Brian Brivati on Arif Naqvi

 Three years ago I posted a blog-entry titled 'Economia, Akreibia & Abraaj Capital's downfall'. I did not then anticipate that the US would try to extradite Arif Naqvi- the founder of Abraaj. It appears that the Americans want to ensure that 'private equity' is well enough policed for it to be an effective riposte to Chinese offers of infrastructure investment in emerging markets. 

Brian Brivati who 'mentors' private and social enterprises and civic and political figures has just published a book about Arif titled 'Icarus- the Life & Death of the Abraaj Group'. He claims that there was a 'geopolitical' conspiracy against his hero. Apparently the lad was poised to join Imran Khan's Cabinet and raise up Pakistan to unimaginable economic heights. Sadly, Whites were against Arif coz he was Muslim and the Emiratis were against him because he was Pakistani and the Pakistani bureaucracy was against him because Pakistani officials are secretly White Americans who expect Arif to serve them tea and say 'Goodness gracious me! I do apologize most sincerely for being a sand nigger scumbag! Have a nice day!'

Why did Pakistani officials plunge the dagger into Arif? Brivati says it was American pressure. Arif was trying to sell the Karachi Electricity Company to the Chinese. But the Chinese already have a huge presence in Pakistan. Just this year, Shanghai Electric brought a nuclear power plant on line in Pakistan. The deal for that was made in 2013. If America couldn't stop China building nuclear power plants and a naval base in Pakistan why would anybody think it could stop the Chinese taking over an electricity company? In any case opposition to a sweetheart deal for the Saudi owners is now spearheaded by Tabish Gauhar- the man who turned K Electric around after privatization. To be clear, he supports the sale to the Chinese but doesn't want the Saudis to make a big profit at the expense of the Pakistani consumer. This is perfectly reasonable given that Tabish now works for the Government.

Even if Brivati is right and Arif was the victim of 'geopolitics', the fact remains that it was his job to assess the risk of something of that sort happening. He should have diversified his portfolio or issued profit warnings. The Limited Partners were sophisticated investors and had little material exposure relative to their own balance-sheets. They may have been content to ride out temporary squalls in return for the sort of value proposition which local partners might be able to build up. In other words, Arif needed to do the job he was supposed to do in the manner he had been trained, as a Chartered Accountant, to do it. But, he didn't. Arguably, he was adding value by his high profile. But that was a double edged sword. Any hint of impropriety would reflect badly on those who had been chummy with him even if their material exposure was virtually non-existent. Gates does not want to be associated with a dodgy guy even if we all understand that any money his Foundation lost would have been about as consequential to him as pocket lint. 

Why was Arif obsessed with Pakistan and K-Electric? Sensible Pakistanis move to Dubai and then diversify the fuck away from that failing state. That was also what Arif was supposed to do. Charity is one thing. Investment is another. Plenty of Pakistani Chartered Accountants and MBAs and so forth have done well by constant portfolio diversification. They do have investments in Pakistan but consider them 'stranded assets' when the Pak economy is in the doldrums. It may be that they borrow where money is cheap and take unwarranted risks but if so they do it as individuals or through what is effectively a family office. 

Brivati's book's central flaw is that he thinks selling K-electric could have been a windfall for Arif and that getting that windfall was the key to his plan for survival. Perhaps, under a Military Dictator, the thing could have been pushed through by shooting protestors and intimidating officials. But Pakistan is now a very different place. Elected governments have to be populist. A situation where the electricity bill payer feels that he is being squeezed so foreign companies can make windfall profits is simply not tenable. In any case, under privatization rules, K-electric was subject to claw-back of excess profits. Nobody really understands how the thing will work in practice. It could drag through the courts for decades. 

Brivati is sympathetic to Arif but his book damages his hero. The whole point about private equity is that risk must be diversified. If K-electric proved a bad bet, then the Limited Partners would take a haircut while the General Partners had to tighten their belts. The right response would be to fire a few people and focus on other growth areas rather than throw good money after bad or waste time running around in Pakistan trying to reverse an inevitable outcome.

It must be said that Arif might have fared better if Hilary had got the White House. In 2011, Arif got Wahid Hamid- Obama's College friend- on board Abraaj. Arif was very generous to Kerry and Clinton. Maybe the Americans would have let the IMF or some other consortium of creditors fund some of China's 'belt and road' initiatives in Pakistan. In that case the local Pakistanis would have been happy that it was not their own pockets that were being picked. America was supplying the money and China was providing the physical capital. The debt may come due one day but then the World must end some day and who is to say that might not happen first?

The big puzzle is why Arif- whom Pakistanis would naturally compare with BCCI founder Agha Hasan Abedi (a fellow Shia Mohajir)- left Pakistan, which would not have given him up as it didn't give up Abedi or M.Q Khan or even Osama because all three were seen as having benefited Pakistan, for the U.K which has always had the reputation of being America's obedient poodle. Arif knew he was facing possible criminal charges- he told the arresting officer at Heathrow that there was no 'red corner' Interpol notice on him- so why did he leave the safety of Pakistan for an uncertain fate in the UK? Brivati paints a picture of a delusional narcissist with a streak of fatalism. A more charitable explanation was that Arif preferred to put himself in the cross-hairs for the American prosecutor rather than let them go after his family. But no lawyer would suggest such a strategy. Thus the thing remains a mystery.

The 'scoop' in Brivati's book is that Imran Khan was planning to make Arif a Minister- 

This is crazy shit. The Panama papers had hurt Nawaz Sharif who was disqualified from the Prime Minister's office. Elections were held in July 2018. Khan formed his Government in August. By then the Kuwaitis were pressing for Abraaj's liquidation in the Cayman Islands' Courts. The jig was up. By June 15, the group was naming provisional liquidators. 

Imran Khan may have been known as 'Im the Dim', but he wasn't utterly stupid. You don't hire a bankrupt to advise your government or to negotiate with the IMF. The charitably disposed thought Arif was lurking around Islamabad to expedite the sale of K-Electric- which is still hanging fire three years later- but this potential windfall would just have been enough to pay off the creditors and get back to square one. However, this would not benefit Arif personally. Furthermore, he would be seen as a man who helped drain Pakistan of money rather than a patriot who had brought money into the country. 

Brivati writes-

It would be near impossible, in the absence of another WikiLeaks-type moment, to establish firmly that the US leaned on the Pakistani civil bureaucracy–military complex (referred to within Pakistanis almost universally as the ‘establishment’) to block the Karachi Electric deal; backroom conversations between elements of the intelligence fraternity do not happen over email. 

The notion here is that America objects to a Chinese Company supplying electricity to Karachi. Perhaps it does. But it had no influence in Islamabad as recent events have shown. After the killing of Osama, Pakistan purged officers considered to be pro-America. China is its all-weather friend.  

I surmise that the request to block the deal would have been delivered by the relevant intelligence chief-of-mission at the US embassy in Islamabad to his official military intelligence counterpart; or perhaps to a senior ‘asset’ depending on how far you want to go in developing the narrative.

Who was that 'asset'? 

The first instrument of delay was the NEPRA chairman, Tariq Sadozai, a retired army brigadier whose inaction contributed to the scuppering of the transaction. In his role as chairman, he had constitutional protection against being fired by the government for not doing its bidding and approving the tariff.

He quit in November 2018 after Imran Khan had taken charge. His successor was appointed almost a year later. That job is no bed of roses. The Bench might suddenly slap you with contempt of court proceedings if some rando complains about load-shedding. A previous head of NEPRA who quit in 2012 was heavily criticized for raising tariffs. From then on NEPRA was hesitant to act thus worsening the underlying problem of 'circular debt'- i.e. the generators are owed money by the distributor who is owed money by the Government by way or subsidy or delayed tariff adjustment.

The relationship between the NEPRA and the central government has not been an easy one but it is legally and constitutionally independent and would remain so even if recent changes were implemented. The point is that the government has limited powers to instruct the NEPRA what to do, which gives it considerable powers to presume its own line on certain issues. Executives involved in the negotiations believe that Sadozai did not have the domestic strength to resist the government onslaught unless he was specifically promised protection in the murky, byzantine way the Pakistani state operates.

What Government onslaught? Arif had good connections with both the Sharif brothers and, according to the author, was so cozy with Imran that he was going to join his Government. The truth is that Abraaj had a ten year fund which had bet big on the Karachi Electric privatization which had happened under Musharraf. They needed to begin their exit by 2016. But, in February of that year, Pakistan informed the IMF that it could not go ahead with Electricity privatization. It had become obvious that the thing was not a panacea. Prices would rise and employees would have been made redundant so both consumer and Trade Unions would go ape-shit. But even if prices were raised there would still be the problem of circular debt. In other words, there was just no way to pay off all the parties concerned so as to get to flip the thing. Still  a smart guy might be able to get paid for pretending to fix the powers that be- indeed, the big shots might themselves take the money and then do nothing. 

It may be that an industry professional with political courage could have somehow cleared a path for Abraaj's exit from K-electric. But the Panama Papers leak in April 2016 soon made Sharif a political pariah. He was disqualified from office the next year. Elections were in the offing and Im the Dim was running on an anti-corruption ticket with the support of the Army. This was not the time when K-Electric's debts could be forgiven and its tariffs raised so that the thing could be flipped for mega-bucks. Indeed, it appears, the same problems still obtain to this very day. Arif had bet big on a project which was bound to fail.

This was entirely foreseeable. Mumbai had got involved with Enron which was then revealed to be massively corrupt and fraudulent. Abraaj was betting it could do what Enron couldn't at a time when America's power was waning, that too in a Karachi ten times as volatile as Mumbai. 

The 2016 tariff determination was delayed by Sadozai by a year and, when issued, was significantly below Abraaj and SEP expectations.

Why? Because Sadozai would have been roasted on Twitter and found himself targeted by the Press if he didn't do what the public wanted- viz. keep tariffs down.  

The requested tariff was Rs 15.8 and the approved tariff was determined by Sadozai at Rs 12. This could have precipitated the collapse of the SEP deal. Karachi Electric appealed against the determination. It was heard by the same body that had set the original tariff. The result was a slight improvement to Rs 13. The prime minister at the time, Shahid Abbasi, was committed to the deal happening and he took the unprecedented step of having the federal government appeal the decision on the tariff on behalf of Karachi Electric in an effort to move the deal forward. The NEPRA kept silent on the government’s request until after the incumbent government left office and a caretaker government was appointed to preside over the 2018 elections. This government had no mandate to influence the outcome one way or the other. Once the caretaker government was in place, Sadozai announced the tariff as remaining unchanged. NEPRA’s decision had clearly blocked the deal.

Why? Because NEPRA was supposed to protect the consumer. At any rate, its head would face the public's wrath if electricity bills went up. Let the can be kicked down the road. 

Whilst this was happening, the army leadership assured the Abbasi government that it supported the deal. Naqvi himself was given similar assurances separately. It was unthinkable that a former senior army officer would have gone against the wishes of the army leadership. By setting such a low tariff for Karachi Electric, in spite of the successful trajectory the company had been on for the previous eight years, it appears that elements within the military elite were set on disrupting the deal. Indeed, given the way in which Pakistani power politics work and the way in which the military continue to function in the civilian realm, it is highly unlikely that Sadozai would have taken this stance without clearance.

Suppose Sadozai had been a devotee of Milton Friedman rather than a retired Brigadier. He'd still have had to face a public roasting if he raised tariffs for sound economic reasons. What was his incentive to do so? 

Brivati's book makes Arif appear credulous and ignorant of 'geopolitics'. The fact is US-Pak relations were in the crapper from the start of 2018 because Trump had tweeted about cutting off Aid. However, what had changed Pakistani politics was the Panama papers. As happened in India in 2014, corruption in high places had become the single most important political issue. Arif's style of operation might have been acceptable in Musharraf's time. But a Shia Mohajir seen as both noveau riche and bankrupt could only be considered a clown. 

The big question is why Arif returned to London where he was arrested on 10 April 2019.  Presumably, the Pakistanis had told him there was no Interpol 'red notice' concerning him on their secure website. But Pakistani police officers know very well that a red notice would not be issued in cases where America wants to winkle out a suspect from a corrupt country. In any case, Arif had been given a special Interpol passport some five years previously because.... urm, Interpol is an international organization and all international organizations are utterly shite. Carlos Ghosn was another guy with an Interpol passport. 

Arif should have known that it was foolish to return to London.  The WSJ had accused him of embezzlement on October 2018.  London would be the place to fight a libel action and if London's libel lawyers weren't sniffing around it meant that London itself was the source of the information. 

Since Americans had lost money, America was bound to try to extradite and the UK would be happy to play ball because trials of this type are costly and easily fumbled. In any case, the British government was in a mood to bend over for Trump's America no matter what it demanded. Arif wasn't a British citizen so it was no skin off Downing Street's nose.

 Interestingly, Assange was arrested on 11 April 2019 from the Ecuadorian Embassy which was fed up with the smelly fellow. Assange may not be extradited for mental health reasons. It appears Arif too may have a similar claim. He certainly deserves his day in court as much as anyone else. Mike Lynch, Britain's first internet billionaire too is appealing an extradition order over alleged fraud in the sale of 'Autonomy'. 

By contrast to Brivati's book, Simon Clark's and Bill Louch's book 'The Key Man: The True Story of How the Global Elite Was Duped by a Capitalist Fairy Tale' is properly researched and is selling very well. It shows the wider picture- people like John Kerry, a former prosecutor!, getting rich for a greasy type of influence-peddling. Arif, it seems was not so much an Icarus- soaring too close to the Sun- but rather a guy trained by Arthur Anderson to display a gravitational attraction for the sewers of global finance. The true tragedy of this tale is that the fellow- who seems to have reconnected with his ancestral faith- was bright and articulate and could have achieved success- though perhaps not opulence- by sticking to the straight and narrow path. Back in the Fifties and Sixties, left-liberals like Arif (assuming he had run true to type) would have been recruited by the F.A.O or UNDP or even the Ford Foundation- which did very good work at one point in time- and so he'd have had a genuine impact on making the lives of poor people better and more productive. 

What of Brivati's book? Is it productive or unproductive for Arif? With respect to extradition, it is unproductive. Clearly the 'stasis' of house-arrest is driving the fellow bonkers and turning him into a suicide risk. He'd be better off facing the music in America. All he needs is 'reasonable doubt' and 'verbosity' can be an asset in establishing that.