Vimpelcom’s Algerian unit Djezzy hit with USD1.3bn fine

29 Mar 2012

The Russian telecoms group Vimpelcom says its subsidiary in Algeria, Orascom Telecom Algeria (OTA), which offers mobile services under the brand name Djezzy, will appeal fines totalling DZD99 billion (USD1.3 billion) which have been imposed for alleged breaches of foreign exchange regulations. A senior executive at Djezzy is also facing a criminal sentence as part of the same court judgement. Algerian authorities first filed the case against Djezzy in 2010.

A statement from the Russian operator reads: ‘OTA is taking the necessary steps to file an appeal. The lodging of the appeal will provisionally suspend the judgment. Vimpelcom maintains that OTA and OTA’s senior executive have acted in good faith and in compliance with the law. The management in Algeria continues to have Vimpelcom’s full support.’

The case further complicates the already strained relationship between Vimpelcom and authorities in Algiers. Throughout 2010 OTA and the Algerian government were embroiled in a bitter legal dispute, ostensibly over the payment of back taxes. However, the real issue was the government’s attempt to derail Vimpelcom’s pending acquisition of OTA shareholder Orascom Telecom Holding (OTH). In September 2010 Vimpelcom agreed to merge its telecoms assets with those of OTH, including its Algerian arm, in a transaction valued at USD6.5 billion. The Algerian government, unhappy at the move, attempted to block the deal since, according to the terms of legislation passed in 2009, Algiers was supposed to have first refusal over Djezzy if Orascom ever opted to sell the lucrative mobile unit.

In October 2010 Vimpelcom conceded that it was happy to sell part of the OTH stake in Djezzy, but only if the Algerian government was willing to match its USD7.8 billion valuation – more than the Russian firm had eventually paid for the collective telecoms assets of OTH. Eventually, in January 2012, Vimpelcom signed a memorandum of understanding for the sale of a 51% stake in Djezzy to the Algerian state. Terms and conditions have yet to be finalised, and the latest developments will have done nothing to ease the negotiations.

OTA/Djezzy is 96.8% owned by OTH, which is in turn 51.9% owned by Vimpelcom. By September 2011 mobile market leader Djezzy claimed 16.3 million subscribers, equating to 47.9% of the market, according to TeleGeography’s GlobalComms Database.