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Lithuania: Contract Signed To Privatize Telecom

Vilnius, 11 August 1997 (RFE/RL) -- The Lithuanian government has signed a contract with a Swiss-led consortium to act as advisers in the privatisation of the country's telecom company.

The consortium, which is headed by the Union Bank of Switzerland (UBS) and includes the Canadian investment company CIBC Wood Gundy, now has three months to prepare a comprehensive privatisation plan for marketing the major portion of the Lithuanian Telecom corporation.

Neither government officials nor consortium members are disclosing the value of the contract signed by the two sides on August 5. But sources in the government privatization service say the contract has several stages. The first is a set fee for the consortium for its planning work, the second is a "success fee", the size of which will depend on the results of the privatisation. Before the signing of the contract, there was word that the government was planning to pay the consultants 1.5 percent of the price of the Telecom shares sold.

In all, up to two-thirds of Telecom shares will be sold, with the remaining one-third staying in the hands of the Lithuanian government. The sell-off has caused some political sparks in Vilnius, with the ruling conservatives supporting the privatization on the grounds that it will allow for higher quality and more extensive services to the public, possibly at lower rates. They also say that keeping the Lithuanian Telecom in public hands will eventually mean that it will not be able to compete against other service providers. The Social Democrats however see the situation differently, and are convinced tht the main impact of privatization will be higher tariffs for all.

At any rate, the privatisation is set to go ahead. The UBS consortium has the task of informing potential investors, and choosing the most suitable single investor who will be allowed to purchase approximately half of the share package on offer -- therefore about one-third of the total. The remainder will be offered to the public starting in November.

Michael Phair, UBS managing director, has issued assurances that Telecom's shares will be protected from speculation through clauses which mean that the major investor will not be able to sell its shares again immediately.

Our correspondent reports from Vilnius that the price to be asked for Lithuanian Telecom is still under lively discussion. One of the consortium's tasks as advisers will be to estimate the value of the corporation.

According to Rimantas Pleikys, the Minister of Telecommunication and Informatics, the price of Telecom will depend in part on how long it is to be shielded from direct competition from other telecom service providers. Pleikys says that in any case such protection cannot be offered to Lithuanian Telecom beyond the year 2003.

Apart from arranging the immediate details of the Telecom sale, the UBS consortium is also charged with the wider task of framing recommendations for the liberalization of the country's telecommunication sector, including policies on tariffs.