Rostelecom to Divest Crimean Assets on Non-Market Terms

Russia‘s national telecommunications state-owned enterprise, Rostelecom, announced plans to sell its controlling stakes in several Crimean assets in a move that is being described as a possible effort to reduce the company‘s risk of being sanctioned.  In an effort to maintain a ‘‘‘targeted‘ approach to sanctions, Western policies have focused, in part, on entities and individuals that have been involved or implicated in Russia‘s annexation of Crimea.

The assets being discussed for possible divestment are Miranda Media and a company that reportedly manages the Malakhit resort in Yalta.  Three Miranda Media executives are reportedly to pay just 350,000 rubles (or some $6,000) for the assets in a move that appears choreographed on non-market terms to achieve a purely strategic objective.

In fact, reports from May 2014 indicate that Miranda Media paid $30 million to acquire telecommunications equipment and fiber optical networks with a length exceeding 2,000km in Crimea.  At the time, the purchase was described as equipping Rostelecom to save time in terms of building a full-scale network and beginning services to subscribers.  This acquisition may have been related to efforts to ensure rapid and comprehensive access to the Crimean audience for Russian media.

The transaction is an example of business decisions being made by ostensibly commercial ‘‘‘ yet state-owned ‘‘‘ enterprises that have clear national security relevance and exposure to global security risk.  These maneuvers, for the most part, have not been responded to in-kind by Western policy makers.  In this case, the markets may have more to say than policy makers, as Rostelecom is a publicly traded entity with stakeholders that are now exposed to business decisions that do not appear to hold up to fiduciary scrutiny.