Itar-Tass Leonid Reiman

Special events bringing together governmental and business officials as well as specialists to discuss development and problems in any business sector in Russia tend, eventually, to end with the same basic question of how to attract investment.

The international congress "Developing Telecommunications and Creating an Information Society," which was held at the Tavrichesky Palace on Wednesday and Thursday, proved no exception to the rule.

Federal Communications Minister Leonid Reiman said on Thursday that the reorganization plan for Russia's telecommunications sector, which the ministry announced in December, calls for total investments of $33 billion between now and 2010. Reiman said that the plan had yet to be approved, pending some minor adjustments.

The most significant part of the plan involves the integration of Russia's 82 local companies providing telephone service into seven larger entities, to conform with the seven recently created federal super-regions. The move is intended to allow the new, larger entities to attract funds to improve their equipment and infrastructures.

Speaking at a press conference at Tavrichesky Palace on Wednesday, Reiman said that the success of the ministry's plan depended in a large part on the development of an effective legal environment, needed in order to attract investors.

"We are not going to limit the participation of foreign investors in the communications sector," Reiman said. "About half of the total needed for modernization will have to be provided by long-term investors, while the other half will have to be found by the operators themselves."

But, while analysts said that the targeting of foreign sources for investment makes sense, some changes in attitude might be required to bring this about.

"Recently, government officials have talked about limiting the role of foreign investors in the telecommunications sector, but it's unlikely that they will turn them away," Andrey Bogdanov, senior analyst at Alfa Bank, said in a telephone interview on Thursday. "So, to attract investors the sector needs the government to make a clear decision to either forget about limiting foreign participation or to limit it as little as possible."

While telecommunications is considered a "strategic sector" under Russian regulatory rules - meaning that foreign ownership in the firms is limited to 25 percent - Andrey Braginsky, vice-president of Renaissance Capital analytical agency, says that Russia's telecommunications sector has no choice but to allow foreign investors.

"Reiman is a politician and he had to say what he did about protecting Russian communications, but there's really not anything to fear," he said. "Mobile Telecom Systems (MTS), Moscow's largest cellular service provider tops Rostelecom, the national long-distance operator, in profits."

"This is because MTS has the money and professional management from foreign companies behind it."

But the desirability of foreign investors wasn't the only topic raising questions, as the treatment of minority shareholders was also on the agenda in relation to restructuring.

Gennady Ko les nikov, deputy chairperson of the Federal Securities Commission (FKTsB), said that his organization was in the process of formulating a new Corporate Managing Code to regulate the telecommunications and other industries.

The project was initiated after, in July of last year, a minority shareholder in St. Petersburg National and International Telephone (SPB MMT) filed a suit to halt the company's merger with St. Petersburg Telephone Network (PTS) and St. Petersburg Telegraph (SPT). Sergei Moiseyev, claiming that the coefficient for the conversion of SPB MMT shares called for in the merger plan did not reflect the actual value of the stock, succeeded in having the $450 million merger for four months, before the Kuibishevsky Federal Court finally ruled against him.

Kolesnikov said the first chapter of the new code will set standards and regulations for the holding of shareholders' meetings, the calculation of the stock conversion coefficients and procedures for selling shares. He also said that the basic points of the new code were formulated in cooperation with the FKTsB's coordination council, which includes representatives from major Russian and foreign companies and institutions including LUKoil, Gazprom, the European Bank for Construction and Development (EBDR) and the World Bank.

"The new code will help to limit the number of court challenges as the procedures will be more clear," Kolesnikov said. "We plan to complete it and submit it to the government before November of this year."

"Nothing in Russia changes overnight, but this would be a positive step," Alfa's Bogdanov said. "But cases where minority shareholders protest what is a profitable deal for a company are common even for European and American businesses."

Reiman also addressed Russia's cellular communications market, saying that the government's policy on granting operating licenses was aimed at fostering competition in the market, while not creating glut of providers by issuing too many licenses.

"In any of the territories where GSM standard licenses have been issued, there's room for four GSM operators," Reiman said. "A third GSM license in St. Petersburg will definitely be issued, but only when the portion of the population using cell phones reaches 10 percent."

In reality, the Region at present has only one GSM-standard provider.

In 1998, two companies - North-West GSM and Telecom XXI - received licenses to operate in Global System for Mobile (GSM) cellular-phone service in the Northwest region. North-West GSM has become St. Petersburg's biggest cellular service provider, announcing at the end of January that it had reached the 250,000- subscriber plateau. Telekom XXI, meanwhile, has yet to begin operations in the city and, at the beginning of this year, bought and installed a switching station and 14 base stations for signal transfer, ostensibly to meet the terms set out to maintain its license.