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. Last Updated: 07/27/2016

Lukashenko Halts MTS Venture

Mobile TeleSystems' plans to begin operating in Belarus have run aground, and the cellular giant is now awaiting a decision from Belarussian President Alexander Lukashenko on the fate of its $10 million investment.

The Minsk government denied a registration for a joint venture between MTS and Belarussian long-distance operator Mezhdugorodnaya Svyaz. MTS won a tender for the country's second GSM license in September, and Lukashenko himself had announced the victory.

"We have no official answer from the Belarus side as to what the reason for the delay could be. We don't understand what is happening," said Alexei Buyanov, MTS' vice president for investments. "If there is no decision by next week, then this will be grounds for serious negotiating about shifting the date for launching the network."

According to the conditions of the tender, MTS was to receive a 49 percent stake and invest $215 million in the joint venture, while state-owned Mezhdugorodnaya Svyaz would get 51 percent. MTS also was required to pay $5 million for the operator's license. The Belarussian government, meanwhile, was to establish cellular tariffs.

In another clause of the deal, MTS was to transfer $2.5 million into the Belarussian state budget and create a nongovernmental fund to support new technology, into which it was to invest $3 million.

The government, however, demanded MTS pay $10 million to the state budget rather than the initial $2.5 million.

MTS did not argue with the decision, Buyanov said, and the joint venture was to move ahead until the government refused to register the new company.

Lukashenko forbade Mezhdugorodnaya Svyaz to contribute its share of the charter capital, said Deputy Communications Minister Vladimir Karpovich. Under Belarussian law, state enterprises need the president's permission to create joint ventures.

Karpovich did not say why permission was denied, but he acknowledged that MTS had paid the $10 million to the budget and gave financial aid for technical work.

Due to the delayed registration of the joint venture, a contract with Germany's Siemens to supply equipment for building the network is also in danger, said Andrei Soborov, a specialist with the Communications Ministry. Siemens won an MTS tender last year to supply the equipment.

Alexander Goebecke, head of Siemens in Belarus, refused to comment.

Under terms of the tender, the joint venture was to begin operating April 17, but that date has now been canceled. A source in the Belarussian Communications Ministry who declined to be identified said the decision to begin operating rests with Lukashenko.

"There are no technical or legal problems with creating a joint venture. The documents of incorporation, signed by MTS and the state enterprise, are at the Foreign Ministry," the ministry source said. "The question is whether the president will make a decision."

Andrei Soborov, chief specialist in the Communications Ministry's department for developing telecommunications, said that even if the joint venture is created this week it would be impossible to begin operating before May.

MTS' Buyanov insists that the company fulfilled all the requirements of the tender. "No concrete terms for registering the joint venture were established. But if you take into consideration the fact that the date of launching the network was established as April 17, then it is clear that the joint venture should have been created long ago," he said.

The MTS situation resembles that of No. 1 Russian brewer Baltika, which is struggling to retrieve its $10.5 million investment in the Belarussian state-controlled Krinitsa brewery.

Baltika is currently negotiating with the Belarussian government about receiving its 50 percent plus one stake in the brewery, which Minsk has refused to hand over.

Buyanov refused to comment on the Baltika debacle but said his company was "keeping a close eye on the story."

Andrei Braginsky, an analyst for Renaissance Capital, said both the investments of MTS and Baltika were trifling.