UPDATE ON MTS IN UZBEKISTAN

Tuesday, August 14, 2012

Given the recent news about MTS's subsidiary in Uzbekistan, we want to take the opportunity to give an overview of the situation and answer your questions.  As the details that follow explain, the Uzbekistan government's move to impede our business and undermine our investments reveals a decade-long pattern of inviting foreign investors into the country, creating profitable ventures, and then seizing those businesses based on false charges.  Most disturbing now is the trespassing on the basic rights of our employees.  Since the beginning of this crisis, five of our team members were detained illegally and arrested on the unwarranted and unsubstantiated charges. Later one of the managers Radik Dautov, a Russian citizen, was released after intervention of the Russia’s Ministry of Foreign Affairs. Now, four of our team members remain in custody. We are working hard to ensure their safety and then to restore our operations in the country.  


If you have questions, we will do our best to answer them here.  Please do understand that given the sensitivities of the matter, and especially the concern for the safety of our people, we may not be able to share everything we'd like.  As more updates become available, we'll post them here and on the news section of our website. 

 

History of MTS in Uzbekistan

 

MTS entered Uzbekistan with great optimism in 2004.  As part of the company's expansion efforts at the time, MTS bought a 74% stake in Uzdunrobita for $121 million. In 2007, according to terms of the agreement, we acquired the remaining 26% stake for $250 million.  Over the course of our ownership, we have additionally invested approximately $1.1 billion. Due to our investment and long experience working in the CIS, Uzdunrobita quickly became the largest mobile telecom and internet provider in Central Asia.  By mid-2012, our 1,400 team members were delivering 2G, 3G and 4G services to more than 9.5 million subscribers — nearly 38% of the population.   

 

Since June 2012, MTS Uzbekistan has been the target of blatant harassment by Uzbek government authorities with the thinly-veiled purpose of destroying the business and expropriating its assets.  MTS Uzbekistan and its employees are being persecuted by Uzbek law enforcement authorities on the basis of unfounded accusations regarding tax, licensing and other alleged violations. 

 

Telecommunications lines that we put up were cut down. Internet access — the way our headquarters in Moscow communicates with its branches in Uzbekistan — was cut off.  Illegal audits were conducted.  Bank accounts were frozen.  Licenses were suspended and later terminated.  All of these tactics were used despite MTS's acting in full accordance with local Uzbekistan laws and regulations and in compliance with all required licenses. 

 

Over the past two months, the General Prosecutor's Office of Uzbekistan has accused MTS Uzbekistan's management team of nearly every financial crime that exists, including tax evasion, fraud, concealing foreign exchange earnings, wrongful cash withdrawals, the violation of trade rules and even unlicensed activities as part of a "criminal group."   In one remarkable move, 13 independently operating regulatory bodies covering 13 geographic regions simultaneously filed antitrust charges." The text of the paperwork was identical down to its typographical errors.  

 

All of these signs indicate that authorities are escalating the situation with the goal of seizing Uzdunrobita's nearly US$1 billion in assets.

 

Uzbekistan Human Rights Violations 

 

The Uzbekistan General Prosecutor's Office has carried out repeated violations of human rights of MTS's team members. These include being arrested without being told the charges, intimidating closed-door interrogations for hours without access to legal counsel, and threats of physical coercion.  Other prisoners in chains are paraded in front of them as interrogators taunt, "you're going to end up like this, in chains, if you don't sign this confession."  Our employees have also been told that illegal drugs would be found in their apartment and subsequent charges made against them. In many cases, authorities have also MTS employees the right to travel, confiscating their passports.

 

We have repeatedly asked the General Prosecutor, the Minister of Justice and the Prime Minister of Uzbekistan to stop these violations, but they have continued.  On July 30, 2012, MTS wrote a letter to President Islam Karimov requesting that these people's legal rights be protected, but no answer has yet been received.  

 

Among the wider population of Uzbekistan, the immediate shut-down of MTS Uzbekistan as Central Asia's biggest mobile voice and Internet provider  — at first for 10 days, later suspended for three months, and now terminated – has already caused severe effects in daily and business life in the region.  

 

Uzbekistan Investment by Foreign Companies

 

MTS's experience in the country makes clear a disturbing pattern of harassment and expropriation of foreign companies' assets. Other companies that have faced issues include:

1.      India: Spentex Industries (a textile firm called Spentex Tashkent Toytepa) 

2.      Israel: Metal-Tech Ltd. (a metallurgical plant called Uzmetall Technology) 

3.      Russia: Wimm-Bill-Dann (a dairy plant in Tashkent) 

4.      United Kingdom: Oxus Gold Plc (a gold mining venture with Amantaytau Goldfields)

5.      United States: Newmont Mining (a gold mining joint venture with Zaravshan Newmont)

6.      United States: MCT Corp, (a mobile operator called Coscom) 

Note, links to the media reports and press-releases in this post do not imply an endorsement of their reporting or confirmation of the facts asserted. 

 

We are looking to these past situations to see what lessons can be applied. 

 

Our Next Steps

 

Since the arrest of our employees, MTS has been working relentlessly to ensure the safety of its detained employees and restore its operations. We continue to ask for:

•     Immediate release of the four imprisoned employees;

•     Immediate restoration of the full civil rights and liberties of all of the Company’s employees, especially return of their passports and ability to travel;

•     Cessation of all fabricated allegations against MTS Uzbekistan and its employees;

•     Immediate restoration of MTS Uzbekistan’s licenses and communications facilities in order to resume its services as soon as possible.

 

We Welcome Your Questions

 

If you have questions about the situation in Uzbekistan, we will do our best to answer them here.  Please do understand that given the sensitivities of the matter, and especially the concern for the safety of our people, we may not be able to share everything. Additional information and reporting can be found at the FT websitethe website of Radio Free Europe/Radio Liberty,and the website of the BBC.

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