Russian mobile operator MTS has started dismantling the network infrastructure of its subsidiary in Turkmenistan. The equipment may be used for MTS operations elsewhere or sold to third parties. According to sources close to the company, the move follows the failure of MTS’s efforts to reach an amicable resolution of its dispute with Turkmenistan arising from the forced shutdown of MTS’s Turkmen operation. The source said the Turkmenistan government had "failed to engage in good faith discussions with the company".
In July 2018 MTS announced that it had filed a request for arbitration against the Turkmenistan state with the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). In September 2017, MTS Turkmenistan was compelled to suspend its operations by the government of Turkmenistan, on orders of the Ministry of Communications and other entities owned and controlled by the state.
MTS considers that Turkmenistan has violated its rights as a foreign investor under the Agreement on Promotion and Reciprocal Protection of Investments signed by the Russian and Turkmenistan governments in March 2009, ultimately resulting in the total expropriation of MTS' investment in Turkmenistan. MTS estimated the total losses caused by the violation at at least USD 750 million.MTS first came to Turkmenistan in 2005 when it acquired a local private mobile operator BCTI. The acquisition agreement was concluded with US-based investors. Soon after the acquisition, Turkmenistan government bodies annulled a licence held by BCTI - without any legal grounds, MTS claims.
According to a source familiar with the matter, the government offered to re-issue the licence if MTS agreed to share 70 percent of its profits in the new Turkmen operation. MTS succumbed under the government‘s pressure and agreed to a 20 percent profit share, calculated after ordinary taxes, fees and contractual payments.
During the next five years MTS invested USD 250 million in Turkmenistan, building a nationwide network of 1,130 base stations. The subscriber base grew to around 2.5 million in a country of 5 million people.
The company's operation in Turkmenistan was not conditional on the profit-sharing agreement, MTS said. Nevertheless, its expiry led to a new shutdown of the company's business in the country. In 2010, the Turkmenistan government withdrew the licence and suspended activities of MTS-owned BCTI. After two years of international arbitration, negotiations and inactivity of its Turkmenistan operation, in 2012 MTS was compelled to conclude a new profit-sharing agreement, this time accepting to share 30 percent of profits with its state-owned competitor Turkmentelecom, in order to resume operations. During two years of inactivity, MTS Turkmenistan lost a large share of its client base.
According to the source close to the company, the Turkmenistan authorities consistently obstructed MTS's business operations, including not providing sufficient data resources and roaming VPN channels, restricting the company's ability to sign corporate business in the country and limiting its ability to advertise.
In September 2017, as the second profit-sharing agreement expired, the Turkmenistan government agencies took a range of actions to disconnect DLD/ILD telephony and internet services for the mobile operator, leading to termination of services from MTS Turkmenistan for the third time. As the company stated in its press release of July 2018, it has been pursuing an "amicable resolution of this dispute", but the Turkmenistan government did not engage in the negotiations.
The dismantling of MTS's network infrastructure suggests that the company has abandoned any hope of resuming its business in Turkmenistan and seeks compensation through ICSID or an out-of-court settlement.
