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BISHKEK (TCA) — In Kyrgyzstan, the main news of this week was that a Russian citizen, Elena Nagornaya, importer of coffee and tea from Africa, is going to buy the Alfa Telecom CJSC (MegaCom trademark) mobile operator.

MegaCom was offered for auction five times, but no one applied for participation. This time, the State Property Management Fund of Kyrgyzstan (SPMF) has put the company on sale through direct sale.

Alfa Telecom is a major player in the country’s telecommunication market. The state owns 100% of the company’s shares. The company covers 98 percent of the country with mobile communication and has more than three million subscribers.

In May 2016, the initial price of the company’s shares was 19.7 billion soms (about $306 million). The price was reduced to 14.255 billion soms at the next auction because no applications were submitted, and it is now 13.5 billion soms (about $198 million). In 2008, the state planned to sell the company for $1 billion, but there was little competition in the telecom market then.

The high price of the shares of the mobile operator in the conditions of the world crisis was among the main reasons for the failure of the auctions, the Government said. The Government wants to sell MegaCom while it is attractive to buyers to get the maximum price for it.

On September 27, the parliament of Kyrgyzstan listened to a report of the State Property Management Fund on the sale of Alfa Telecom CJSC.

MPs opinion

The Parliament deputies believe that the Government is in a hurry with the sale of MegaCom to Nagornaya.

MPs criticized SPMF Chairman Bolsunbek Kazakov and some MPs even suggested he should leave his post. Firstly, it was necessary to carefully consider the situation and to negotiate with the applicant for the purchase of the company, and only then to declare that they have found a buyer, MPs said.

According to the SPMF, Alfa Telecom has many court obligations, and Nagornaya agreed to execute them. The SPMF does not exclude that during the negotiations she will abandon the deal.

Some MPs believe that the company should be sold after the presidential elections take place on October 15. In addition, the Government should provide the Parliament with full information about the buyer. Inquiries have been sent to the competent authorities regarding Nagornaya’s personality, and the response is expected in the next few days, the SPMF said.

The MPs considered the candidacy of the buyer to be insufficiently reliable and questionable. "MegaCom cannot be sold to a woman who sales tea," MP Janar Akayev said, urging the Government not to repeat mistakes of the recent unsuccessful deal with the Czech company Liglass Trading for the construction of hydropower stations in Kyrgyzstan. A large corporation should buy MegaCom, he added.

According to the SPMF, cellular corporations of China and Turkey refused to buy MegaCom. Earlier this year, the SPMF said that large cellular companies from China, South Korea and Turkey were interested to purchase the company.

Buying MegaCom, Nagornaya will acquire all of its lawsuits including the last one from Penwell, a former investor and lender of MegaCom. Penwell announced that it was seeking compensation of $200 million in an investment dispute with Kyrgyzstan.

Official comments

Nagornaya agrees to a price of 13.5 billion soms plus 945 million soms or 7% commission fees which will be transferred to the state budget, the SPMF said.

Telecommunications companies have to invest a lot every year, SPMF Deputy Chairman Bakytbek Murataliev said when clarifying the reasons for selling MegaCom.

There are several cellular companies in Kyrgyzstan, and MegaCom can no longer compete with private companies under the law on public procurement. The law hinders the development of state owned companies, including Alfa Telecom, which has to fulfill the requirements of the law that is not customized to entities operating in a competitive environment. According to the law, the company has to publish all information about its planned procurement, and it can be used by competitors to their advantage. At the same time, this requirement does not apply to private companies.

Another reason to sell the company is that it is involved in several court proceedings with Russian and other companies. If Alfa Telecom is sold, the legal liabilities will be transferred to a new owner.

In addition, the revenue from voice communication is falling all over the world. The new investor should transform MegaCom into an Internet company, and large investments are needed so that the company could successfully operate in the future.

In August, the Government resolved the problem with the sale of MegaCom, allowing the privatization of the state company through direct sale. The procedure is applied in exceptional cases, when it is impossible to sell a state owned enterprise at an auction or tender at least three times.

Background

Alfa Telecom CJSC was established in 2009 by Alexey Eliseyev, a close associate of Maksim Bakiyev, the son of the then President Kurmanbek Bakiyev. Assets of BiMoCom LTD, the former owner of MegaCom trade mark, were transferred to Alfa Telecom. After the change of power in Kyrgyzstan in 2010, 49% of Alfa Telecom shares were nationalized by a decree of the interim government, and the remaining 51% belonged to Southfield Management Inc. and Vesatel United Limited offshore companies.

In December 2013, the Bishkek Inter-district Court declared the purchase and sale of shares invalid, and 51% of shares were returned to Eliseyev. Later, the Osh City Court convicted Eliseyev and confiscated his property, including the stake in the company. In July 2014, the Supreme Court handed over 51% of Alfa Telecom shares to the state. Thus, the Government became the full stakeholder of the company.

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