitals in rural areas, 24 Day Health Care Centres with X-Ray and Laboratory functions as well as 21 Static dispensaries and 46 mobile dispensaries operating in a 50 mile-radius of fixed medical establishments. Miscellaneous projects in the medical field include Artificial Limbs Centre, Nursing School, Rehabilitation Centre for Disabled Veterans, etc. In the field of education, there are 2 colleges (one each for boys and girls) at Rawalpindi, a Teachers Training Institute and as many as 64 Model Schools. In technical training Fauji Foundation has opened a major Computer Training Institute and concentrated on refrigerator/air conditioning, armature/ motor winding, electrical, radio/TV, welding and plumbing. In 1994/95 Rs 79 crore was spent on welfare whereas in 1996 it rose to Rs 99 crore, in 1996/97 the money spent on welfare was Rs 105 crore and in 1997/98 it is expected to climb to as much as Rs 140 crore (i.e Rs 1.4 billion).

There is a downside to all this, primarily in the realm of failed projects which include Fauji Metalised Paper Products, Fauji Metals, and Fauji Autos. The brochure does not mention that Fauji Textiles at Jhelum had to be sold due to recurring losses. However, there is skeleton in the closet in the form of a scandal-tainted project, FOTCO at Port Qasim, in which Fauji has been rather unlucky to have had dubious characters as foreign partners. Fauji’s partner in FOTCO is Can-American, previously owned by Nick Popich. However, because of bad Press in Pakistan due to his being indicted by the US Internal Revenue Service for evasion of taxes, etc, Popich sold out his shares to a really smooth operator called Brian Cheng, a Singaporean with extremely good connections and a bunch of crooked sponsors in the World Bank. Brian Cheng through his (then) company Promet Malaysia did the construction of FOTCO, it is widely believed that this was at double the normal cost. This was converted into his equity share and he then moved the company HQ of Can-American to Hong Kong. Unfortunately Brian Cheng’s involvement does not stop here in Pakistan, his modus operandi is to cultivate and “befriend” some malleable directors and then use them as moles to take over the companies piecemeal. He is engaged in a similar exercise in Asia Petroleum Ltd (APL) and HUBCO, in both places construction work has been given to his company at very high prices without tenders, a sweetheart arrangement which is a clear violation of World Bank conditionalities. He is suspected to be in silent partnership with his mentor Ebrahim Elawan (formerly of the World Bank) in the Liberty Power Project as Elawan is rumoured to be reciprocally in his projects. His clout in Pakistan for the last 3 years was because of Asif Zardari and the proposed Northern By-Pass (of the city of Karachi from Karachi Port) project was only one (among a number of similar other ones) where a killing was scheduled to be made in real-estate along with cronies such as Navaid Malik and Dr Zulfikar Mirza. Fauji Foundation would do well to investigate their own people who may have been in position to obtain favours from Brian Cheng so that a few black sheep do not bring bad name to the fair reputation of the Foundation. In defence of Fauji Foundation one must say that they have no real means of investigating such scoundrels “bearing gifts”, particularly if they are World Bank and/or government sponsored and this particular Singaporean is very well connected, well heeled and quite a performer business-wise. In particular he uses his penthouse apartment in Malaysia complete with swimming pool to excellent effect.

If Fauji Foundation was limited to simply being a military-industrial complex with profits going for reasons other than welfare frankly one would be apprehensive about their intentions. However, this Foundation has, other than its original funding of Rs 18 million, not received money or solicited from any other source. It has grown on its own (4,500 times to its present Rs 80 billion value), not only paying its due shares of taxes, duties, etc (Rs 7 billion last year alone) but most of its profits has gone towards very visible welfare. In fact Fauji Foundation is a very potent example for the Employees Social Security (ESSI) and the Employees Old-Age Benefit Institution (EOBI) to emulate in meeting the welfare needs of ex-employees, whether they be public sector or private. What is amazing is the Fauji Foundation-model of corporate self-reliance and self-sustenance, not just the dishing out and thus depletion of its funds. Government of Pakistan (GOP) would do well to encourage emulating the Fauji-model as well as encouraging Fauji in turn to bring its corporate and management expertise to revive such industries or production units which have been viable in the past but which may be on the verge of collapsing due to any number of real problems, mainly of management, money and expertise, the three qualities Fauji Foundation has in some abundance and which have been the touchstone for its economic success story.

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