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Armenia: Greek Telecom Firm's Bumpy Ride

It's been four years since Greece's main telecommunications firm took over its much smaller Armenian counterpart, ArmenTel. The Greek Hellenic Telecommunications Organization, or OTE, is marking the anniversary amid fresh allegations by the Armenian government that it has failed to honor key terms of its $142-million purchase of the Armenian telecoms operator. OTE's relations with the authorities in Yerevan have gone from bad to worse recently after the latter accused the Greeks of large-scale fraud.

Yerevan, 21 March 2002 (RFE/RL) -- OTE's four-year operations in Armenia have always been controversial. The Greek telecom giant is facing a long list of government accusations ranging from abuse of its legal monopoly in Armenia to the failure to fulfill its investment commitments. Its Armenian subsidiary, ArmenTel, has become an object of public anger fanned by local media. Particularly unpopular has been a substantial increase in its telephone charges.

Government claims that OTE has not invested in Armenia as much as it had pledged only reinforce the widely held belief that ArmenTel's 1998 sell-off has not paid off. Vazgen Manukian, chairman of a special parliamentary commission investigating the telecommunications sector, summed up the dominant mood when he said last week: "One thing is obvious. The goals that we hoped would be achieved through the sell-off are not being achieved."

ArmenTel's Greek managers paint a different picture. The company's executive director, Nikos Georgoulas, said Armenia's Soviet-era telephone network was in an "almost collapsing" state in 1998. He said that thanks to the OTE investments, the quality of the country's fixed-line phone network is now approaching international standards.

"It is very important to state that Armenia became independent in telecommunication and now has its first terrestrial telecommunication exit to the rest of the world by digital systems," Georgoulas said.

OTE puts the amount of its investment, the key point of contention, at $143 million. But an ad hoc government commission concluded in a recent report that the Greeks have invested less than half of what they claim. The inter-ministerial commission alleged that the cost of telecom equipment imported to Armenia has been grossly inflated.

Its 60-page report also accuses OTE of an "arbitrary selection" of suppliers. "ArmenTel, acting at the behest of OTE, has placed supply orders with mainly Greek companies, especially ones in which OTE itself holds stakes," it says.

The report is the most serious of several long-running government accusations against ArmenTel. The company's management has always flatly denied them. ArmenTel, it says, has been audited by the Armenian tax authorities and the international accounting firm KPMG, which found no evidence of fraud. The ArmenTel chairman, Vassilis Maglaros, told a recent news conference that KPMG's findings carry more weight than the government commission's do.

"We respect very much all the decisions of the parliament, the government and whoever, but for us -- for OTE, I mean -- this procedure is closed," Maglaros said.

The government, meanwhile, is seeking a judicial inquiry into its complaints. Transport and Communications Minister Andranik Manukian told parliament in mid-March that the government will have a case for scrapping ArmenTel's 15-year monopoly on telecommunications services if its claims are endorsed by the court.

"If we prove in court that those abuses did take place, then I think the government should raise the issue of stripping it of the monopoly," Manukian said.

Many in government now agree with critics that the decision to grant OTE exclusive rights as part of the ArmenTel deal was a mistake. Many local analysts believe that the monopoly is a serious obstacle to the development of the Internet and broader information technology in Armenia. The Greek firm, for its part, has made it clear that it would not give up the monopoly without hefty financial compensation. It will therefore challenge any unilateral government decision in an international court.

ArmenTel's sale was the Armenian government's first and least transparent multimillion-dollar deal with foreign investors. It is still not known what other, if any, privatization options the government had back in 1998.

Opposition leaders have repeatedly claimed that the choice of ArmenTel's new owner was the result of a shady deal, implying that senior Armenian officials received kickbacks from the Greeks.

But according to Georgoulas, the decision to buy the Armenian telecom operator was taken by the Greek government which controlled OTE at the time. Georgoulas insists that his country thereby wanted to cement close political ties with Armenia.

Armenia is not the only former communist state in which OTE has invested. The company holds major stakes in telecommunications firms in Albania, Serbia, Romania, and Bulgaria.

OTE's relatively quick expansion abroad has drawn the attention of Greek law-enforcement authorities, who are investigating company executives for alleged improprieties in the expansionist push.

The most recent such scandal broke out when a Greek prosecutor launched a preliminary inquiry into reports that OTE made a secret arrangement with a rival Italian company to win a mobile phone license in Bulgaria. The Athens daily "Kathimerini" alleged that OTE paid Telecom Italia Mobile $10 million to drop out of the bidding for the Bulgarian deal.