RIGA - Latvia's government failed twice over the past week to agree on how to privatize two telecommunication companies as a rift in the ruling coalition over the deal seemed to widen.
Two proposals emerged from the deal, one based on a share swap proposed by Transport Minister Ainars Slesers, and another designed the For Fatherland and Freedom party, a junior coalition partner.
In accordance with the swap, TeliaSonera, the Nordic telecommunication firm, will give up its 49 percent stake in Lattelecom in exchange for full ownership of LMT, a mobile phone operator in which it currently controls 60 percent.
Concurrently, the 49 percent in Lattelecom will be sold via an intermediary to a strategic foreign investor, preferably the U.S.-based Blackstone Group, which has expressed an interest in acquiring the stake.
The government said that the Latvian State Radio and Television Center would serve as the intermediary in the deal.
A spokesman for Prime Minister Ivars Godmanis said that the government would request the opinions of both investors before making a final judgment on the deal.
According to the deal engineered by Economy Minister Kaspars Gerhards, a member of For Fatherland and Freedom, both the state and TeliaSonera would sell their stakes in Lattelecom at an auction.
The swap proposal, by contrast, foresees the state and the new private investor holding onto their stakes for an indefinite period until an auction could be organized 's possibly as long as two years.
"There are risks in both options," said Prime Minister Ivars Godmanis. "There is a choice to be made, and [it remains to be seen] whether we are able to solve all the procedures with TeliaSonera by choosing one or another variant as there are objections from all sides."
TeliaSonera executives met with government officials on March 31 and said that they were ready to agree to the share swap.
At a meeting of the four party coalition's leaders on April 1, the differences came clear when three of the four 's the People's Party, the Greens and Farmers Union and Latvia's First Party/Latvia's Way 's backed the idea of a stake swap and For Fatherland and Freedom stuck to its proposal of a full-blown sale of Lattelecom.
Gerhards suggested that the government hadn't considered all the risks with dragging out the privatization of Lattelecom and it was better to auction the company sooner than later.
"The later we sell it, the greater the risks," he said.
In short, the nationalist For Fatherland and Freedom wants to sell Lattelecom, the fixed-line operator, while the price is good, while the other parties want the state to continue participating in managing the company.
Several consecutive governments have been unable to decide what to do with Lattelecom and LMT.
Last year the government led by Aigars Kalvitis endorsed a management buy-out proposal from Lattelecom CEO Nils Melngailis. The deal called for selling the state's 51 percent stake in to company employees and executives with the help of the Blackstone Group.
Although a protocol of intentions was signed the deal was ultimately scrapped. Melngailis subsequently announced he was resigning his position.
In early February, TeliaSonera offered 500 million lats (711 million euros) for the state-held shares in Lattelecom and LMT. The government rejected this proposal as well.
Meanwhile, the Blackstone Group and Melngailis refused to give up and put forward yet another proposal 's this one to purchase TeliaSonera's 49 percent stake in Lattelecom.
The proposal includes guarantees to ensure Lattelecom's further development for the coming 2-3 years and raise its value.
Finally, the CEO of Baltkom, a leading cable TV provider, has come up with its own proposal. Peteris Smidre said that Baltkom was ready to purchase the 49 percent in Lattelecom with a view to merge the two companies' operations.
He told the Bizness & Baltia daily that after the proposal the state would own 40 percent in Lattelecom, while Baltkom would have 30 percent, and a fund would hold 30 percent. Smidre said that he could name at least five such funds which would be ready to participate in such a deal.
Smidre said that the government should solve the issue of Lattelecom's privatization immediately. "Otherwise, there might be a situation typical for our small market 's the same primitive option 's to announce an auction, to sell it to nobody-knows-who and say good-bye to a strategic company," said Smidre.
