Vimpelcom confirms Orascom arbitration against Algiers

13 Apr 2012

International telecoms group Vimpelcom has announced that its subsidiary, Orascom Telecom Holding (OTH), has submitted a formal Notice of Arbitration against the Algerian government in respect of actions taken by Algiers against its cellular unit Orascom Telecom Algerie (OTA or Djezzy). The claim in the Notice of Arbitration is being made under the arbitration rules of the United Nations (UN) commission on International Trade Law. OTH asserts that since 2008 its rights under the ‘Agreement on the Promotion and Reciprocal Protection of Investments between Egypt and Algeria’ have been violated by actions taken by the Algerian government against OTA, including the recent court judgment against OTA and a member of its senior executive team imposing a total fine of DZD99.0 billion (USD1.33 billion) and a criminal sentence against a member of OTA’s senior executive team. However, Vimpelcom claims that it continues to seek an amicable resolution with the Algerian government that is mutually beneficial to both parties.

The long-running feud between the two sides centres on the tug-of-war over the hotly contested Djezzy unit, which came to the fore in 4Q10 following Vimpelcom’s agreement with Egyptian billionaire Naguib Sawiris to purchase Wind Telecom (formerly Weather Investments). Throughout the transaction, which concluded on 15 April 2011, Algiers stated its intention to privatise the lucrative Djezzy unit, and then tried to force Orascom’s hand by hitting the telecoms firm with substantial back taxes.

According to the terms of legislation passed in 2009, Algiers was supposed to have first refusal on Djezzy if Orascom ever opted to sell the unit. However, the rancour that has accompanied the recent dispute over the cellco has its roots in a much older issue, which dates back to 2007. That December, Orascom Construction Industries – a company led by Nassef Sawiris, the brother of Naguib – sold its Algerian cement business to French firm Lafarge without consulting the Algerian government. The French company’s presence in the country was said to have exacerbated the fraught relationship between Algeria and its former colonial ruler, and the government held Orascom accountable for what they termed a ‘betrayal’. The general consensus amongst senior Algerian officials is that they want to put an end to the kind of economic liberalisation that allowed foreign investors like Orascom into the country, so that they can reclaim the country’s most lucrative businesses for themselves.