Putin skirts Sistema issue

Tags: News
Russian president Vladimir Putin has not proven to be the white-knight-in-shining-armour for beleaguered Russian telecom operator Sistema.

The company’s cancelled licences and the fate of its $3 billion investment in India may not have figured in his delegation-level talks with prime minister Manmohan Singh on Monday.

If one were to believe those involved in the negotiations, a quid pro quo deal may be in the offing for Sistema’s investments in India against a bailout for ONGC Videsh’s (OVL) investment in Russia’s Imperial Energy.

After acquiring Imperial for $2.9 billion in 2009, the overseas arm of ONGC has been pushing for tax concessions from Russia to make up for the prohibitive costs of extracting oil in the desolate fields of Siberia.

The joint statement issued at the end of Putin’s visit did flag the issue of tax concessions being sought by OVL for Imperial Energy’s operations to become viable. India “noted the difficulties being faced by Imperial Energy and hoped that the ensuing tax reforms would help the company turn around.”

However, the issue of Sistema’s licence cancellation, which has put the firm’s India investment at risk, did not figure at the summit-level talks, as the $3 billion military contracts signed between the two nations dominated the bilaterals.

Former foreign secretary and India’s ambassador in Russia, Kanwal Sibal, has a different take on the issue. “One cannot equate the issues being faced by Sistema and OVL,” Sibal told Financial Chronicle.

“The two issues are not exactly parallel. I think the price paid by OVL for Imperial Energy is too high, making the oil extraction prohibitive. For just one company, tax laws in Russia cannot be amended,” he pointed out.

On Sistema’s cancelled licences, Sibal said, “It may be difficult for the Russian side to appreciate the way the Indian government and judiciary function.”

Russian telecom operator Sistema, which offers CDMA services under the MTS brand, had 21 of its 22 licences cancelled by the Supreme Court in February. Sistema Shyam Teleservices (SSTL), in which the Russian firm owns a 74 per cent stake, had filed a curative petition in the apex court seeking restoration of its licences.

Claiming that it had been penalised unfairly by the Supreme Court and placing its faith in the curative petition, SSTL declined to participate in the recently-held 2G spectrum auction. As the matter is yet to be taken up by the apex court and the cancelled licences set to expire on January 18, 2013, the firm’s operations in India have been jeopardised.

Restrictive merger and acquisition norms have likely compounded Sistema’s misery. Its acquisition of a brownfield GSM operator, long rumoured to be Aircel, has been on hold till more clarity emerges from the Supreme Court on its licences. This lack of clarity has forced the company to put its expansion and capital expenditure plans for India on hold.

A Bloomberg report on Monday said the chairman of Sistema’s board and its strategic committee, Vladimir Evtushenkov, has called for simpler rules to make it easier for telecom operators to merge. The Russian government holds 17 per cent stake in Sistema.


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