MUMBAI: In what is being seen as a setback to privatisation initiatives in Pakistan, that country's government has cancelled the $2.6bn sale of a controlling stake in state-owned Pakistan Telecommunications (PTC) to the United Arab Emirates-based Etisalat.

Media reports indicate that the UAE operator failed to make the agreed payment by the deadline given. Pakistan's Privatisation Commission isued a statement that said, “In spite of the necessary facilitation within the transaction framework, Etisalat failed to make payment of the balance bid amount within the mutually agreed extended timeline of 28 October 2005”.

This announcement comes at a time when foreign telecom carrIers are looking to expand into South Asia. As had been reported earlier by Indiantelevision.com Vodafone Group, the world's biggest mobile-phone company, is buying 10 per cent stake in Bharti Tele-Ventures Ltd (BTVL) for approximately Rs 67 billion ($1.5 billion).

Analysts weer quoted in reports saying that Etisalat had raised several issues soon after its successful bid, including a deferred payment structure, permission to list PTCL shares in the UAE market as well as in Karachi, and various tax exemptions.

Etisalat may have been pressing for the concessions because it paid a price that exceeded market expectations and was far higher than other bids

The Pakistan government is now said to be examining the possibility of whether the stake should be awarded to China Mobile which was the second highest bidder.