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Wednesday, April 20, 2016

Axiata’s choice: a ‘clean’ Ncell or a ‘tainted’ Ncell that purportedly cheated Rs 1150 for every Nepali citizen

Why Axiata will have to deal with shoddy legacy left by TeliaSonera in Nepal and how it can now make amends

Jiwan Kshetry

Axiata's choices now: do nothing and keep praying that the clouds surrounding Ncell brand in Nepal dissipate soon (and of course, intensify the charm offensive with aggressive advertising in Nepali media) or be active to honestly transform the brand that it owns now. The latter option will invariably involve convincing TeliaSonera to clean some of the mess it created in Nepal by paying the capital gain taxes to Nepal. Now that the Nepal's authorities have formally instructed Ncell to pay the taxes, it makes it natural for Axiata to ask TeliaSonera to move ahead with the payment. Or else, TeliaSonera may be left off the hooks but Axiata risks owning a brand that elicits disgust in citizens, its potential customers.

There is no evidence that TeliaSonera inundated Nepal’s tax authorities, especially the chief of IRD, Chudamani Sharma, with kickbacks that literally blinded them toward their responsibility to execute their duty of collecting the capital gain tax on the former on selling Ncell to Axita.

There is also no evidence that, as the issue lingered for months, TeliaSonera bribed people at every rung of the power hierarchy of the country to avoid those taxes. 

Nepal’s present day PM, with his explicit fascination to and association with the army of thugs and musclemen in the country—which are sucking the lifeblood out of the country’s economy—doesn’t seem to need a bribe from a major corporation, especially after the windfall harvest from the last season’s black-marketing.

There is also no evidence that the failure of parliamentary committees, finance minister, other officials and bureaucrats to intervene in the matter had something to do with similar collusion with the company, in the form of direct monetary transaction or otherwise. 

There is no evidence either that the charm offensive of the company in Nepal’s media had any ominous edge.

Yet, lack of evidence can have two meanings: either no crime was committed, or it was committed so meticulously and cunningly that no evidence was left. 

All circumstantial evidences point towards the latter option, nonetheless, and I personally believe that there were wrongdoings at multiple levels in the whole fiasco. That should not surprise anyone in a country where corruption is so omniscient though exceptionally hard to prove and punish.

 TeliaSonera has apparently cleanly executed the trade with both sides declaring that the 80% share in Ncell has been transferred to Axiata now through the changed ownership of Ncell’s immediate owner, Reynolds Holding. With the major act of omission from Nepal’s tax authorities, any effort now to force TeliaSonera to pay the taxes seems to be extremely uphill even though it was reported yesterday that govt has written a letter to Ncell 'asking for taxes'. 

This leaves us here: by omission or commission of officials in the country, Nepal has been at the verge of being cheated nearly 33 billion rupees in taxes in the affair. That comes to nearly 10% of the country’s annual budget and a whopping 1150 rupees per head for surviving Nepali citizens.

This is not my personal opinion, this is the calculation raging in the minds of many people in the country whose worry about lack or rule of law in the country is worsening by the day.

Now that Nepal's authorities have almost left TeliaSonera off the hooks by dillydallying in executing their responsibility, citizens are left with little choice. 

We have no hope of approaching any international body and getting justice, we are not even aware of any such body. At a time when even the strong government like that in the US are struggling to make big corporations pay appropriate amount of taxes, a feeble and corruption-infested govt of Nepal has extremely grim prospects of outmaneuvering TeliaSonera to make it pay tax at this stage.

What remains in the country now is a mobile service provider that was traded in hundreds of billions of rupees in a 'shady' deal. The deal was sealed outside Nepal's borders but the company is very well within Nepal and it is retailing the telecom spectrum in the country, with its revenue coming from here. 

Here comes the role of Axiata. If they are not well-versed with the reality, I'll simplify things for them.

Axiata may have acquired the stakes in Reynolds Holding in what it perceives as perfectly legal way in line with many transactions that take place internationally. It may have good intentions of providing services in Nepal in a perfectly competitive environment. It may have a vision of ethical and transparent business activities in Nepal. Unless proved otherwise, it will also get the benefit of doubt.

The unalterable truth, however, is that it cannot do away with the legacy that was left by TeliaSonera in shaping and growing Ncell into present day company. 

Hopefully, I need not revisit TeliaSonera's legacy in full in this article and it will suffice here to refer to a part of a news report published in the website of Organized Crime and Corruption Reporting Project (OCCRP):

TeliaSonera is suspected of having bribed Karimova with at least US$ 250 million, an amount unheard of in such a context in Sweden. Three former TeliaSonera executives and four Uzbeks including Karimova have been named as suspects.

TeliaSonera commissioned the Swedish law firm of Mannheimer Swartling to look into the deal. It concluded in February 2013 that while no crime could be confirmed, neither could it be dismissed. In addition, the company’s ethical guidelines had certainly been violated. CEO Lars Nyberg left the company the same day. The board of directors was replaced two months later and the new chairman, Marie Ehrling, and the new CEO, Johan Dennelind, promised to clean up operations. The board asked an international law firm, Norton Rose Fulbright, to scrutinize TeliaSonera’s most important deals in the region.

At the company’s annual general meeting in 2014, headlines were once again grim. The owners voted to explore suing Nyberg, this time for a suspicious deal in Kazakhstan in January 2013, where the company’s partners are reportedly close to the family of President Nursultan Nazarbayev. In addition, Ehrling said the report from Norton Rose Fulbright concluded that TeliaSonera was guilty of unethical, if not criminal, practices in five countries beside Uzbekistan: Azerbaijan, Kazakhstan, Georgia, Nepal and Tajikistan. (Emphasis added).

However, this second report has never been publicly released and it supposedly looked specifically at the Azerbaijan situation along with other countries including Nepal, Kazakhstan, Georgia and Tajikistan. While they admit that criminal actions may have occurred in these countries, the company has not come forth itself with specifics and continues to be elusive when questioned. It has been journalists who have continued to inform the public on the company’s misdeeds despite the fact the company presumably has all the information on what they did. (Emphasis added).

The lingering issues for Axiata now to answer are: what constituted the 'uenthical, if not criminal' acts of Ncell under TeliaSonera? What were the entirely criminal acts, that 'may have occurred' in Nepal, which were admitted by TeliaSonera officials themselves? What if outright fraud was the part of Ncell's business, especially the aggressive advertisement campaign, in Nepal?

If fraudulent or criminal or simply unethical business practices helped make Ncell into today's company, they have surely been institutionalized and a spontaneous obliteration of those practices is unlikely if not impossible. Does Axiata plan to explicitly do away with the legacy?  If so, how will it do that?

Or, will it implicitly let the things remain the way they are?

Now, I don't mean that TeliaSonera paying due taxes to Nepal's authorities would entirely make up for those business practices. But that would go a very long way towards helping Nepal to stave off a grinding financial crisis that has followed the mega-earthquake and months long blockade. In exchange, there will be an unprecedented gain for Ncell's brand value in Nepal. 

So far, what has helped Ncell keep its reputation in Nepal is the information blackout on its wrongdoings, thanks to its generous largess to the media in the form of advertising. 

That may no longer be the case. These days may now prove a turning point in Ncell's history and Axiata should learn to live with the changed reality. 

Particularly pertinent question that Axiata should ask itself now is: what if Nepalis, after coming to believe that they were systemically cheated and defrauded while a company at foreign hands grew at breakneck speed, started abandoning the brand in massive scale? While the fraud and tax avoidance might have been committed by Axiata's predecessor with abominable collusion with Nepal's tax authorities, how can the brand Ncell (or its re-branded version if it is done so) remain untainted?

I personally believe that much of the price agreed for purchase of Ncell by Axiata was for its brand value rather than for any tangible asset. If Axiata loses it for whatever cause, it may be hard to recover for years if not decades. 

So, my sincere advice to Axiata at this point: think through the scenarios. I don't want to and won't speculate exactly how the events will unfold in coming days and what will be the outcome at the end. But this much is for sure: Axiata cannot do away with the shoddy legacy left in Ncell by TeliaSonera, for its own business interest if not anything else. While Ncell's position in today's Nepal may be solid and appear unassailable, grounds often shift and a company which is strong today may look vulnerable tomorrow; and be in a precarious position the day after. 

So Axiata's choices now: do nothing and keep praying that the clouds surrounding Ncell brand in Nepal dissipate soon or be active to honestly transform the Ncell brand that it owns now. The latter option will invariably involve convincing TeliaSonera to clean some of the mess it created in Nepal by paying the capital gain taxes to Nepal. Now that the Nepal's authorities have formally instructed Ncell to pay the taxes, it makes it natural for Axiata to ask TeliaSonera to move ahead with the payment.

If they choose the first option, which is tempting in the short run, things may, just may, well work in their favor but I am not so sure and I advise them against such complacency. The movement to force 'Ncell' (meaning TeliaSonera') to pay taxes has not reached the threshold now but if (or when) it reaches threshold, it has the potential to snowball overnight and Axiata may well regret paying a huge sum for Ncell's brand value that was so precarious. Things have changed and information blackout in 'proper' media outlets may no longer prove to be an adequate safeguard for a delinquent brand. 

Especially after the leaked Panama Papers have sensitized the people about the organized racket of corruption, money laundering and tax avoidance, the media may be forced to come clean on this. Once media start competing to cover the reality about this fiasco of the transaction through a shell company in particular and the wider practices of cheating the states and the people in general, Ncell's reputation among the customers can be irreversibly lost over not-so-long period of time.

If they choose the second option, it may not be an easy thing in the short run but that will form a solid platform for Axiata for a very sound and long term business in Nepal's telecom industry. 

It is their choice now: to own a brand that was built involving potentially criminal business activities (alas! the complete Fulbright report has not been made public and this much is by admission of TeliaSonera's officials themselves) and acquired through a process in which every citizen in the country was arguably cheated more than a 1000 rupees, or to own a responsible and reputable brand which has courage to correct the past wrongdoings. 

It is their decision now. For rest of the life of Ncell brand in Nepal, the owners will have to live with the fallout of that decision. As the age-old saying goes, you are free to choose but not free from the consequences of that choice.

(For those who are well-versed in Nepali, here is one earlier article for the context of the 'shady' deal, corruption and tax avoidance in Nepal. More articles on the issue will follow in this blog if not elsewhere. Keep tuned.)

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