1. Rennes International School of Business
ESC RENNES
Executive Master of Business Administration
EMBA
COHORT 1 (2003 - 2004)
International Business Law
Conducted by:
Sylviane BAKER
The legal elements analysis for (GPTC) project
LIBYA
By
Magdy A. Sattar
April, 2004
Cairo, Egypt

2. EXECUTEVE SUMMARY .................................................................................................................. II
1- REPORT OBJECTIVE. ............................................................................................................... 1
2- LEGAL ENTITY OF MENATEL. .............................................................................................. 1
3- CURRENT CASE STUDY (GPTC). ........................................................................................... 2
4- QUESTIONS NEED TO BE ANSWERED. ............................................................................... 4
5- LEGAL ELEMENTS IDENTIFIED. .......................................................................................... 5
6- SOLUTIONS ................................................................................................................................. 7
7- CONCLUSION ............................................................................................................................. 9
8- RECOMMENDATION ................................................................................................................ 9
9- REFERENCES .............................................................................................................................. 9
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3. EXECUTEVE SUMMARY
This report is the second phase of an analysis to be added to the first phase which was
International Business analysis to have a clear and effective overall analysis. This report is to
cover the legal elements analysis and a discussion of the General Post and
Telecommunication Company (GPTC) case. As Menatel intention is to study the opportunity
of providing a prepaid payphone network in Libya through the domestic provider of telephone
lines GPTC.
I will start with identifying the objective of this report, briefing Menatel legal entity and what
kind of a company is Menatel, who are Menatel share holders and their shares. By wearing
the hat of a Menatel executive I will start the analysis by explaining the (GPTC) case nature
and circumstances, and what is (GPTC)? What facts need to be considered? A brief about
the legal system in Libya, What are the questions that need to be answered by the Menatel’s
legal consultant, and all the legal questions that need discussion, through which I will identify
the main legal elements that need solutions such as protecting Menatel property in Libya,
ensuring a good competition environment, see how to make sure that any contract with the
Libyan part is executed and how to enforce all its articles in addition to discussing if there is a
dispute case what will be the solution?, finally how will Menatel protect its revenue and be
able to transfer its profits with no risk of any kind of losing part of them for whatever reasons.
Some of the solutions will be suggested and discussed before my final conclusion and
recommendations.
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4. 1- REPORT OBJECTIVE.
The purposes of this report is to analyse and discuss the (GPTC) case using the legal skills
acquired during the international business law module, and to show my understanding of the
subjects that have been discussed during the course. Also using what I have been taught in a
practical way that will benefit me and my company. The objective is to write this report in a
form of a draft memo or a business report to Menatel Company’s legal consultant for his legal
solutions to the (GPTC) case. Illustrating the General Post and Telecommunication Company
(GPTC) case history and circumstances, what are the questions lighting in our mind, what are
the legal elements that need to be covered, our conclusions and feedback of the case and
finally a proposed recommendation of our side.
1
2- LEGAL ENTITY OF MENATEL.
2
2-1 Menatel in brief
Late in 1998 Mena Communication Company (Menatel) was born as a joint stock company,
under investment law number 8/1997 registered in 1998 under number 314030. Menatel is
granted a ten years; renewable license, to install, operate, and manage a telecommunication
network of at least 30,000 public payphone. Egyptian shares are 53 % and foreign shares are
47 %. By the end of 2003 Menatel has been operating a payphone network with near to
30,000 payphones in operation, and work force of more than 400 employees. Menatel is in
the prepaid cards business, Menatel products are calls (minutes), local calls, national calls,
mobile calls, and international calls. Menatel is selling its products through a payphone
network that covers all Egypt and managed by a payphone management system. These calls
category are Menatel profit contribution. With a centralized management style Menatel
structured into five main divisions headed by corresponding Director and five Branches
allocated all over Egypt, to form simple flat functional organizational structure.
2-2 Menatel objectives
“The design, set up, installation, operation and provision of a national
public payphone network in Egypt in accordance with the applicable laws and
regulations”.
“The manufacture of telecommunication equipment and related
components”.
“The company may establish other projects or change its objects
within the scope of the investment incentives and guarantees law No. 8 of
1997. It may also subscribe to or participate in any manner in ancillary
1
Company’s contract of incorporation Feb.1999
2
Menatel annual report 1999
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5. projects outside the scope of the mentioned law provided it benefits from the
incentives and guarantees stated in that law only within the limits of its
activities which conform with the fields determined in that law”.
2-3 Ownership and Equity Distribution
Egyptian shares are 53% and foreign shares are 47%. The company's Shareholders are as
follows:
The National bank of Egypt Egyptian 18%
Telecom Egypt Egyptian 2%
ADCOM Egyptian 9%
EGYTEL Egyptian 20%
France Telecom (FCR) French 47%
CIIC Egyptian 2%
ADI Egyptian 2%
3- CURRENT CASE STUDY (GPTC).
What is the (GPTC)? What is the nature of this case? What are the circumstances of this
case? To answer those questions a brief historical background about the case will help to
understand it better.
3-1 Menatel side
At the beginning of the year 2003 Menatel was faced by the drop of the economical situation
in Egypt due to the Egyptian pound floating policy and the shortage of the hard currency
which affected strongly the exchange-rate consequently Menatel revenue and of course
Menatel profitability. It was decided to take advantage of all Menatel resources and
experience to generate additional revenue to fulfil this gap. One of the projects was to analyse
the opportunity of transferring Menatel highly skilled employees and the Know-how abroad.
Providing a prepaid payphones network in Libya, our neighbour country, was one of the
opportunities that needed to be analyzed. We did so, from business perspectives, and to
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6. complete our analysis we need to cover the legal issues for this project, this is where this
report fit.
3-2 Libya side for Telecommunication sector (GPTC)
For telecommunication sector in Libya, it lags behind in telecommunication development, and
3
the figures prove so:
State-owned sole provider (GPTC) for fixed telephone line.
605,000 fixed telephone lines.
Penetration rate of just 11 %.
State-owned sole provider (Al Madar) for mobile telecom.
50,000 mobile lines in 2002.
Penetration rate of just 1 %.
4
3-3 Libya side for legal environments
Reference to the World Bank information data the below table shows some indicators that can
be helpful in understanding the legal system environment in Libya that affects any FDI.
Governance Percentile Rank (0-100)
Indicators (2002) Libya Egypt UAE USA UK Sweden Netherlands France Australia
Voice &
4.5 22.2 35.9 90.9 93.9 99.0 98.0 88.4 94.4
accountability
Political stability 31.9 34.1 80.5 56.2 73.5 96.2 95.7 70.8 89.7
Government
18.0 46.9 78.9 91.2 97.9 93.3 99.0 90.7 92.8
effectiveness
Regulatory quality 4.6 38.1 78.4 91.2 77.9 96.9 99.0 85.6 94.8
Rule of law 18.0 57.7 80.4 91.8 94.3 96.9 94.8 87.6 95.4
Control of
24.7 47.9 84.0 92.3 94.3 97.7 96.4 89.2 93.8
corruption
The table simply illustrates six indicators that affect the legal system environment in Libya and
other countries divided into four categories;
Menatel home base, Egypt
The No. one attractive country for foreign investments in ME, UAE (Dubai)
Some of the strong economies in the world, USA, UK, France
Some countries with lost corruption indicator, Australia, Sweden, Netherlands
The Libyan indicators compared to the above named categories are considered poor ones,
for example if we compare the Libyan regulatory quality to the above, it’s the worst. The
corruption control indicator is even worst than Egypt, this shows that the legal system
environment as a whole is incorrigible.
3
Libya country profile (EIU 2003)
4
World Bank information data (2002)
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7. 3-4 Libya side for Legal system
Before identifying the legal system we need to know that the political system (which has
strong effect over the Legal system as a source of jurisdiction), is a poor one, as the
Jamahiriya is theoretically governed by the people through local council, the General People’s
Congress (GPC), but practically it’s governed by Colonel Qadhafi, as for the legal system
itself is based on the Italian civil law system and Islamic law, a mixed system of both sources,
which is obviously approved by the Colonel, is characterized by separate religious courts, and
5
no constitutional provision for judicial review of legislative acts.
In addition to this brief history some general facts need to be considered:
General Post and Telecommunication Company (GPTC), is the state-
owned sole provider for the fixed telephone lines. (Network of 605,000 fixed
6
line) . It is a monopoly market.
The Libyan legal system is based on the Italian civil law system and
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Islamic law.
Libyan political system is based on colonel Qadhafi’s vision; it’s a mix
of Socialism and Islamic theories, which he calls the third international
8
theory.
9
Libyan exchange-rate system is poor.
Libya is not a member of WTO or Vienna Sale Convention or any
other conventions of this kind.
The legal system environment is not trusted as the international
10
indicators approve .
4- QUESTIONS NEED TO BE ANSWERED.
As a conclusion of the business analysis report we were faced by some questions related to
legal issues, such as:
What are the custom dues and the taxes regulation?
The monopoly status is it expected to have an end? What if not?
Telecommunication and information laws do they exist?
And if they do, are they enforced?
Is the legal system strong or weak?
5
CIA world fact book Dec.2003.
6
Libya country profile (EIU 2003).
7
CIA world fact book Dec.2003.
8
CIA world fact book Dec.2003.
9
Libya country profile (EIU 2003).
10
World Bank information data (2002).
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8. What are the distribution channels conditions and characteristics?
What about competition laws?
The monitory policy and transfer of profit in hard currency ($)?
Tax privilege for foreign (Egypt) investment?
How can we protect Menatel property?
To what extend the sovereign rights affect the investments and
foreign property?
To what extend the political system affect the legal system?
What about corruption?
What if the Libyan part infringes the contract?
What about the Libyan labour law for expatriates?
Are the international conventions (WTO) rules enforced in Libya?
What if there is a dispute case?
All the above questions can be combined to four main legal questions:
What protects Menatel properties?
What protects Menatel competition environments?
What protects Menatel contract and how to enforce this contract?
What protects Menatel revenue transfer?
5- LEGAL ELEMENTS IDENTIFIED.
5-1 Menatel Property Rights
What guaranties do Menatel need to protect its properties rights against any private
(individuals or groups), or public (individuals or groups) infringes. If menatel decides to invest
in the public payphones business in Libya in the form of a joint venture with the Libyan local
sole provider for telephone lines (GPTC), does this contract protect Menatel intellectual
property or is it better to have an exclusive license to build, operate, and transfer a public
payphone network, or a combination of both as in the case of France Telecom (FCR) with
Telecom Egypt (T/E) in Menatel case. Another point is to just transfer the technology, the
Know-how in a form of management contract. I think to answer this we need to know is
(GPTC) independent enough to enforce a signed contract by her side and not as a follower of
the general political trends of the Libyan government. Is (GPTC) capable of supporting
Menatel against any public infringes and corruptions as in Egyptian case (Menatel faces the
local governorates and districts corruption), T/E has no role or part in supporting Menatel
against what we face of corruption, blackmailing and briberies in every single request or
dealing with the local districts authority (we postpone the investments in some governorate
due to things like that). Another important question here is what if the Libyan government
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9. (Colonel Qadhafi) decides to expropriates Menatel property? Also does the domestic law
protect intellectual properties or does the legal system in Libya enforce such law, I don’t think
that even such law exists, we still see goods soled in the “free” market her in Egypt especially
in Marsa Matroh (a city near the Libyan border) with false logos (the famous one is Quarunes
logo stamped over all Philips merchandises pretending that it’s a Libyan product). So I think
the contract to be signed with the Libyan part need to cover these risks.
5-2 Menatel Competition environments
As there is only one sole provider for telephone lines (GPTC) the competition environment is
an unhealthy one in this monopoly condition. Actually the telecommunication market is still a
developed market and controlled by public entities (the political system have a strong impact
over it) with a poor management. In this kind of environment it is obvious that there is no
competition law to protect and ensure fair competition among the companies in the field of
telecommunications. So the question is what regulates the competition among all the market
players, the mobile, the normal in-door telephone, the public out-door payphones, and the
home prepaid telephone cards. What law controls the tariff policy? And actually is there a
domestic law for telecommunication and information sector? So we are faced with this
unhealthy competition telecommunication market, and we also need to cover this risk in the
contract articles.
5-3 Menatel contract & Dispute Settlement
Whatever the shape or the nature of the contract Menatel will singe (in case if the final
decision is to invest in Libya), Menatel needs to insure the enforcement of the contract
articles, and to know what kind of law will be handling this contract, the Libyan domestic law,
the Egyptian law, or the international law that is based on the international rules and
regulations approved and agreed upon nations and states through international treaties
and/or through international organisational conventions. Also in any dispute case between the
two parties, Menatel and the Libyan side, what will be the solution? Who will solve this
dispute? And what law will handle this? Knowing that Libya is no part of any international
treaty or convention for dispute settlement, this leaves us with the only law we can implement
here to enforce the contract articles and to have fair settlements in case of any dispute, which
is the domestic law. The roots of this domestic law are, the Italian civil law and the Islamic law
(El shareaa), which in some ways have the same nature of the Egyptian law, also based on
the French civil law and the Islamic law (El shareaa). In this case the contract should be
written by the domestic law and the Libyan courts will be responsible for any dispute
settlement, which is risky.
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10. 5-4 Menatel Revenue & Profit Transfer
The most important question is Menatel profit, what about both end of the profit equation
Menatel expenditure and Menatel revenue? In this business, the prepaid cards payphone
business, the operator main expenditures are the prepaid cards and the network spare parts
which are provided by hard currency (Dollars or Euros), on the other hand the revenues are in
local currency (the Libyan Dinar in this case). For Menatel side, we need to convert the profit
to Menatel preferred currency (Dollars, Euros, or Egyptian pounds). Knowing that the
exchange-rate system is a poor one in Libya, this introduces the importance of a kind of
financial contract or article along with the normal business contract, this financial contract can
be signed by a third party (an international bank for example) to share the risk of profit
transfer. Another question related to Menatel profit is what about the custom dues and taxes
regulations, the contract should cover this part of risk or benefit.
But we do not want to forget that all the above discussed legal elements are strongly
dependant on the legal system environment, regulations and rule of the law, corruption,
government interference, and political system.
6- SOLUTIONS
There are four solutions (theoretical solutions), as to ensure them we need reliable legal
system.
A joint venture agreement with GPTC.
A license for build, operates, and transfers by GPTC.
A combination between both contracts.
A consultant contract.
The first three of the above points will have in away some common articles that can be
combined to the following parts:
Part one in which the company identification is illustrated: the
company name, address, objects, duration, what laws and regulations control
it, and its legal activities conforming with the fields determined by laws and
regulation.
Part two that illustrate the capital of the company: the authorized
capital, the issued capital, number of shares, the share par value, the way the
payment will be, and how this capital will be financially managed.
Part three that illustrate the company management policy, how the
company will be managed? Who have the right of management and
decision? Who have the authorized signatures?
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11. Part four that illustrates the financial policy of the company: the
company financial year, inventories, final accounts, reserves, distribution of
profits, and the external auditor identification.
Part five that illustrates solutions of any conflicts among the
shareholders or the contract parties
Part six that covers the dissolution and liquidation of the company in
case of loses below determined and approved percentage of the company
capital.
Part seven in which the legal consultant is named and identified, also
illustrating the laws and regulations that handle this kind of business and
activities.
Part eight which regulates the domestic tariff for calls by category
and also type of provider that is to be clear and fair.
In addition to the above general articles any other parts that provide legal insurance for the
high risks illustrated by the previous discussions of the GPTC case might be added, which will
be:
A part to protect Menatel properties against any nationalization or
confiscation or expropriation risks by adding an insurance article to the
contract that covers Menatel loss, or the company should be registered for a
free zone, where the domestic authority have no power.
A part to cover the risk of unfair competition environment in case
Menatel suffers any loss a force majeure article is to be added to the contract
in case these loses exceed certain percentage of the revenues.
A part to cover the transfer of profit of Menatel by a financial
agreement with an international bank to ensure the profit transfer through a
financial cycle out side the domestic currency-exchange cycle and to ensure
that all the accounts and the transactions are done through banks not related
to the domestic monitory policy.
A part also to cover the risk of the poor exchange-rate by adding a
termination article to the contract in case the exchange-rate affects the profit
by a certain percentage.
But even with this, the first three solutions will not ensure minimizing the risk, which is why a
consultant contract could be the less risky solution. Menatel can send over one of its staff as
expatriate in the field of technical, commercial, or even financial, and sign a consultant
contract with the (GPTC) part that includes the following, in addition to the normal articles of
any consultant contract, the working hours, the working days, the introduction article, the
contract duration, the termination article, and so on, the most important article is the financial
part in which it should be clear that:
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12. The payment should be in advance and in hard currency.
It should be transferred directly to Menatel account in Egypt.
All expenses to be covered by the Libyan side.
Monthly petty cash to cover local expenses with local currency.
In case of contract termination, a three month salary should be paid
to Menatel.
7- CONCLUSION
The history of nations or states concerning international business and trading with other is a
reliable indicator of how well this nation respects and enforces its commitments and
obligations towards the other party, and in our case (GPTC) Libya, the history of the Libyan
government is not promising one. It is highly risky to have a long term business contract with
Libyan parties, as the economical and the legal system is much related and affected by the
political system (which in our case is quite clear). Also all the legal system environment
indicators, political stability, government effectiveness, regulatory quality, rule of law, and
control of corruption indicating an unhealthy ruined legal system environment.
8- RECOMMENDATION
I strongly recommend not doing business with Libyan part, and if necessary, a very desperate
situation for Menatel, a consultant contract could be the minimum risky solution. Menatel
could make use of its strength in its skilled, highly trained, and efficient employees, and export
one or at maximum two of its staff for one year management contract with the Libyan party.
9- REFERENCES
 Menatel internal data, Annual report 1999
 Menatel regulation of the organization of the board activities
 August RAY, International Business Law, Fourth Edition 2002
 World Bank information data 2002, internet site.
 CIA, world fact book Dec.2003, internet site.
 EIU, Economist Intelligent Unit, Libya country profile 2003
 Pre-reading materials & slides, Sylviane BAKER 2004
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