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Romania: Delays In Telecom Sale Weaken Bargaining Power

Bucharest, 25 September 1998 (RFE/RL) -- Long delays in privatizing Romania's national telephone monopoly have left the Government in a poor bargaining position as it attempts to find a strategic investor willing to put money into the country's outdated phone system.

Romania hopes to raise $1 billion in an auction for a 35-percent stake of RomTelecom. Communications Minister Sorin Pantis told RFE/RL today that what he called the "final" terms of the deal were presented today to two potential bidding companies from abroad. But the apparent interest of only two foreign telecoms shows that the Government's repeated delays have made the tender less competitive than it could have been.

Earlier this year, as many as seven Western telecoms were looking into the sell-off. But the terms have been changed, and bidding has been postponed, so often that five potential buyers have written off the sale. The five are Deutsche Telekom, France Telecom, the U.S.-based SBC, Holland's KPN and an unnamed Canadian operator.

That leaves only Greece's OTE and Italy's STET as bidders. Both of those firms have had to re-evaluate their bids because consortium partners for each have pulled out.

Communications Minister Pantis says both OTE and STET are seeking new partners, and he admits there is a possibility they may join forces in a single bid for RomTelecom. The two already teamed up in the region early last year to buy a 49- percent stake in Serbia Telecom for $875 million (1,470 million D-marks).

But Pantis also said that he doesn't think OTE and STET will form a consortium for a RomTelecom bid because, in his words, they have not had a "happy experience" together in Serbia. Minister Pantis said, "In my opinion, this is simple speculation. Theoretically, this possibility exists. But as far as I know, their experience in Serbia is not one of the happiest. Consequently, I think they will bid separately. I think they are both searching for (other) partners and this is very good (for Romania)."

Bucharest's delays mean that the timing of the RomTelecom sale could not be worse. Foreign investors are increasingly wary about involvement in emerging markets because of the financial crises in Russia, Asia and Latin America. Another delay could weaken Romania's bargaining power further because the tender would compete directly with upcoming telecom privatizations in Bulgaria and Turkey.

Romania desperately needs a successful privatization of its telephone system. Money is needed to offset a budget deficit expected to grow to more than four percent of gross domestic product this year. Romania also needs to bolster its reputation on market reforms in order to get fresh credits from international institutions.

A so-called Privatization Report Card compiled by the Wall Street Journal Europe this month, and based on data from the European Bank for Reconstruction and Development (EBRD), is highly critical. Its verdict on Romania says: "Slow and bad isn't the way to earn credibility. Insiders (are) too prominent as well, undermining Romania's attempts at getting the economy off the floor."

The International Monetary Fund also is critical of Romania's reform policies. The IMF let a $530 million lending accord with Bucharest expire in May. Talks on a new IMF agreement have been shaken by this week's dismissal of Finance Minister Daniel Daianu, who was seen as a leading supporter of market reform. Investment bankers in Bucharest describe Daianu as one of the only senior government officials who was fully aware of how the country's economic problems are complicated by the crises in Russia and Asia. Communications Minister Pantis said today that the bidding process on RomTelecom will close October 31. But publications like Britain's Financial Times and the U.S.' Wall Street Journal Europe are treating any new deadlines from Bucharest with cynicism.

A telecom survey published this month by the Economist Group wonders if the sale will ever take place. The Economist Group also prints a question mark next to a Romanian claim that the sale will be finished this year.

It appears increasingly unlikely that Bucharest will attract the $1 billion it is hoped for in the tender. Pantis said a minimum price has not been fixed by RomTelecom's privatization committee. But he also said the issue has been discussed and the tender will be canceled if the bids do not approach the price Bucharest has in mind.

The Economist Group concludes that Bucharest would be well-advised to take whatever it can get and, in its words, "ponder whether even a monopolist with a strategic investor can do all that needs to be done" to modernize the phone system.

According to the latest estimates, only 15 percent of Romanians now have telephones. That is the worst teledensity record in all of Eastern and Central Europe --worse even than the 18 percent teledensity in both Russia and Ukraine.

As many as 3,000 Romanian villages still have no phone services at all. Teledensity in remote regions is as low as four or five percent. Romania's mountainous terrain and the poor state of the economy mean that laying new phones lines in rural areas will bring a low rate of return to any foreign investor. The EBRD has said that $700 to $800 million are needed just to bring Romania's teledensity up to 25 percent in the next two years.

As the latest deadline for the RomTelecom tender approaches, analysts in Bucharest already are making comparisons to Moldova's recent troubled auction. A tender for Moldtelecom was canceled earlier this year because it failed to attract the government's preset minimum price. But Pantis told RFE/RL he does not expect Romania to replicate the Moldovan scenario.