* Sources say Vimpelcom considering arbitration
* Firm in talks to sell Algeria control of Djezzy unit
* Negotiations deteriorated over $1.25 bln fine
* Vimpelcom shareholders had hoped for quick resolution
By Lamine Chikhi
ALGIERS, April 5 Talks between Vimpelcom
and Algeria over the future of the Russian group's Djezzy
Algerian mobile phone unit have soured since the imposition last
month of a $1.25 billion fine on Djezzy, according to sources on
Vimpelcom, 35 percent owned by Norwegian group Telenor ASA
, is now considering seeking international arbitration
over the fine, said the sources, an Algerian official and a
person close to the Russian firm.
The two sides had been close to concluding a deal under
which the Algerian state would have acquired a 51 percent stake
in the Djezzy mobile phone business from Vimpelcom, ending a
prolonged row that has hurt the parent company's share price.
But the fine has jeopardised that deal, the sources said,
dimming the company's hopes that it can get a
multi-billion-dollar payout from Algeria in exchange for the
stake and start operating lucrative Djezzy as a viable concern.
Following the announcement of the fine, "relations ... have
deteriorated to the point that international arbitration is
becoming a very likely option to find a solution to the fine
issue," the Algerian official, who is familiar with the
discussions, told Reuters on condition of anonymity.
Vimpelcom is expected on Sunday to lodge an appeal in an
Algerian court against the $1.25 billion fine. It was imposed
after a judge ruled that Djezzy had made false statements to the
Algerian central bank about currency transactions.
The sources said that Algeria wants the fine deducted from
the amount it pays Vimpelcom for its controlling stake.
But Vimpelcom does not want the fine deducted from the deal
price, said the source close to Vimpelcom, also speaking on
condition of anonymity. The source confirmed to Reuters that
Vimpelcom was considering international arbitration.
Vimpelcom was not immediately available for comment by phone
and did not respond to an emailed request for comment. Algeria's
finance ministry, which is handling the negotiations, could not
be immediately reached.
Russia-focused Vimpelcom acquired Djezzy last year as part
of a $6.6 billion deal to buy assets of Egyptian firm Orascom
Telecom, but the transaction immediately became
clouded in uncertainty because the Algerian government demanded
a majority stake in Djezzy.
Vimpelcom eventually agreed to sell Algeria a 51 percent
stake in the unit, subject to a deal on the price and on the
understanding it would stay on as operator. Since then though,
there has been wrangling over the price.
An Algerian government source told Reuters last week that
Algeria had agreed to pay $6.5 billion for the 51 percent share,
though analysts cast doubt on that figure, saying it was well
over their estimates for the value of the stake.
Algeria's Finance Minister Karim Djoudi dampened any
expectations of a quick deal last week when he said no price was
agreed and talks could go on for months.
PROGRESS TOWARDS DEAL
A document seen by Reuters relating to talks between
Vimpelcom and the Algerian state at the end of last year
suggests that, before the row broke out over the fine, they were
making good progress towards a deal.
The draft "agreement protocol" did not contain any deal on
the price but it went into detail about the mechanisms and terms
for Algeria to take over the controlling stake, even going as
far as to detail the press release which will announce the deal.
It also states that within three months of the deal being
signed, restrictions that prevent Djezzy's parent company
repatriating profits would be lifted.
The document even raised the prospect of Djezzy, once the
deal was finalised, bidding for Algeria's first 3G mobile
However, the document, dated Dec. 25, 2011, also set out a
deadline for concluding a deal which the two sides have already
It says the negotiations should be concluded by Feb. 28,
2012, or failing that can be extended by the agreement of both
sides up to March 15 this year at the latest.