Asset Sales Bankrolling Tbilisi's Reforms

APLast year the government reaped $400 million from privatizations. It hopes to raise another $200 million in 2005.
TBILISI, Georgia -- Georgia, trying to bring in Western-style market reforms to repair its economy, is betting on wide-ranging privatizations to help.

Major state industrial enterprises as well as small outlets have been put up for sale since a bloodless revolution in late 2003, and the government said that raising as much money from sales as possible would be the main criteria for choosing new owners.

The government raised 717 million lari ($400 million) in 2004 and hopes to raise more than $200 million this year from selling off state assets.

The funds will go on defense, energy, roads and social programs.

"The money we got from privatization in 2004 and the first quarter of 2005 is twice as much as revenues from privatization in the previous four years," said Deputy Economic Minister Kakha Damenia.

Analysts say the new government is making an effort to be open about the sales and make sure that, unlike in the past, all the money goes into state coffers and does not get siphoned off into the bank accounts of officials.

"They are trying to make this process as transparent as possible and do not hide the fact that raising as much money as possible is the main task," independent economist Mikhail Jibuti said.

Endemic corruption and cronyism under former President Eduard Shevardnadze led real economic output to slump by over half, turning Georgia into one of the worst-performing ex-Soviet economies.

But President Mikheil Saakashvili, swept to power in the Rose Revolution that ousted Shevardnadze, has promised a wave of reforms, including moves to seek foreign investment and strengthen the rule of law.

Earlier this year, the Chiatura manganese plant was sold to Russia's largest steel producer, Yevrazholding, along with a local utility for $132 million, while shipping company Georgia Ocean went for $93 million to British company Marine Capital.

"It's a very good price in both cases. Not many investors could pay it. ... The government did a very good job," said one Western businessman, who did not want to be named.

Privatization plans for 2005 envisage selling off a copper plant, a telecoms firm and fertilizer and metals plants, as well as some small and medium-sized outlets.

The government is expected shortly to announce a tender competition for the sale of the Madneuli copper plant, and hopes to raise $40 million.

The Madneuli ore enrichment plant, located 90 kilometers from Tbilisi, produced 61,800 tons of copper concentrate in 2004, down from 65,500 tons in 2003.

Potential buyers are also due to apply by May 2 for shares in fertilizer producer JSC Azot and the Rustavi steel plant, which produced 1.4 million tons of steel per year in Soviet times but is now largely inactive.

Georgia also plans to sell fixed-line state telecoms firm Elektrokavshiri for $70 million to $80 million later this year. The company operates networks in Tbilisi and in other Georgian regions.

But the government is wary about losing control of strategic outlets, and ports, railways and pipelines are not expected to be privatized in the short term.

"I can understand people's concerns about investment in some strategic outlets like pipelines. I do share those concerns," said Roy Southworth, the World Bank's country manager for Georgia.

However, he saw no threat from the high level of investment coming from Russia in privatizations.

"The color of money is the same. Russians know this market well and for Georgia, Russia is one of the most attractive export markets," Southworth said.