Eastern Europe's largest privatisation this year, the 1.82bn euro (�1.16bn; $1.8bn) sale of the Czech Republic's fixed-line telecoms operator, has collapsed.

The Czechs were planning to sell a 51% stake in Cesky Telecom to a consortium led by Deutsche Bank, but the deal became bogged down in a dispute over the price and conditions.

We are still in talks with all parties ... With the government, with the other parties

KPN

Minority shareholder consortium TelSource, which is made up of Dutch KPN and Swisscom and owns a combined 33.5% stake in Cesky, rejected the price in the winning tender of Deutsche Bank.

TelSource has the right to sell its stake if the government reduces its holding.

"An agreement between the Deutsche Bank group and TelSource was not reached and the government has accepted the recommendation of its adviser to pull out of the sale," Finance Ministry spokesman Jaroslav Dedic told Reuters.

"This means the de facto collapse of the privatisation."

Financial blow

The failure will be a blow to the government which faces a huge clean-up bill for devastating floods earlier this year.

Prime Minister Vladimir Spidla said government remains committed to selling off the firm and has asked for new proposals by 31 January.

The sale was to have provided the main privatisation revenues in 2003, but the government may now have to borrow more money ahead of expected EU membership in May 2004.

Poor value

KPN, which had been looking to sell its stake, contradicted the Czech government and said the sale had not failed.

"We are still in talks with all parties ... With the government, with the other parties," said KPN spokesman Bram Oudshoorn in the Netherlands.

The offer by Deutsche Bank was considered to be poor value for minority shareholders.

"We see the news as positive for Telecom's share price. The threat that minority shareholders would be bought out at a relatively low price has diminished," said Jindrich Svatek of Raiffeisen Zentralbank.

Cesky Telecom's owns Eurotel, one of Europe's most profitable mobile operators.

The government had set the end of November as the deadline for the sale.