It has all the ingredients of a cold-war thriller, but Russia-based operator MTS is engaged in a very real battle to keep hold of its subsidiary in Uzbekistan.
The Uzbek regulator suspended the license of Uzdunrobita, the local operator purchased by MTS in 2004, for 10 days in July and then extended it for a further three months.
Senior Uzdunrobita management have been arrested, while MTS has claimed employees have been intimidated and assets, including network equipment, illegally seized.
In a press release last week, MTS warned that the country’s Prosecutor’s General Office was preparing to bring charges of “engaging in activity without a licence” and “illegal activities of the branches without individual licences”.
The “branches” refer to the convoluted operating structure of Uzdunrobita, which serves nine million customers and accounts for 3.5 percent of MTS group’s €9.4 billion revenues.
MTS claims the charges are “groundless” but went much further in a sign of just how bitter this row become.
It stated that the “unwarranted attack” is being orchestrated by “certain influential entities … as a prelude toward the seizure and expropriation of [MTS’s] assets [in Uzbekistan]”.
The story dates back to February this year, when the Uzbek tax authorities levied a charge of €1 million on Uzdunrobita, relating to an audit for the years 2007-10.
MTS paid the charges voluntarily, but said the audits “did not reveal any serious violations”.
However, in June it announced that the authorities were once again conducting audits, had interrogated and detained managers and seized internal documents.
The operator claimed the actions “breached a number of legislative acts” and were “an effort to apply deliberate pressure on a long-standing Russian investor”.
Uzbekistan won its independence from Russia in 1991.
In July MTS submitted a number of official complaints to Uzbek government officials.
It cited the arrest and detention of top managers “without proper evidence”, interrogation “without providing access to legal counsel”, “unsubstantiated allegations of personal financial impropriety” and governmental audits that were “extraordinary and unjustifiable”.
Of the seizure of company documents in relation to “an ongoing criminal investigation by an unidentified group of people”, MTS said it could only assume that this “may be a due diligence exercise for illicit purposes”.
The letters went unanswered, MTS added.
A court case was set for 30 July, but the Tashkent Economic Court only served notice to MTS two days before.
An MTS motion to postpone the hearing was rejected, leading the operator to claim that “ulterior motives” are behind the local regulator’s actions.
In its defence, MTS said it has documents proving that it has the correct licences and that it is the undisputed owner of them.
It also claimed to have operated lawfully in Uzbekistan since acquiring Uzdunrobita eight years ago.
Adding further to the intrigue, MTS said the former general director of the regulator, who now serves as deputy prime minister, signed all the licencing agreements.
MTS could not be reached for further comment.
The story is perhaps the most graphic illustration of how investing in emerging markets can go horribly wrong.
Luckily for MTS, and in sharp contrast to its western European rivals, it is not reliant on growth in countries such as Uzbekistan.
As we reported in March, MTS is expecting growth of five to seven percent this year.
However, it would appear cutting its losses in Uzbekistan and concentrating on its core market may be the best option.