VZCZCXYZ0009
RR RUEHWEB

DE RUEHBW #1258/01 2211108
ZNR UUUUU ZZH
R 091108Z AUG 06
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 9121
INFO RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS BELGRADE 001258 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ECPS EFIN PGOV BTIO KPRV SR
SUBJECT: MOBI 63 SOLD FOR EUR 1.513 BILLION 
 
REF: A) Belgrade 673, B) Belgrade 447, C) 05 Belgrade 582 
 
SUMMARY 
------- 
¶1.  On August 1, the largest Norwegian mobile operator 
Telenor signed the sales agreement with the Government of 
Serbia (GOS) to buy Serbian mobile operator Mobi 63 (former 
Mobtel) for EUR 1.513 billion.  Telenor won the televised 
auction organized the day before, competing with Austrian 
Mobilkom and Egyptian Orascom Telecom.  The achieved price at 
the auction is a record in the current privatization process 
in Serbia, and this single transaction equals the total 
foreign direct investment (FDI) in Serbia and Montenegro for 
¶2005.  The sale brings to an end the saga of former Mobtel's 
dispute over ownership structure between the GOS and 
Milosevic's tycoon Bogoljub Karic as former owner, while 
setting the stage for future competition. 
 
TELEVISED AUCTION FOR MOBI 63 
----------------------------- 
¶2.  On July 31, three companies participated in the 
international televised auction: Norwegian Telenor, Austrian 
Mobilkom and Egyptian Orascom Telecom.  Each company 
submitted binding offers on July 26.  Bids could not be lower 
than EUR 800 million, which included EUR 320 million for the 
operating license, and the highest bid was the starting price 
of the auction.  The announced starting price at the auction 
was EUR 1.373 billion.  Mobilkom and Telenor accepted the 
starting price, but Orascom withdrew from the competition. 
After ten rounds of bidding, the final accepted price by both 
parties was EUR 1.513 billion.  According to the rules of the 
auction, binding offers were read and the highest offer won. 
Telenor had offered EUR 1.373 billion while Mobilkom offered 
EUR 805 million.  In spite of expectations that Mobilkom had 
been sought as a new owner of Mobi 63, Telenor confidently 
led the auction from the beginning, leaving no doubts about 
the outcome of the auction. 
 
¶3.  At the press conference after signing the contract with 
Telenor, Mladjan Dinkic, Minister of Finance, expressed 
delight with the high price and good deal with the 
Norwegians.  He said that the achieved price for Mobi 63 is 
equal to the total value of four months of Serbian exports 
and equal to three-month net pay of the entire Serbian 
workforce.  He expects that this transaction will raise the 
amount of FDI in 2006 to a record USD 3.5 billion. 
 
TWO CRUCIAL POINTS IN NEGOTIATION WITH SCHLAFF 
--------------------------------------------- - 
¶4.  Dinkic gave a brief history of the dispute between Karic 
and the GOS over the ownership rights in Mobtel (reftel B), 
Karic's intention to sell the company to various investors 
(reftel C), and his eventual sale to the group of Austrian 
investors led by Martin Schlaff.  He stressed that the GOS's 
decision to protect its interests in Mobtel against Karic by 
revoking Mobtel's operating license in December 2005 (reftel 
A) was a crucial point for starting negotiations with 
Schlaff.  The GOS then authorized the state-owned postal 
company PTT Srbija to take over Mobtel's debts of EUR 92.4 
million from Raiffeisen Bank and Hypo-Alpe-Adria Bank and 
become the majority creditor of Mobtel, which enabled the 
state to become owner of 70 percent of the assets in Mobtel. 
At the same time, the GOS made a deal with Schlaff whereby 
the Austrians took over Mobtel's debt of EUR 39.6 million 
from Swedish Ericsson for the equipment and became owner of 
30 percent of the assets.  They reached an agreement in April 
2006 to create a new company named Mobi 63 in which there was 
a 70/30 share between the GOS and the Austrians respectively. 
The agreement called for an auction of Mobi 63 which included 
equipment owned by Mobi 63, the operating license and the 
entire subscription network with the obligation of the future 
owner to take all of the 960 employees in Mobtel after the 
transaction. 
 
¶5.  Dinkic admitted that the negotiations with Schlaff were 
tough.  Schlaff wanted a direct deal with the GOS, estimating 
that the GOS could get some EUR 200 to 250 million from 
Mobtel.  On the other hand, the GOS had insisted on 
auctioning Mobi 63 from the beginning.  In addition, Schlaff 
insisted on minority rights based on his 30 percent which was 
unacceptable for the GOS.  Dinkic said that the GOS's 
response to that request was also crucial to the successful 
sale.  The GOS suggested that if the price was higher than 
EUR 1.1 billion, Schlaff would have to sell their share in 
Mobi 63.  Otherwise, if the price was lower than EUR 1.1 
billion, they could decide whether or not to sell their share 
to the new owner with the obligation to pay the new owner EUR 
96 million for 30 percent of the license and if they decided 
not to sell their share.  Dinkic thinks that this move 
contributed to a higher price for Mobi 63 since the owner had 
to offer more than EUR 1.1 billion to become 100 percent 
owner of the company. 
 
HOW TO SPEND MORE THAN A BILLION EUROS 
-------------------------------------- 
¶6.  Dinkic expects thatthe total price will be paid by the 
end of Augus.  He said that the GOS would get EUR 1.1551 
bilion from thi transaction plus EUR 30 million from 
Mobtel's operational revenues since December 2005  From this 
EUR 1.1851 billion, the city ofBelgrade will receive some 
EUR 3.6 million in tax revenues, and PTT Srbija will receive 
some EUR 100 million to pay back their debts to banks.  The 
privatization advisor, Consortium Rothschild, will receive 
0.293 percent or EUR 4.434 million from the sales price.  The 
Austrian investors will receive EUR 357.9 million which could 
potentially be much more than they originally invested in 
Mobtel.  Dinkic said that all of the GOS's proceeds would be 
spent on investments. 
 
POSSIBILITY FOR A THIRD LICENSE 
------------------------------- 
¶7.  Shortly after the auction, Austrian Mobilkom announced 
its plans to apply for a third mobile telephony license on 
the Serbian market.  When asked at the press conference if 
this was possible, Dinkic said that a third operator would be 
welcomed, citing the benefits to the GOS and customers from 
increased competition.  The starting price for the third 
license will not be less than EUR 320 million for two and a 
half years and is part of the deal with the new owner to 
allow for time to consolidate the company. 
 
¶8.  Upon receiving documentation from a potential investor, 
the Regulatory Agency for Telecommunications, which is 
responsible for issuing licenses, will call an international 
tender to collect potential bids with a deadline of no longer 
than 45 days, followed by a procedure to choose the best bid 
within four months.  Dinkic said that the third operator 
would only receive the license and would have the costs of 
establishing the company and network.  Dinkic also mentioned 
that the GOS has no intention of selling its stake in the 
state-owned mobile and landline operator Telekom Srbija, nor 
change its ownership structure before 2010. 
 
TELENOR PLEASED WITH OUTCOME 
---------------------------- 
¶9.  Jan Edvard Thygesen, Telenor's Director for Central and 
Eastern Europe, expressed gratitude to the GOS for the 
transparent process and professionally-organized auction.  He 
said that the price for Mobi 63 was high but reasonable and 
supported by the market since the shares of Telenor did not 
drop after the purchase.  He sees this transaction as an 
investment in the future referring to Telenor's intention to 
become the leader in the region and serve customers according 
to the principle "better value for the money".  Telenor 
operates in 12 Asian and European countries and is owner of 
Promonte mobile operator in Montenegro.  They had annual 
turnover of EUR 2.5 billion and approximately 100 million 
customers worldwide. 
 
EFFECTS OF PRIVATIZATION IMMEDIATELY EVIDENT 
-------------------------------------------- 
¶10.  In contrast to the bad GOS decision not to sell majority 
ownership in the NIS oil refinery (septel), this real 
privatization has yielded immediate, positive results for the 
government and the economy.  Just days after the sale, 
Telekom Srbija announced plans to launch 3G mobile technology 
in larger Serbian cities late this year as competition 
arrives.  The technology will offer users new services such 
as high-speed internet and video calling.  Drasko Petrovic, 
General Manager of Telekom Srbija, said that Telekom is ready 
for competition and believes the increased competition will 
be good for the Serbian telecom market and economy.  When 
asked about the potential arrival of a third mobile operator, 
Petrovic said that it will not pose a threat because there is 
"enough room for everybody" in the market. 
 
POLT