Russian telecoms giant seeks $750M in damages from Turkmenistan
A subsidiary of the Russian company MTS was suddenly shut down by Turkmen authorities in September 2017.
Russian telecommunications giant MTS has filed a case with a World Bank arbitration center for at least $750 million in compensation from Turkmenistan for the forced closure of its daughter company.
The Moscow-based company said in a July 27 statement that authorities in Turkmenistan acted in violation of international agreements when they forced MTS-Turkmenistan to suspend their operations in September 2017. Attempts over a six-month period to seek a settlement have proven fruitless, the company said.
“Such agreement has not been reached and therefore MTS is initiating these legal proceedings,” the statement read.
MTS is pursuing its case through the International Center for Settlement of Investments Disputes and is citing a 2009 treaty between Turkmenistan and Russia on the reciprocal protection of investments as the basis of its complaint.
The untimely demise of MTS-Turkmenistan was but one of many cases illustrating the dangers to which foreign investors are exposed in the Central Asian nation.
MTS-Turkmenistan suddenly announced at the end of September 2017 that it was suspending operations, citing “unilateral actions by state telecommunications company Turkmentelekom that led to the disconnection of international and intercity zonal communication services and internet access.” MTS stated at the time that local regulators were declining to extend permits for frequencies and other authorizations required to run their service.
In March, MTS declared it had recorded a 3.2 billion ruble ($50 million) loss as a result of the impairment of its Turkmenistan assets. And then in June, it was reported that MTS-Turkmenistan was moving to sell its assets, including air conditioners and electrical equipment, in a bid to claw back some money. The exile-run Chronicles of Turkmenistan speculated that the low prices and extended sale period advertised for these goods suggested the company was having trouble selling them off.
MTS-Turkmenistan had a client base of around 1.7 million people — a vast amount in a nation whose entire population stands at around 5 million. Its operating license had been valid until July 26, 2018.
In what may have been a linked development, President Gurbanguly Berdymukhamedov in June 2017 signed off on the creation of a new, state-run domestic mobile telecommunications operator called Ay Nazar. One Russian tech reporting website even speculated that the cellphone services provider was due to begin operating by June 29, which happens to be Berdymukhamedov’s birthday. Although nothing has been heard from Ay Nazar since that time, the assumption appears to be that once it is up and running, it will hoover up the market space vacated by MTS-Turkmenistan.
This was not the first run-in that MTS had had with Turkmenistan. Ashgabat suspended the company’s Turkmenistan operations in December 2010 for some unknown reason. The standing theory at the time too was that the authorities wanted to bring an end to MTS’s near-monopolistic control over the local mobile telecommunications market.
A combination of negotiations and the dismal level of service rendered by the only local alternative, state telecommunication company Altyn Asyr, appears to have earned MTS a reprieve. Following a meeting between Berdymukhamedov and Vladimir Yevtushenkov, the chairman of Sistema, the corporation that ultimately controls MTS, an agreement was signed in May 2012 for MTS-Turkmenistan to resume its services.
The way in which Turkmenistan has chosen to handle this latest instance of corporate harassment is mystifying both in its method and timing. In legal terms, bearing in mind the bilateral treaty with Russia, it looks deeply exposed. Can Ashgabat truly have imagined that MTS would take such a large financial loss lying down?
Also, the prospect of having to pay out legal damages comes at a time when it can sorely afford such expenses. Turkmenistan looks increasingly incapable of steering its beleaguered economy through some difficult straits. As RFE/RL’s Bruce Pannier has explained in detail, things have become so bad that the country may even be looking down the barrel of another winter of severe shortages due to a poor grain harvest.