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UPDATE 1-Russia says worried by MTS Uzbek executive detention
July 25, 2012 / 4:10 PM / 5 years ago

UPDATE 1-Russia says worried by MTS Uzbek executive detention

* Licence of MTS Uzbek subsidiary suspended

* Dispute began with Uzbek claim for unpaid tax

* Risk of major subscriber losses-analysts (Adds MTS, analyst comments, background)

MOSCOW, July 25 (Reuters) - Russia’s foreign ministry said it has informed Uzbekistan of its concern over the detention of the acting chief executive of Russia’s top mobile firm MTS’s Uzbek subsidiary as part of a dispute that caused its licence suspension.

The dispute, which analysts fear may lead to MTS exiting the market, broke out earlier this year when Uzbek authorities launched a near $1.3 million back-tax claim against MTS.

Although MTS said it had repaid the claim, it was later hit by numerous inspections, including audits of its financial and operating activities.

The Uzbek authorities suspended its licence for 10 days on July 17, while the country’s Prosecutor General’s Office said on its website it detained Radik Dautov, acting head of MTS’ subsidiary Uzdunrobita, as part of a criminal case.

Russia’s foreign ministry said in a statement on its website on Wednesday it was concerned Dautov’s detention was a “severe measure”.

It added that resolving the issue would prevent a negative impact on the investment ties between the two countries.

The dispute echoes the situation in Turkmenistan, which revoked MTS’ licence in December 2010 for reasons that the firm claimed “were never fully justified”. MTS expects to be allowed to restart operations in the Central Asian state in the near future.

Oleg Raspopov, MTS’ vice president for foreign operations, said in May MTS planned to return to the Turkmen market within less than four months after taking a $140 million writedown.

UNWARRANTED ATTACKS

MTS, which generated revenues of some $430 million from Uzbek operations, or 3.5 percent of its total, in 2011, says it has not received any formal claims from the Uzbek authorities.

The company, part of oil-to-telecoms conglomerate Sistema , claims it has broken no local laws or regulations.

Spokeswoman Yelena Kokhanovskaya said on Wednesday the company was considering the case as an “unwarranted attack” on Russian businesses.

“At no time did any audit reveal any significant violation by Uzdunrobita of the laws of Uzbekistan, in particular with respect to tax, foreign exchange and licensing requirements,” Kokhanovskaya said in emailed comments.

Uzbekistan and Turkmenistan are members of a Russia-centred 11-strong block of former Soviet Union states. Russia is a key market for their gas but both have been seeking to diversify their exports away from Moscow.

In 2010, an Uzbek court ordered the nationalisation of a local business of Russian fruit juice and dairy producer Wimm-Bill-Dann, now part of PepsiCo, preceded by a number of inspections.

Uralsib bank said on Wednesday possible loss of MTS’s Uzbek business made rival Vimpelcom more attractive from the risk/return perspective.

“The end of operations has caused a massive shift of subscribers to MTS’s competitors and will lead to the loss of a significant number of subscribers, even if MTS is subsequently allowed to resume operations,” Uralsib analysts wrote in a note.

If MTS is forced to leave Uzbekistan, it could lose around 3 percent of operating income before depreciation and amortisation (OIBDA) in 2012 and about 4.5 percent in 2013, said Uralsib.

“The exit would also result in a write-off of roughly $800 million, as the company invested $1.1 billion in Uzdunrobita,” its analysts said.

In the first quarter of 2012, Uzbek operations contributed 4.1 percent to the company’s OIBDA. (Reporting by Maria Kiselyova; editing by Megan Davies and Elaine Hardcastle)

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