KIEV, Oct. 13 - Ukraine has launched a privatization tender for the country’s fixed-line telephone company but has imposed controversial restrictions that threaten to exclude leading global telecoms companies from the bidding, The Financial Times reported.

With an estimated value of at least $1.3 billion, the long postponed sale of Ukrtelecom is expected to raise badly needed funds for Ukraine, which was battered by the global financial crisis and is being kept afloat thanks to a $15 billion assistance package from the International Monetary Fund.

The sale is the first big privatization tender run by Viktor Yanukovich since he took over as Ukraine’s president in February.

It is being watched closely to gauge how transparently privatization will be conducted under his leadership. Concerns exist that valuable assets could be sold off at below market prices to well-connected oligarchs, as happened when Yanukovich served as prime minister in 2004.

Ukrtelecom controls about 80% of the fixed-line market in Ukraine, a country of 46 million citizens. A highly-bureaucratic and mismanaged corporate dinosaur, experts say Ukrtelecom has sharply lost value in the past decade, falling decades behind European peers in terms of introducing new telecom technologies.

Ukrtelecom holds the country’s sole 3G license and has a relatively small mobile business but it earned only $6m in the first half of this year. Corporate and private clients have increasingly turned to better quality services provided by privately-owned mobile and fixed-line operators.

On Wednesday, Oleksandr Ryabchenko, head of Ukraine’s state property fund, expressed hope that at least $1.5 billion would be raised when the winning bid was chosen on December 28. But there are fears that competition could be limited by the tender conditions.

Many top European telecoms companies that have to various degrees expressed interest in Ukrtelecom over the years – including Deutsche Telekom and Norway’s Telenor – are prohibited from taking part in the tender because they are more than 25 per cent government-owned. Another condition prevents telecoms with more than a 25 per cent share in Ukraine’s telecom market from taking part.

Vitaliy Shushkovsky, an analyst in Kiev for Renaissance Capital, said “It is clear that these conditions limit the potential number of participants.”

The restrictions are expected to boost tender chances for domestic billionaires and Russian bidders.

Dragon Capital, a Kiev-based investment bank, said in a note to investors: ”We consider domestic business conglomerate System Capital Management and Russia’s AFK Sistema, which owns domestic cellular operator MTS, the most likely bidders for Ukrtelecom.”

System Capital Management is the business holding of Rinat Akhmetov, Ukraine’ss richest man and a long-time political backer of Yanukovich.

Ryabchenko admitted that competition could be limited because of the tender restrictions, but citing Ukrainian legislation he said: “We do not have the right to sell Ukrainian assets to other states. This is not privatization.”

Serhiy Lyovochkin, head of the presidential administration, defended the restrictions, citing national security concerns, and described Ukrtelecom as a “strategic” asset that provided telecoms to much of the country, including the government. (ft/ez)