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Armenian Privatization Effort ‘Moves Forward’

By Emil Danielyan

The failure of international bidding for electric utilities may have been a major setback for the decade-long privatization process in Armenia. But it seems to be having little bearing on 14 big companies slated for privatization more than a year ago. Their continuing sell-off is gathering pace, and government officials hope that it will be by and large completed by the end of the year, adding to the private sector’s dominance of the Armenian economy.

“Despite some snags, we are moving forward and hope that before the end of the year the government will have taken decisions on privatization deals involving the overwhelming majority of these enterprises,” says Ashot Markosian, deputy minister of state property.

Seven of the companies up for grabs, including the Yerevan Jewelry Factory and a cement plant in the central town of Hrazdan, have already been sold. Bidding for several of the remaining businesses is in progress. Officials say foreign investors are taking an interest in at least three state-owned factories producing precious and semi-precious stones, cement and electronics items.

The latter company called Mars is located in the southern outskirts of Yerevan. Built and equipped with a state-of-the-art production lines in the final years of the Soviet Union, Mars has never got to operate in earnest for a host of reasons, the disintegration of the empire being one of them. The company has tried to remain afloat by leasing part of its premises to a Swiss-Armenian joint venture and a pharmaceutical firm partly owned by the Glaxo Wellcome giant.

One local and two British companies are now vying for control of Mars. One of them is owned by Vache Manugian, a London-based millionaire with extensive business interests in Armenia. A government commission overseeing the privatization has recently extended the deadline for the submission of bids to next September.

Another company which is attracting foreign interest is Ararat Cement based in the eponymous town in southern Armenia. Among its potential buyers is Switzerland’s Holsim group, a leading producer of construction materials. Markosian says Ararat Cement’s new owner will be selected within the next several months.

Also significant was the government’s decision to sell its 50 percent stake in Armgold, an Armenian-Indian joint venture which runs the country’s gold mines and smelting plants. According to Markosian, the government’s Indian partner is to decide next week whether it is interested in 100 percent ownership of Armgold. If it’s not, the government will sell its share to a highest outside bidder.

Yet even this process is not unaffected by populist discourse which shaping a negative public attitude to privatization in general and foreign investment in particular. The Armenian media has readily given space to opposition politicians denouncing the government over its plans to privatize the energy sector. One can therefore hardly expect positive media coverage when the forthcoming deals are sealed.

“Fortunately, foreign investors can’t read Armenian to see all this rubbish,” said one source involved in the process.

Analysts believe that anti-privatization and anti-foreign sentiment fanned by some Armenian media outlets contributed to the collapse of the energy sector privatization in April. Government officials managing remaining state assets claim that managers of the struggling state industries are deliberately spreading fears of privatization among their employees to remain in control.

The problem is compounded by the fact that some of the enterprises put up for sale are managed by prominent politicians not quite sympathetic to the authorities. For example, the executive director of Ararat Cement is former prime minister Aram Sarkisian who now leads the opposition Hanrapetutyun party, while Mars is run by the People’s Party leader Stepan Demirchian. His late father, former parliament speaker Karen Demirchian, was the longtime chief executive of Hayelektro engineering giant also awaiting privatization.

Some observers believe that President Robert Kocharian is keen to strip them of an economic base to ensure his reelection in 2003. Whatever the truth, the sell-offs will inevitably acquire a political dimension.

The first alarming signal came earlier this month when Minister for State Property David Vartanian accompanying senior Holsim representatives was forcibly barred from entering Ararat Cement premises by angry workers opposed to the company’s privatization. Ex-premier Sarkisian, who is also against it, was absent from the country at the time and has since declined comment.

While many Armenians feel that $205 million paid the national telecom operator by a Greek firm or $30 million netted from the sale of the Yerevan cognac distillery in 1998 was a rip-off, few of them raised eyebrows at local firms’ takeover of other major industries at knock-down prices. Two Armenian business groups with ties to Kocharian’s entourage paid $650,000 and $300,000 respectively for the Yerevan factory of electric lamps and the Hrazdan cement plant. Both enterprises used to employ thousands of people in the Soviet times and have seen a sharp decline over the past decade.

Problems facing the privatization process are indicative of the wider state of the Armenian economy still reeling from the collapse of the early 1990s. Markosian says the remaining state firms are hard to sell because of their big debts, obsolete equipment, and the loss of traditional markets in the ex-USSR. Some 1,200 small and medium-sized entities still under state ownership have so far been unable to attract buyers.

According to Armen Yeghiazarian, a former minister of economy who now heads the Association of Armenian Banks, even the privatized Soviet-era industries have still to turn into successful businesses. “We must decide what we should do with them because they, in essence, do not participate in economic growth,” he told RFE/RL in an interview.

The sale of the 14 enterprises will leave the Armenian government with little else to privatize beyond the energy sector. The private sector already accounts for more than three quarters of the country’s GDP. Western donors says that economic reforms should now focus on the improvement of the business climate in Armenia, which means ensuring the rule of law and fighting rampant corruption.

The authorities, meanwhile, hope that their second attempt to privatize power distribution networks will end in success later this year. And they are eyeing the possibility of offering foreigners a stake in the country’s power generating facilities that also need massive capital investments.

Another deal that could attract substantial foreign capital is the planned but repeatedly postponed privatization of Armenian Airlines, the troubled national carrier. Its fate is being decided by a separate government commission.