Publication: Monitor Volume: 1 Issue: 161

Russia’s biggest privatization deal involving a foreign company appeared to have collapsed yesterday with the announcement by the Privatization Center that STET, the Italian state-controlled telecoms holding company, declined to buy a 25 percent stake in the Svyazinvest telecommunications company it had won at tender last month. "It has become clear that the Russian government and STET failed to reach an agreement on the form of payment for shares, which is a key question for both sides," the announcement said. STET had promised to pay 2.93 trillion rubles ($639 million) for the stake. Under the terms of the tender, it also had to invest at least 3.5 trillion rubles ($764 million) in Svyazinvest over the next two years. First Deputy Prime Minister Anatoly Chubais said earlier this month it would be the biggest transaction so far involving foreign capital in Russia, and the biggest privatization deal. Svyazinvest owns controlling stakes in 85 regional telecommunications companies, including Moscow’s international and interurban phone company MMT. (12)

The Svyazinvest deal was to be worth some 1.9 trillion rubles ($415 million) in quick cash and was key to the government’s plan to raise this year’s budgeted privatization receipts of 8.7 trillion rubles. STET may have had second thoughts after the strong showing of communist and nationalist parties unfriendly toward foreign investment in last week’s parliamentary election. Or it may simply have paused when it began to tally the billions of dollars it would have to spend simply improving Svyazinvest’s primitive and unreliable networks over the next ten years, if the existing infrastructure is even salvageable. The Italian firm had won against a consortium comprising France Telecom, Deutsche Telekom and a Russian unit of U.S. West in the tender. STET owns Telecom Italia, the world’s fifth largest telecommunication company, and controls part of the stock of telecommunication companies in Argentina, Cuba, Bolivia, and Greece.

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