Telia facing $1.4 billion Uzbek corruption settlement

Dutch and US regulators have requested a whopping $1.4 billion in fines from Nordic telecom company Telia. The settlement addresses Telia’s entry into the Uzbek market in 2007. The company has not shied away from accepting blame, and said last September that it would gradually exit its Central Asian markets after probes into local corruption.

In a statement, Telia Chairwoman Marie Ehrling said: “I have said on many occasions in the past that Telia Company’s entry into Uzbekistan was done in an unethical and wrongful way and we are prepared to take full responsibility.”

While that may be the case, the size of the proposed settlement has come as an unpleasant surprise.

“Our initial reaction to the proposal is that the amount is very high,” Ehrling’s statement added.

In February of this year VimpelCom Ltd said it would pay $795 million to resolve U.S. and Dutch probes into a bribery scheme in Uzbekistan.

Turkmenistan: Corruption, Risk and Reward

While recent improvements have been made, extreme caution and sound risk management are still advised.

In January 2016, Human Rights Watch, Freedom House and Transparency International released their 2015 reports on human rights, political freedom and corruption, respectively. All three reports bring into focus the pervading situation across Central Asia: the ubiquity of severe human rights violations, a blatant disregard for democratic values, and an ineffective fight against corruption at government and corporate level.

Freedom House named Turkmenistan and Uzbekistan among “the worst of the worst” with regard to political rights and civil liberties, while Transparency International placed Turkmenistan 154th out of 167 on its annual Corruption Perception Index. Human Rights Watch stated Turkmenistan’s “atrocious” record had actually worsened in 2015.

The International Monetary Fund visited Turkmenistan in November last year and immediately lowered its forecast for 2016 GDP growth by 2.9% to 6%. The general message on the state of Turkmenistan’s government and economy is unequivocally negative.

After the collapse of the Soviet Union there was a strong belief that Turkmenistan would quickly undergo a transition to democracy and free market economics but owing to its historical dependency on Russia and other authoritarian regimes with no tradition of democracy, political pluralism or the rule of law, the transition was de facto doomed. As a result, the investment climate for international companies has remained limited and extremely risky.

But we are observing small green shoots of change. In July 2015 the Turkmen President Gurbanguly Berdymukhammedov dismissed several high ranking government officials for various crimes. This March, the President publicly raised serious concerns over the level of graft in the domestic oil and gas industry, a clear response to the exit of Germany’s DEA Deutsche Erdoel AG, citing corruption and bureaucratic delays. In the same month, the World Bank held a practical training session on fiscal policy and macroeconomic management.

We might therefore conclude that Turkmenistan’s leadership has understood that real and lasting change must be carried out: the rule of law, the free economy and anti-corruption measures must be significantly strengthened before the country may make full use of its natural resources, develop its attendant industries, and deliver substantial economic growth.

Currently the main foreign investors in Turkmenistan are its neighbours, politically and geographically – China, Russia, Kazakhstan and Uzbekistan. A wider audience should understand Turkmenistan’s fantastic potential, but while the potential rewards are great, Central Asia’s authoritarian regimes are not an easy sell in the boardrooms of the west.

CNS Risk has a deep understanding of how business is done in the country and specifically how its oil and gas industry functions; while we acknowledge that this is a difficult country for western corporates to operate in, we have the experience and capability on the ground to help steer businesses through this often hostile environment.

For a demonstration of how we can help, please contact our Former Soviet Union (FSU) & Central Asia team directly. The team is led by Gareth Babbs, a skilled navigator of the bureaucracies of the FSU with 20 years of direct experience as MD/CEO of multinational businesses across the regions.

A.H.

References:

HRW: https://www.hrw.org/world-report/2016/country-chapters/turkmenistan.

Freedom House: https://freedomhouse.org/report/freedom-world/freedom-world-2016.

TI: http://www.transparency.org/cpi2015/

Creative design from the South

Get in touch with us!