The Islamabad High Court (IHC) handed public health a major victory last month when it invalidated the tender which the Federal Board of Revenue (FBR) had granted to the National Radio and Telecommunication Corporation (NRTC) to track and trace tobacco products. Irregularities in the bidding process and the NRTCs reported links to the tobacco industry underpinned the courts decision to reverse the tender.
Implementing such a system is an integral step in complying with the Framework Convention on Tobacco Control (FCTC)s first protocol to eliminate illicit trade in tobacco stamping out the scourge of illicit cigarettes and recouping the billions of rupees of tax revenue lost to the black market each year. However, Big Tobacco has a proven track record of attempting to influence and control the very system designed to regulate its own products, making the recent ruling a monumental milestone in the fight against the industrys deception.
Foul play afoot from the very start
The illegal cigarette trade is not a novel problem. Indeed, tobacco titan Philip Morris alleges that the parallel trade accounts for as many as 44% of all cigarettes in Pakistan, though the results of a recent study suggest the actual figure is likely to be far lower, at just 16%. It makes sense that Big Tobacco would exaggerate the impact that the black market has on their operations, since it has led to the introduction of favorable tax tiers for the sector in the past and can explain away concurrent drop-off in their own production figures.
However, there is significant evidence that Big Tobacco is, itself, complicit in the black market. The discovery of millions of untaxed cigarettes at a Philip Morris-owned warehouse in 2017 suggests that production did not, in fact, decline, but tax revenues certainly did an estimated $291 million was lost due to the undeclared tobacco. Recent estimates suggest that Pakistan may be losing as much as $448 million a year because of tobacco companies inaccurately reporting their production. To put this into perspective, Pakistans entire national health budget is less than $100 million.
Aware of the problem, the government has been attempting to implement a track and trace system for years, but intense pressure from the industry has prevented its introduction. It took the International Monetary Fund getting involvedit conditioned a $6 billion bailout for the country on successful enactment of tobacco controlsto get the wheels rolling on a tender.
Unfortunately, the tender process was fraught with problems from the outset. The FBR first hired an ex-employee of British American Tobacco (BAT) to draft the tenders wording, only to drop him due to an outcry over his past connections. Their second pick wasnt much better: another ex-BAT head who had spent marginally less time with the company.
To make matters worse, just one week before the deadline for bid submissions, the FBR inexplicably moved the goalposts for the tender. Instead of weighting technical competency with 80% of the final decision and pricing considerations with the remaining 20% as originally indicated, they announced they would favor the lowest bidder who met their unspecified technical threshold. Significantly, this shifted the emphasis from technical ability to affordability, paving the way for the NRTC to win the contract.
Big Tobaccos trojan horse
Perhaps even more incredibly, the NRTCs bid came in one thousand times lower than expected. The firm claimed that this was due to a clerical error, but it later emerged that the bid was added by hand by NRTC officials in cahoots with FBR staff. The reason could have been for the NRTC to find out the prices of its competitors after opening the tenders, so as to bid with the most competitive pricing while maximizing its profits.
Whats more, NRTC lacks any practical experience in the sector, in stark contrast to some of their competitors for the contract. However, the NRTC had an ally: Swiss software firm Inexto, whose controversial track and trace system is based off Codentify, developed entirely by Philip Morris. Due to the fact that the scheme has been masterminded by Big Tobacco, suspicions have been raised that it is a Trojan horse allowing tobacco companies to monitor and manipulate the very rules meant to keep them in check.
Inextos involvement also explains the potential scheme to bid after observing other bids in order to maximise profits: since many components of Inextos system may already be deployed on the grounds of contracts with the tobacco industry, the FBR contract would be extremely cheap for Inexto to implement, generating huge profits compared to other system providers who would have to purchase and install all the necessary equipment.
The FCTC protocol is very clear that national tracking and tracing systems should not be influenced by the industry in any way, so the decision to select Inexto, under the veil of track and trace newcomer NRTC,seems to directly contravene those terms. Nonetheless, NTRC and Inexto walked away with the contract.
That decision likely has something to do with the man in charge of making it: the FBRs chairman, Syed Shabbar Zaidi. A former PricewaterhouseCoopers employee, Zaidi personally represented the tobacco industry during a tax probe in December 2018 just five months before his appointment as FBR head and less than a year before his selection of NRTC and Inexto as the most appropriate operator of Pakistans track and trace system. More recently, Zaidi has also refused to enforce a health tax of 10 rupees per packet, despite the measure being approved by the Prime Minister himself. The phrase conflict of interests springs to mind.
Justice served (eventually)
The decision to award the tender to NRTC in the first place was nothing short of a travesty, but if the IHC had ruled to uphold it, far greater damage could have been done. Allowing a firm with ties to the tobacco industry to operate the track and trace scheme would have set a dangerous precedent. When Big Tobacco can so easily circumvent the legislation intended to keep it in check and, indeed, insinuate itself into the very processes meant to monitor it, the fox really would have been ruling the roost, as the head of the WHO FCTC Secretariat, Vera Luisa da Costa e Silva, used to put it.
Thankfully, justice has prevailed and the IHC scrapped the FBRs conclusions, forcing it to go back to the drawing board and re-administer the tender process all over again. Hopefully, the system that eventually results from this protracted wrangle is one fit for purpose, capable of showing other countries, governments and concerned international institutions such as the IMF and the WHO around the world that despite their billions, Big Tobacco wont have things all their own way going forwards