Government orders valuation of BH Telecom, is sale the next step?

Today, the FBiH Government accepted the information from the Federal Ministry of Transport and Communications regarding the obligations undertaken from the Letter of Intent signed by the Government of the Federation of BiH, committing to complete, in consultation with the World Bank Group and the EBRD, a financial and operational due diligence for BH Telecom d.d. Sarajevo, Patria reports. 

- This obligation represents a structural benchmark. To implement this obligation, the Federal Ministry of Transport and Communications states that BH Telecom d.d. Sarajevo will be contacted by these financial institutions to sign a Confidentiality Agreement, in order to ensure access to relevant data. A similar assessment will follow for JP Hrvatske telekomunikacije d.d. Mostar – announced by the FBiH Government.

Given that Fadil Novalić, after documents prepared by experts for the Prime Minister's Office leaked to the public, stated that there would be no sale of Telecom during his mandate, we also present the part written in the Letter of Intent:

We will restart the privatization process in the Federation of BiH to help improve economic governance and competition, and reduce risks to public finances. We have classified state-owned enterprises and public enterprises into those that are strategic, those requiring minor or significant restructuring measures, and enterprises in which the government holds minority stakes (these efforts in the Federation of BiH are supported by the World Bank Group). We will sell minority stakes in the companies Bosnalijek and Sarajevo osiguranje by the end of September 2016.

We are also in the process of implementing operational and financial restructuring of the companies Fabrika duhana Sarajevo and Aluminij Mostar, with the aim of completing their sale by the end of March 2017. Other companies, such as Energoinvest and Energopetrol, will require more comprehensive restructuring measures before their full rehabilitation and sale by the end of December 2017.

In accordance with the plan of the Privatization Agency of the Federation of BiH, we will proceed to resolve the status of the remaining state-owned enterprises and public enterprises either through restructuring and possible privatization of viable enterprises, or bankruptcy/liquidation of those enterprises deemed unsustainable.

Within this process, the Government of the Federation of BiH will, in consultation with the World Bank Group or the EBRD, complete a financial and operational due diligence for the companies BH Telecom and HT Mostar by the end of October 2016 (structural benchmark), and will discuss possibilities and modalities for increasing the profitability of these companies through improved corporate governance or the sale of shares.

By the end of December 2016 (structural benchmarks), the governments of the two entities will, with the assistance of the World Bank, adopt restructuring plans for railways in the Republika Srpska and the Federation of BiH, and the Government of the Federation of BiH will, during 2017, also adopt a restructuring plan for public enterprises in the electricity and gas sector and coal mines – states the Letter of Intent.

We remind you that the FBiH Government, without the knowledge of the director of BH Telecom, prepared its own report on the operations of this company, stating that the worst business results since 2010 were recorded last year.

In its report, the Government claims that the value of the Government's stake decreased by as much as 250 million KM in 2016, and that this will continue if the Management continues to mismanage BH Telecom. Novalić's Government called the allocation of 11 million KM for marketing purposes an abuse, and stated that these funds were used to „finance campaigns against the FBiH Government, the KS Government, the President of BiH, through co-production and sponsorship of political shows that damage the reputation of the owner of BH Telecom, and activities on the implementation of the Reform Agenda, which is taking on the dimensions of a diplomatic scandal.“

The same report also criticizes the expenditure of over 100 million for procurements arranged through negotiated procedures. It was emphasized that the procedure itself is non-transparent and of questionable cost-effectiveness.

Novalić's Government was particularly bothered by the fact that the Management of BH Telecom refuses cooperation with strategic partners delegated by the Government, citing the example of Turkcell.

- BH Telecom has a very poor position compared to the competition, and a very low level of productivity compared to the average in Southeast Europe.

In its report, the Government claims that BH Telecom's financial statements are subject to „classic accounting manipulations with the value of inventories, investments, and procurements. It further claims that BH Telecom finances negative campaigns against the Government, calling them orchestrated attacks, and states that all these activities should be changed in 2017.

- In shows sponsored and co-produced by BH Telecom, in a very negative and inappropriate context and explicit content, among others, the member of the Presidency, the Prime Minister of FBiH, ministers, and the Prime Minister of KS are insulted and ridiculed. Financing political shows that create a negative image not only of the owner in no way contributes to the business of BH Telecom, nor to creating a positive image.

As Patria's sources reveal, this report by the FBiH Government is the basis for the sale of BH Telecom, which the director of BH Telecom, Mirsad Zaimović, publicly opposes, which does not suit the party that appointed him to the head of BH Telecom, because the Government has committed to the IMF regarding the privatization of this sector.