LAST CHANCE FOR UN TO FIX KOSOVO TELECOM MARKET

C O N F I D E N T I A L SECTION 01 OF 03 PRISTINA 000219 SIPDIS SIPDIS DEPT FOR EUR/SCE, EUR/ACE NSC FOR BRAUN USDOC FOR AC, 3004:PAT NUGENT PASS USAID FOR EE/ECA, EE/DGSR E.O. 12958: DECL: 03/10/2016 TAGS: ECPS ETRD PGOV PREL YI UNMIK SUBJECT: LAST CHANCE FOR UN TO FIX KOSOVO TELECOM MARKET REF: 05 PRISTINA 1159 Classified By: COM PHILIP GOLDBERG; REASON 1.5 B/D. ¶1. (C) SUMMARY. UNMIK has long ruled out any reconsideration of its October 2004 annulment, on grounds of serious procedural irregularity, of the award of Kosovo's second mobile phone operating license to the Mobikos consortium. The outgoing government of Bajram Kosumi has defiantly insisted on resurrecting the award. One of Kosumi's last acts in office was to order the regulator to facilitate Mobikos' market entry -- UNMIK quickly rejected the order. Concluding that the Kosumi order legally trumps UNMIK's rejection of it, Mobikos has vowed to construct an operating network under the direction of its American (Harris Corporation) and Slovenian (Mobitel) consortium members. SRSG Soren Jessen-Petersen has discussed the second license with incoming Prime Minister Agim Ceku and believes Ceku will support the only way forward UNMIK will allow -- conduct of a new tender from scratch. Many stakeholders believe that a transparent and fair tender process can be achieved only by hiring a world-class consultant to run it, but fear that UNMIK will instead put off the matter until Kosovo's final status is determined. No matter what happens on the tender, the USG can help bring economic sanity to the Kosovo telecom market by continuing to advocate for the United Nations to compel the International Telecommunications Union to grant UNMIK its own international dialing code and thereby greatly reduce call rates. END SUMMARY. Background -------------- ¶2. (SBU) In June 2004 Kosovo's independent Telecommunications Regulatory Authority (TRA) declared the Mobikos consortium the winner of an operating license tender designed to introduce competition into a market in which incumbent monopoly Vala 900 has been providing poor service at inflated prices since the end of the Kosovo conflict in 1999. Reacting to compelling reports of irregularities in the selection process, then Principal Deputy of the Special Representative of the Secretary General (PDSRSG) Charles Brayshaw formally suspended the award pending review of the tender by the Irish consultancy HELM, retained for the purpose. HELM issued a report in October 2004 that was highly critical of the tender process, especially its pre-qualification phase, and Brayshaw consequently formally annulled the tender and referred the entire matter to UNMIK Pillar I (law and order) for investigation of possible official corruption. Then Prime Minister Bajram Rexhepi confirmed to econoffs on March 7 (2006) that he had fully supported both the suspension (in light of rampant reports of PISG impropriety) and the annulment (in light of the HELM report) but quickly became distressed when UNMIK inexplicably refused to offer guidance on next steps and TRA Chair Anton Berisha inexplicably insisted on issuing a license to Mobikos notwithstanding UNMIK's annulment of the tender. ¶3. (SBU) (NOTE. The American company Western Wireless was a partner in the KMPC bidding consortium until its recent dissolution of that arrangement. Motorola's after-license equipment supply contract with Mobikos expired last year. Mobikos then brought in the Harris Corporation of Florida as a consortium partner. Representatives of the Canadian/American company Nortel recently visited USOP to also express interest in the tender. END NOTE.) ¶4. (SBU) After voiding the license UNMIK officials repeatedly rejected urgent suggestions from the PISG and the international community that a delay in relaunching the tender would diminish Kosovo in the eyes of potential investors from all sectors because they were viewing the telecom license award -- expected to involve 100 million euros in start-up costs -- as a primary indicator of the maturity of the Kosovo market. TRA's Berisha frequently expressed frustration to econoffs during the ensuing 14 months that the telecommunications ministry had not instructed him to launch a new tender yet UNMIK would not let him implement the result of the old one. UNMIK Neglect Invites Chaos PRISTINA 00000219 002 OF 003 -------------- ¶5. (SBU) In November 2005 Kosovo Prime Minister Bajram Kosumi ordered TRA to hire a consultant at PISG expense to re-evaluate the fairness of the original tender. Berisha complied and the British consultancy KPMG, over muted UNMIK objection, was retained and produced a February 2006 report that criticized the tender process but pronounced it overall to be reasonably consistent with international standards. Facing imminent removal from office on unrelated grounds, one of Kosumi's last executive acts, on March 1, was to issue a formal order to TRA to implement the conclusions of the KPMG report, i.e. to license Mobikos, within 30 days. ¶6. (SBU) The SRSG did not formally countermand Kosumi's order, but an UNMIK spokesperson explained to the press UNMIK's view that the order had no effect and that UNMIK's annulment of the tender remained in effect. In a March 3 meeting with E/P chief, UNMIK Legal Advisor Alexander Borg-Olivier and Deputy Legal Advisor Ernst Tsepsche acknowledged that the SRSG had acted unwisely in neglecting the tender for more than a year and had thereby caused deep resentment among PISG officials, especially in that Pillar I had publicly opened an investigation with attendant damage to the reputations of Berisha and other officials and then evidently took no further action. ¶7. (C) Post's continual soundings of virtually everyone involved in the tender reveal a hardening of PISG position as the Rexhepi administration gave way to the Kosumi administration. Very high officials of the LDK-AAK governing coalition (Democratic League of Kosovo-Alliance for the Future of Kosovo) have acknowledged to us in recent months, with frequently disarming forthrightness, that a political dimension has come to dominate their approach to the tender. Ekrim Lluka, CEO of Mobikos local member Dukagjini Company, has long been a primary AAK benefactor, most recently by making major financial contributions to the defense fund of former Kosovo Prime Minister Ramush Haradinaj in connection with the prosecution pending against him before the International Criminal Tribunal for the Former Yugoslavia. Senior coalition officials confidentially tell us that they are expected to deliver the license to Mobikos and that they cannot agree to a new tender so long as Mobikos continues to assert a right to a license. Berisha, a member of the LDK general council, acknowledges that he is under enormous political pressure and claims he would resign rather than implement a new tender. ¶8. (SBU) On March 7 Mobikos General Manager Fatmir Gashi, noting that UNMIK has never revoked its transfer to the PISG of competency over the tender as contained in the 2003 Telecommunications Law, insisted to econoffs that Kosumi's order takes priority over the UNMIK press statement in the absence of such a formal revocation of PISG authority. (NOTE. Jurisdiction over the Kosovo telecom market is an UNMIK-PISG hodgepodge with UNMIK administering the Vala 900 monopoly but TRA responsible for market entry. END NOTE.) On March 8, Gashi made a similar argument to the Kosovo media and announced that Mobikos would shortly begin construction of a mobile phone network under the supervision of specialists from consortium members Harris Corporation of the United States and Mobitel of Slovenia. ¶9. (SBU) In a March 9 meeting with liaison offices, attended by DPO, SRSG Jessen-Petersen said he has discussed the mobile tender with incoming Prime Minister Agim Ceku and that Ceku is receptive to the only way forward UNMIK will allow -- conduct of a new tender from scratch. New York No Help Either -------------- ¶10. (SBU) Monopoly capitalism is not the only reason Kosovars have the worst telephone service and the highest call rates in Europe. Vala 900 also passes on to consumers the fees and opportunity costs (50-100 million euro per year according to UNMIK) associated with the rental of an international dialing code from Monaco Telecom (owned by British giant Cable and Wireless). In an effort to escape these costs, Jessen-Petersen filed an application in the summer of 2004 with the International Telecommunications Union (ITU) for a PRISTINA 00000219 003 OF 003 dialing code to be dedicated to UNMIK for use by all Kosovo operators. Several months of often-contentious discussions between ITU (a UN specialized agency) and UNMIK (with strong USG and UN support) seemingly removed all legal obstacles yet failed to convince ITU leadership to give UNMIK the code. After a sharply worded letter from UN Undersecretary Jean-Marie Guehenno to the ITU demanding that UNMIK be given a code, New York seems to have lost interest in the matter. COMMENT -------------- ¶11. (C) Post has studied both the HELM report and the KPMG report. Neither is overwhelmingly persuasive on the question of whether the 2004 tender would be salvageable. Fortunately, however, we are not compelled to resolve this battle of experts. UNSCR 1244 and Kosovo's Constitutional Framework leave no room for doubt in our view that UNMIK has bottom line jurisdiction over all issues in Kosovo. UNMIK's original decision to annul the tender certainly represented a reasonable course given the available evidence of impropriety (flaunting of pre-qualification rules, review commission members who could not read English (the required language for all bids),over-reaching by government officials, etc.) and was not subject to appeal. ¶12. (C) Having voided the tender, UNMIK obviously took on a responsibility to fix the process it so obviously had concluded was broken. However, UNMIK has declined to exert authority out of misguided fear that doing so would amount to a retreat from its mandate to transfer governing competencies to the PISG. By leaving the tender in limbo for well over a year, the SRSG has created a pervasive impression in the investor community that UNMIK can't execute the tender either. Many investors (Western Wireless evidently among them) have reached the reasonable conclusion that Kosovo, regardless of who's in charge, just isn't ready to do business. ¶13. (C) The coming of the Ceku government, sworn in on March 10, presents an opportunity for UNMIK and the PISG to conclude the tender at long last. As a life-long military/civil defense official, Ceku has little business background and comes to this issue without preconception. Early indications are that he is fully open to the obvious solution (reftel) of instructing his government to work with UNMIK to retain a reputable international consultant with expansive terms of reference allowing it to de facto run the entire tender process. United Nations headquarters in New York could yet play a positive role, both by encouraging UNMIK to insist, by taking over the process completely if need be, that a tender be concluded and by ordering the ITU to give UNMIK a dialing code. ¶14. (C) The opportunity presented by Ceku's arrival may be the last before Kosovo's final status is determined. Should UNMIK fail to resolve matters before itself departing the scene, Kosovo would be left to its own devices which, judging by the first tender, would inspire little of the foreign direct investment Kosovo will need to develop a self-sustaining economy. END COMMENT GOLDBERG