Phone monopoly privatization on horizon

RIGA - The privatization of the Latvian telecommunications company Lattelekom could happen as quickly as in two to three months, according to the Latvian Privatization Agency's general director Janis Naglis. He thinks that the Latvian Parliament will pass the bill within two weeks and sees no problems with it becoming legislation. Then the government will have to conclude negotiations on compensating Lattelekom's Finnish owners for giving up its monopoly.

The compensation to Tilts Communications, which owns a 49 percent, share is worth hundreds of millions dollars.

"The law will first have to pass through Parliament before compensation can be agreed upon, we will then begin talks with possible investors in the company," said Naglis.

Lattelekom will also lose its sole grip on the fixed-line telecommunications trade in Latvia. The government came to a decision on Feb. 8, that from Jan. 1, 2003 Lattelekom will no longer have the right to be Latvia's sole provider of telecommunications. This will allow other companies the opportunity to purchase licenses and share in a free telecommunications trade. The telecommunications sector will be monitored by the Ministry of Transport and the not yet formed Public Services Regulatory Commission.

After Parliament reviews the bill, the Ministry of Transport and the Public Services Regulatory Commission will be responsible for the monitoring of the free market and their decisions and decrees will be binding. The Ministry of Transport will have the task of drawing up legislation, of implementing and reviewing the resolutions of the government so they abide by Latvian telecommunication standards. The Public Services Regulatory Commission will prepare conclusions on projects, legislation, control quality standards, set tariffs and issue licenses.

Both departments are to serve the needs of both public and private telecommunication markets. The two departments will be responsible for Lattelekom's and the Latvian mobile telephone company LMT's operation standards until Lattelekom's monopoly expires in 2003. When free trade begins in the telecommunications sector, and companies have bought their licenses, they will have to meet requirements set by their licenses and sign agreements to connect to the existing public telecommunication network.

The newly enacted law will cut short the original contract and overrule the deal signed in 1994 by the government and Lattelekom's strategic investor, Sonera of Finland, a majority owner of Tilts. The new bill will also veto the rights of Tilts to ask the government to honor the contract that gave Lattelekom a monopoly of the market till the end of 2013.

Tilts will receive compensation from the Latvian government on the legislation that will nullify the agreement between themselves and the government.

"Sonera hopes that a solution can be agreed upon through negotiations with the Latvian Government and we are confident of reaching an agreement with the government that will satisfy us," said Jyrki Karasvirta who manages overseas investments.

Naglis said on the topic of compensation "Tilts will have first refusal rights [on government shares], and the government will not have to pay Tilts money for compensation as the budget has not allocated any for Lattelekom's privatization. They will be compensated in non-liquid assets owned by Lattelekom."

The Latvian Privatization Agency has two possibilities on the sale of Lattelekom, the first is to sell the company as a whole, the second possibility is to just privatize the governments 51 percent share of Lattelekom and LMT. Parliament will have to decide which model they prefer to pass through as legislation.