Diena quoted what it called high ranking government officials as saying Latvia would offer Tilts Communications, a subsidiary of Finland's Sonera, the chance to buy the state's 23 percent stake in mobile service provider Latvijas Mobilais Telefons and its remaining shares in Lattelekom.
An announcement on the issue currently under discussion in a Swedish court of arbitration should come by Dec. 20, said the paper.
Dropping a commitment to maintain Lattelekom's monopoly status until 2013 was a precondition for membership in the World Trade Organization, which Latvia joined in 1998, and in the European Union, which it hopes to join by 2004.
Diena estimates Tilts Communications' compensation claim to be between $350 million to $380 million, while Latvia accused Tilts of stalling on its commitment to modernize Lattelekom's communication networks by Dec. 31, 2001.
To date, just 56 percent of the whole network is digitalized.
With Sonera already owning 24.5 percent of LMT and Lattelekom owning 23 percent, gaining the state's stakes in both companies would make Sonera's control of both boards unassailable.
Leading business daily Dienas Bizness quoted another anonymous participant in the confidential talks as saying this is the likely scenario. Questioned by The Baltic Times Sonera spokesman Jyrki Karasvirta declined to comment the possible settlement.
LMT and Lattelekom topped the list of the most profitable enterprises in Latvia last year with LMT earning 25.66 million lats ($41.39 million) and Lattelekom earning 23.31 million lats in profits.
In a statement on its corporate strategy in October Sonera described its joint ventures in the Baltic states as "highly profitable and cash generative" and said it had no intention of selling them.
In addition to its Latvian holdings Sonera, Finland's leading mobile communications operator, also has investments in Turkey, Estonia, Lithuania and Russia.