TELECOM FIRM SUES PNG AFTER DEAL FALLS THROUGH

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By Baeau Tai

PORT MORESBY, Papua New Guinea (The National, Jan. 24) –South African company Econet is seeking US$524 million (K1.637 billion) in costs and damages for alleged breach of contract by the Papua New Guinea government over the failed privatization of Telikom PNG.

In a statement yesterday, Econet confirmed that it had begun legal proceedings in the Port Moresby National Court last Friday for breach of contract on the deal that was abandoned by the PNG government in December.

"The damages are calculated at US$524 million. This is Econet’s calculation of the enterprise value of the Telikom transaction to Econet over a period of 20 years, taken at today’s value," Econet said.

However, a statement from the Prime Minister’s media unit last night said there was "no legal basis for the breach of contract claim by Econet".

"The National Executive Council has the power to approve or reject any transaction that involves the government. If NEC has not entered into a contract, then the Government of PNG cannot be held accountable."

But Econet maintains that the PNG government unlawfully terminated the contract to privatise Telikom PNG after Econet had been selected as the successful bidder by satisfying all the requirements of the Independent Public Business Corporation (IPBC).

It said the relevant facts were as follows:

The IPBC confirmed that it had received notification last Friday that Econet was commencing legal action over the Telikom deal, but said it had "no comment" on the issue.

The Econet statement said that on Dec 21, Econet through its lawyers had written to Prime Minister Sir Michael Somare, as Chairman of the NEC, to notify him that Econet had no choice but to accept the government’s repudiation of the privatization agreement.

However, it requested the government to consider international arbitration as a means of establishing the level of compensation that should be offered as recompense.

It said the government had been asked to respond within 14 business days, or face a court action to recover costs and damages.

"This deadline has now passed, and Econet has not heard from the PNG government,"

Andrew Mikkelsen, Econet’s Legal & Commercial Manager told The National.

"Therefore, Econet has been left no choice but to commence proceedings in the Papua New Guinea courts against the PNG government for breach of contract, claiming costs and damages," Mr Mikkelsen said.

The National Executive Council abandoned the partial sale of Telikom PNG Ltd to Econet and Sir Michael recently requested the Telikom PNG board to prepare a "vision" document on the future of the telecommunications organization.

Meanwhile, a senior executive from Telikom said he was not aware of Econet’s action to seek damages for the abandoned contract.

Under its plan to purchase a 51 per cent stake in Telikom, Econet had agreed to pay K150 million for purchase of this equity stake and to spend an additional K800 million on development of the nation’s telecommunications network over an eight-year period.

January 25, 2005

The National: www.thenational.com.pg/

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