RIGA - TeliaSonera and the outgoing Latvian government signed a memorandum on March 3 ending all litigation between the two sides and outlining possible ways to privatize Lattelekom and LMT, a leading mobile phone operator.
. The decision, however, was attacked by parliamentarians and Prime Minister-nominee Indulis Emsis as ineffective and called into question the memorandum's ultimate fate.
The memorandum, signed by the outgoing government of Einars Repse, Lattelekom and Telia-Sonera, the Finnish-Swedish telecommunication company that owns 49 percent of Lattelekom (through Tilts Communications) and 49 percent in LMT, provides for both sides recalling their suits from international arbitration court, where they have been bogged down for three years.
According to the settlement, TeliaSonera will pay Latvia 1 million lats (1.5 million euros) as compensation for litigation expenses and 9 million lats more should the state conduct a transaction involving the shares of both Lattelekom and LMT in favor of TeliaSonera.
"Our aim is to acquire Lattelekom and LMT fully under our ownership, but we are aware that it is not really possible," said Kenneth Karlberg, TeliaSonera president for Norway, Denmark and the Baltics, adding that the memorandum "sets the stage for a new spirit of cooperation between TeliaSonera and Latvia."
But lawmakers blasted the settlement, saying it was unprofessional and selfish on the part of Repse's outgoing government. A majority of MPs adopted a resolution on March 4 stating that the deal was disadvantageous for Latvia, even after getting acquainted with the expert conclusion of Clifford Chance, whose lawyers recommended that the state sign the memorandum.
Outgoing Transport Minister Roberts Zile said through his spokeswoman that the settlement was rushed, particularly coming at a time when Latvia was undergoing a change of governments.
Emsis criticized the deal's secretiveness. "It is wrong and suspicious that the settlement proposal is put before the outgoing Cabinet when a new government is being formed, and everything is kept secret," he said.
The prime minister nominee was also concerned that TeliaSonera would retain the right of first refusal in respect to the state's stake in Lattelekom, which would effectively make Latvia a "hostage" to the Scandinavian investor, who might eventually control both the land-line operator Lattelekom and LMT.
Repse defended the deal on March 4, claiming the Greens and Farmers Union, the loudest critics of the deal, were upset with the deal because they had hoped to assist their primary sponsor, Ventspils Mayor Aivars Lembergs, in obtaining the lucrative telecommunication asset.
In the outgoing prime minister's opinion, the Greens and Farmers Union are Lembergs' "pocket party," and the Ventspils mayor's stance on the TeliaSonera memorandum was made clear on the pages of the Neatkariga Rita Avize daily, which is "directly indirectly" owned by Lembergs, Repse explained.
"Hence the biggest opposition to the settlement is shown by Lembergs and other oligarchs," concluded Repse.
He reiterated that the settlement was the best possible option for Latvia and should be considered a victory since it protected the state from further litigation. Moreover, he stressed that the settlement in no way envisaged the privatization of Lattelekom, while objections to the "pre-emptive right of purchase were leveled by those who wanted to buy Lattelekom cheap themselves."
The agreement does outline three possible methods of restructuring ownership in Lattelekom and LMT: 1) TeliaSonera increases its stake in both companies to 100 percent; 2) TeliaSonera acquires 100 percent in LMT and transfers 49 percent of Lattelekom's stake to the state (no cash changes hands); 3) TeliaSonera acquires 100 percent in LMT and purchases for cash all capital stock of Lattelekom (except the fixed-line network) then transfers these shares to the state as compensation.
The report attached to the memorandum makes it clear that these three ownership settlements are not binding.
Karlberg said the memorandum called for starting talks on the further privatization of Lattelekom and LMT, though he stressed it was not clear where these talks would lead. (See story on Page 8.)
"At this point no proposals are under discussion. The talks will only start," said Karlberg.
The dispute between the Scandinavian investors and Latvia arose after the latter's decision to cut short Lattelekom's monopoly of fixed-line services 10 years earlier than agreed. Finland's Sonera (prior to its merger with Sweden's Telia) immediately sued for damages, and Latvia responded by filing suit for Sonera's failing to upgrade Lattelekom's network pursuant to the two sides' original agreement.