Estonian telephone faces fines from ministry

  • 2000-03-23
  • By Brooke Donald
TALLINN – Despite the threat of a 120 million kroon ($7.4 million) penalty for failure to submit its business development plan to the government, the Estonian telephone company refuses to give in, saying the Ministry of Transport and Communications has no right to ask for the financial details of a listed company.

"Every company listed follows certain norms and regulations," Raul Kalev, spokesman at parent-company, Eesti Telekom, said. "Shareholders expect that they are treated equally. If they aren't, they won't invest."

Having gone public over one year ago, Eesti Telefon has certain obligations to its shareholders to not disclose detailed financial information to only one investor, the phone company claims.

So far, the government is not convinced. According to the ministry, Eesti Telefon has violated its concession agreement that says the national telephone concern must submit annually to the state a ten year business development plan.

By violating the agreement, the phone company faces fines equal to a sum equivalent to five percent of its turnover, or 120 million kroons. This ministry has said the claim would be about 75 million kroons ($4.6 million).

"The government is one side of a concession agreement, not only a shareholder. The ministry thinks that [Eesti Telefon] is breaking the agreement so there must be a penalty," said Aap Tanav, Transport and Communications Ministry spokesman.

The government holds a 27 percent stake in Eesti Telefon.

In fact, the assumption of equal treatment towards shareholders does hold water with stock exchange rules. It is not typical company practice to disclose business strategies for future development, according to a Tallinn bourse representative.

"The telephone company has a valid argument in terms of if they are going to give substantial financial information to one shareholder then they have to make it available to all other shareholders," Eva Palu, Tallinn Stock Exchange spokeswoman, said.

Palu said the local exchange has been involved in the negotiations between the telecommunications company and the government but only as advisers.

Eesti Telefon argues that it has submitted a business plan under its obligations in the concession agreement and in no way deserves a fine. The company filed a plan with the government in December and then again in March.

The government complains that the business plan submitted by the phone company is incomplete because it fails to expose future development strategies.

"Last year they gave more information," Tanav said. "It was bigger and more detailed, we would like the same this year."

Under the concession agreement, however, there is no clause that specifies what information must be included in the plan, so it is up to the parties to debate. Eesti Telefon is taking advantage of that loophole and using it as a security blanket against revealing its plans for the nine years after deregulation, scheduled for January 2001.

"We have given the ministry all the information which is needed on the basis of the concession agreement," Kalev said. "We haven't given information about future profits because we can't because of competition."

The business plan includes information about how the company will invest in rural areas and "enough for the government to make up its mind about tariffs," Kalev added.

The government voted on March 14 to stand by the decision of the Transport and Communications Ministry to demand a more thorough development plan before discussing plans to raise call tariffs, a move the phone company can do only with governmental approval.

Toivo Jurgenson, minister of transport and communications, said he would write a letter to Eesti Telefon reminding the concern of its obligations and the hovering fine. So far the company has not received a letter, according to Kalev, but the two parties are scheduled to meet soon to see if they can work out a compromise.

"We are prepared to do our business and act according to the law," Kalev said. "We don't see any opportunity for the government to take any penalty from us."