Valentina Dimitrievska in Skopje -

Kosovo may have to pay up to €500mn in damages to ACP Axos Capital if the German company wins an arbitration over the failed privatisation of Kosovo’s largest telecom operator, Post and Telecommunications of Kosovo (PTK).

This is the first case against Kosovo through the International Centre for Settlement of Investment Disputes (ICSID). If Axos’ claim is upheld, this will be a huge setback for the Kosovan government, which is striving to attract foreign investors to the poor Balkan county.

Axos was declared the winner of the tender for the sale of 75% of PTK shares in April 2013, and was ready to pay €277mn. However, the government failed to gain sufficient support in parliament in a vote in December 2013. Some members of the ruling coalition joined the opposition in voting against the agreement, arguing that it undervalued the country’s most profitable company.

International financial institutions including the European Bank for Reconstruction and Development (EBRD), and Deutsche Investitions- und Entwicklungsgesellschaft (DEG) had worked with Axos on the deal. At the time, Axos’ managing director Jan Budden said in a statement that the company was “taking the lead in what we expect to be many further investments of capital from Western Europe and the US in Kosovo's economic growth”.

Following the failed privatisation, Axos filed for arbitration in June 2015 at the ICSID and asked for compensation as the sales contract was not signed with the government by December 2014, magazine Jeta ne Kosove said on September 30. Axos’ legal action was registered at ICSID on June 4, 2015. Pristina could have to pay between €180mn and €500mn if ICSID finds in favour of Axos, local media reported

The ISCID website shows that the US law firm Squire Patton Boggs, which already offers consultancy services for the Kosovan foreign ministry, will be representing the Kosovan side in the dispute, while Germany’s Herbert Smith Freehills will represent Axos. 

The Kosovan opposition has blamed ex-minister for economic development Besim Beqaj and former Prime Minister Hashim Thaci, who is now foreign minister in the government led by Isa Mustafa, for the dispute.

This was the second attempt to sell PTK; the first attempt in 2011 failed after corruption charges were filed against several PTK officials, although they were later cleared.

According to the latest company data, PTK’s audited net profits fell sharply to €16.5mn in 2014, from €36.1mn a year earlier, while its revenues declined from €128.8mn to €99.5mn.