Sanctions Bite Orascom in North Korea

It must have seemed like a good idea at the time.

When Orascom Telecom , the successful Egyptian operator headed by Naguib Sawiris, won the right to set up North Korea's first 3G network as a monopoly in partnership with the state telco, it must have seemed a sound bet.

Seven years on, it still looks good on paper.

The joint venture, Koryolink, 75%-owned by Orascom, has net assets of 8.3 billion Egyptian pounds (US$1.1 billion) and cash assets of EGP4.1 billion ($537 million). Koryolink, North Korea's sole provider, reportedly has around 2.4 million customers, or 9% of the population.

But that was before the US, Japan and China ramped up sanctions on the international pariah state and the company is now confronted by what accounting firm Deloitte describes as a series of "financial and operational obstacles."

A report from Deloitte issued with Orascom's quarterly results last week said that international sanctions were making it difficult for Koryolink to "operate, maintain and develop" its mobile network.

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The chief problem is the long-term financial sanctions, which mean Koryolink cannot transfer cash to Orascom Telecom. It also means key goods and services required to run a network have become difficult to obtain.

But even without the sanctions, Koryolink's cash balance, held in North Korean currency, cannot be converted into hard currency at official rates without approval from Pyongyang financial authorities.

That's not all. As well as the bite from the sanctions, Koryolink has now lost its privileged status as North Korea's sole operator. Another government agency has launched a rival mobile provider and in response Koryolink management has sought a merger.

Orascom believes it has won "initial consent" from the government for a deal, but negotiations are continuing.

— Robert Clark, contributing editor, special to Light Reading

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