Jason Bush

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No news is bad news for Telenor in Russia

September 30, 2009

You might think that, when property worth more than a billion dollars is at stake, there’s nothing worse than having a court rule against you in a commercial dispute. But as a matter of fact there is one thing. And that’s when the court refuses to take any decision at all.


Just ask Telenor, the Norwegian telecoms company, which has been engaged for over a year in a bitter legal dispute in Russia. On 30 September, a Russian commercial court in the Siberian city of Tyumen declined to hear an appeal that had been brought by Telenor, instead postponing the hearing by almost six months. It’s the second time that the case, originally due to be heard on 26 May, has been postponed for several months.  


The irony is that the Norwegian company would be much happier if the court had instead ruled against them. In that case, it could have appealed against the ruling at the Supreme Commercial Court in Moscow, where it is more confident of getting a fair hearing. Instead, it has been left hanging in legal limbo.


The latest court decision (or rather non-decision) is just the latest chapter in a convoluted legal saga that has raised serious questions about Russia’s court system and the overall investment climate. At stake is Telenor’s shareholding in Vimpelcom, one of Russia’s largest mobile phone companies.


Earlier this year, a court in another Siberian city, Omsk, ruled that Telenor had to pay Vimpelcom $1.7 billion, following a case brought by an obscure minority shareholder. Because it has refused to pay the fine, court bailiffs have arrested Telenor’s shares in Vimpelcom and are threatening to sell them. That’s notwithstanding the fact that the courts have yet to hear Telenor’s appeal – and appear to be suspiciously reluctant to do so.


Most observers assume that Telenor’s difficulties are the result of a long-running commercial conflict between Telenor and its partners in Vimpelcom, Russia’s Alfa Group. The two have been at loggerheads for years, mainly over Vimpelcom’s expansion strategy in Ukraine.


Under their shareholder agreement, the partners have agreed to settle their disagreements in international courts (where litigation is also busy raging). But Telenor has also found itself embroiled in disputes in Russia with obscure plaintiffs, whose agenda coincides with Alfa Group’s. Not surprisingly, Telenor accuses them of being fronts for Alfa, though Alfa denies this.


Adding to Telenor’s woes, the cases have been heard in distant regional courts in Siberia. Under Russian law these backwater courts have the power to issue crippling judgements, on issues that have no obvious connection to their regional jurisdictions.


The Telenor case has remarkable similarities with last year’s dispute involving the Anglo-Russian oil company TNK-BP. BP also found itself subject to litigation from an obscure plaintiff in a Siberian court – as well investigations regarding everything from alleged violations of labour legislation to spying. The problems rapidly disappeared once BP had reached an agreement with its Russian partners in TNK-BP, the largest of which is Alfa Group.   


Most observers in Moscow assume that the Vimpelcom dispute will also end the same way as the TNK-BP one, with a deal between the warring shareholders. The court bailiffs have been slow to sell Telenor’s shares in Vimpelcom, suggesting that this is a threat aimed at increasing the pressure on Telenor to reach a deal.


Even if the worst is avoided, the damage to Russia’s image and investment climate is already obvious. Other foreign investors will understandably conclude that Russia’s courts are partisan or corruptible, and incapable of protecting their investments.