ITALY BUYS PHONE FIRM IN BIGGEST SELL-OFF.

Italy’s state-controlled telecommunications holding company STET on December 1 snapped up Russia’s biggest privatization deal so far. For a $639 million investment and a promise to invest $764 million more over the next two years, STET won a tender for 25 percent plus one share in Russia’s telephone system Svyazinvest, the Russian Privatization Center announced. As well as bringing much-needed investment for Russia’s chronically unreliable and underdeveloped phone system, the deal provides a welcome fillip for a government whose privatization program has recently come under attack. "It is the biggest transaction of foreign capital there has ever been in Russia, and to be sure it is the biggest privatization in this country," first deputy prime minister Anatoly Chubais told journalists. STET beat off a consortium comprising France Telecom, Deutsche Telekom, and a Russian unit of US West in the tender. (6)

The Svyazinvest deal is worth some 1.9 trillion rubles ($415 million) in quick cash and is key to the government’s plan to raise this year’s budgeted privatization receipts of 8.7 trillion rubles. Svyazinvest owns controlling stakes in 85 regional telecommunications companies, including Moscow’s international and interurban phone company MMT, and also has been promised a full license to operate international and long-distance public telephone services. It will not be all gravy for Italy’s STET, however. The firm will probably have to spend billions of dollars improving Svyazinvest’s primitive and unreliable networks over the next ten years, if the existing infrastructure is even salvageable. Indeed, many experts consider the deal mostly an investment in a franchise for the future–which future, after this month’s parliamentary elections, could be clouded by a Communist and nationalist bloc unfriendly toward foreign investment. The Russian government plans to sell a further 24 percent of Svyazinvest through a public offering in 1996 or 1997, while retaining 51 percent for itself.

Moscow Relying on Communists in Chechnya.