Anti-Corruption Council official: Telekom acquisitions not transparent PART 2

N1

Anti-Corruption Council member Jelisaveta Vasilic wrote an op-ed piece for Danas daily saying that it’s not clear which regulations allow the Telekom Serbia to operate without any control by either the government or the public. We bring you the second part of Vasilic’s piece for Danas in entirety:

“The DRI report shows that private individuals were paid some 38.29 billion Dinars for acquisitions for the operators: Kopernikus technology d.o.o, Avcom d.o.o, Beograd, Radijus Vektor d.o.o, Beograd, Masko d.o.o, Beograd and BPP Ing d.o.o, Grocka.

A number of comments were made in public about the price paid for Kopernikus, including the state President who said: I did not make Kopernikus worth 200 million, Kopernikus created a value of 200 million. (source Novosti daily – Vucic on the purchase of Kopernikus: Only Monopolies Opposed E. V. N. 7 November 2018)

POVEZANE VESTI

We learned from the president that the owner of Kopernikus is a nice man which is especially worrying because the question is whether it was important in this procedure for someone to be nice or whether it was important to conduct the procedure transparently and in line with the law to protect public property. (Source Vreme 1458, 13 December 2018).

Article 2 of the law on public procurement explicitly states that the law regulates procurement in waters management, the energy industry, traffic, defense, security and postal services.

The law does not cover telecommunications which clearly indicates that the state has allowed the Telekom to buy assets without implementing the law on public procurement and its limitations which would mean that contract records must be in writing not verbal, that contracts can’t be made in direct negotiations without a public tender, that procurement is done at market prices which would prevent enormous corruption.

Paragraph 2 of Article 2 of that law says that companies which were set up to meet the public interest, if they meet the conditions in paragraphs 1 and 2 are obliged to implement the law.

Without getting into why it was left unclear whether the law covers telecommunications, I believe that at least the basic principles of the law on public procurement have to be implemented, that is the articles covering obligations.

The principles of efficiency, economy, securing competition, transparency, equality of bidders and the principle of communication in writing have to be implemented.

Also, one of the very important principles in public procurement is the principle of preventing corruption and the duty to report corruption because it is widely known that corruption is most present in the public procurement in state companies.

Under article 29 of the law on public property, the Telekom is obliged to start from the assessed market value in buying and selling property in a competition or by inviting written offers.

Article 3 paragraph 1 point 28 of the law on public procurement states that the market price is the relevant price taking into consideration the asset being procured, development of the market, conditions in specific documents.

Since this is a question of the telecommunications industry which has a price on the world market, the market price could have been set through a system of defining and comparing with the help of EBITDA.

Telekom was asked for information on how the purchase price was set which Telekom paid without bargaining but Telekom did not grant access to that data which indicates the secrecy of the process which allowed huge corruption by transferring public property to private hands.

In its report, the DRI did not determine whether the procurement was done with the implementation of Article 84 of the Constitution which regulates market position so that everyone has an equal position and forbids the limiting of free competition by creating or abusing a monopoly or dominant position. The protection of competition is regulated by Article 27 of the law on public procurement.

Considering the number of operators which were bought and sold, the question is whether the purchases amounted to an abuse of monopoly or the dominant position on the media market and whether there is suspicion that competition has been damaged because the President said on December 11, 2015 that we do not have oil and gas and have to fight to get the Telekom an even better position on the market.

The law on protecting competition defines the term competition which is created by merger, status changes, acquisition and investments on the market.

The Telekom filed concentration reports with the Commission to Protect Competition, the Commission launched a shortened procedure and found that the concentration meets permissible conditions based on the submitted evidence.

Concentration is allowed for all cable operators which Telekom planned to purchase. The DRI report said that the Commission to Protect Competition ruled on the concentration based on evidence from Ratel (Republic Agency for Electronic Communications and Postal Services) without specifying what the evidence was. That means that the issue of capital concentration and competition is not controlled.

The Telekom did not reply to an Anti-Corruption Council letter and did not provide the requested information and documents. The Council appealed to the Commissioner for Information of Public Importance on June 1, 2020 but the Commissioner has not ruled on the appeal yet.

Because access was not granted to the requested documents, the economic and other justification of the acquisitions could not be determined nor could the business results following those acquisitions in order to see if the invested funds had a positive effect and increased the value of the Telekom.

The report for 2019 will provide indications of how the Telekom is operating and for determining why brokers are warning that Telekom is excessively in debt which is reducing its profitability.

We should go back to 2015 when Telekom was for sale at an international tender.

The authorities never said how that tender procedure went, who the interested buyers were and what the offers were, just saying that the best offered price was 1.2 billion Euro and that the sale did not go ahead because they expected an offer of 1.5 billion Euro.

At that moment, Telekom’s EBITDA stood at 360 million and its net debts at 302 million Euro which means that the Telekom was valued at 5.4 x EBITDA.

Page 73 of the report for 2018 says that the EBITDA stood at 328 million Euro and the debt on page 74 at 904 million Euro which means that the net debt was triple that of 2015.

Without the data requested by but not made available to the Council, some economists determine that Telekom lost more than 700 million Euro of its value between 2015 and 2018.

The report was drafted for the Council but there will be no Council report because it did not receive the approval of all Council members. Two members refused to give their approval, three others did and two more were undecided.

I believe that the report is very important because it shows how publicly owned companies operating with public property in a non-transparent and illegal manner with no legal control which allows systemic corruption and because of which the state and small shareholders have not received the dividends that they have a right to since 2018.