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Albania Delaying Telecom Selloff
Illyria / September 27, 1995

By Larry Luxner

WASHINGTON -- For several years, the Albanian government has been telling the world it wants to privatize the country's bumbling telephone monopoly. But not much has happened in the last few years, and outside investors are beginning to question Tiranė's commitment to the privatization process.

At a conference earlier this month on Albanian economic opportunities, Suzana Panariti -- the country's minister for trade and industry -- assured businessmen she expects to see a law passed "very soon" that would "give a green light to investors" interested in bidding for the phone company.

Six companies are currently bidding for a $2.5 million contract to oversee the privatization of Albanian Telecom. The six -- narrowed down from 26 that originally submitted pre-qualification documents -- include KFM Inc. of Phoenix and consulting companies from Greece, Italy and Germany.

Yet Haim Klein, president of KFM, says he thinks Albania is dragging its feet.

"The government said it would announce the contract in June, but nothing has happened," he told Illyria during the Washington conference. "We heard that the government took away the cellular concession from Albanian Telecom and placed it under a new department in the Prime Minister's office. This is very strange."

Klein, an Israeli whose firm has participated in telecom privatizations in Colombia, Venezuela, Argentina, the Dominican Republic and Moldova, said he thinks Albanian Telecom is worth around $150 million, based on the number of lines. At the moment, the phone company has 52,000 lines in service -- or about 1.5 lines per 100 inhabitants -- the lowest telephone density in Europe.

Yet a $45 million modernization and expansion program involving the fitting of digital exchanges, the recabling of Tiranė and 14 other towns and an additional international exchange system aims to increase that total to 79,000 lines by November 1996. Even so, this will satisfy only 25% of Albanians currently on the waiting list for new telephones.

That's why another project hopes to take teledensity up to around 5.5% by the year 2002 (which translates into 225,000 urban subscribers). Eventually, telephone traffic will be distributed as follows: 55% local calls; 37% domestic long-distance, and 8% international long-distance.

Observers say Alcatel, Italy's STET and the Greek PTT are all interested in buying a stake in Albania's phone company.

"Privatization is an inevitable process," said Klein. "The question is when. Usually telecom is one of the most profitable enterprises a government has."

In the case of Albanian Telecom, annual sales are estimated at 2 billion lekė (around $20 million). This year, Albanian Telecom is eppected to generate a $6 million surplus.

According to a fact sheet distributed at the conference, Albania Telecom is faced with a growing debtor problem, in which outstanding debt has jumped from $1.2 million to $7 million in the last 12 months; the debtor list consists of budget organizations (34%), state-owned enterprises (17%) and private-sector and domestic consumers (49%).

"The main purpose for privatizing Albanian Telecom now is because it is felt that under private ownership, the quality of services, the standard of management and the financial performance would improve more quickly," according to the fact sheet. "It is expected that a privatized entity would have greater access to capital to fund the modernization of the network. It is also expected that there would be a reduction in vandalism as people would have greater respect for Albanian Telecom's property once it is in the private sector."

The position paper goes on to say that "the ability of Albanian Telecom to secure privat capital for investment projects will depend crucially on the improvement in profitability in relation to the level of investment that will be required. Careful financial analysis will be required to determine the level of grant and soft-loan finance that will be needed to secure the necessary level of investment. Until the investments to improve capacity have been made, utilization and traffic levels on which revenue and profits depend will be held back."

The proposed cellular network, which would use the European GSM standard, involves an initial investment of $6.5 million, covering the central area of Albania (Tiranė, Durres, Kavaje, Laē and Krujė). Eventually, the cellular service would be expanded in seven stages to cover 75% of the country, involving investment of around $17 million. "Once operational," the fact sheet says, "the intention would be to privatize the enterprise as a going concern."

Nearly a year ago, Emil Qesteri, director of Albanian Telecom, told Illyria that 24 telecom companies were interested in bidding for the contract to operate such a cellular network. Among them were familiar names like Bell Atlantic and Motorola, along with relative unknowns such as Columbia Capital, Apogee 2000 and H.C. Tercan & Associates.

At the time, Qesteri said the cellular network "would be a build-operate-transfer, meaning somebody builds the system, operates it on contract for a limited period of time and gets the profit."

In the meantime, phoneless residents of Tiranė who have to call overseas can use one of two mobile calling centers set up around downtown Skanderbej Square. Donated by the Italian government, the trailers are staffed with multilingual operators who can put calls through in a matter of seconds. At the moment, a one-minute call to the United States costs approximately $2.30.

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