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Armenia: Government Maintains Momentum For Privatization

Armenia's privatization program is in full swing despite a recent setback in the sell-off of the country's electrical utilities. RFE/RL correspondent Emil Danielyan reports from Yerevan that the government hopes to privatize 14 large enterprises before the end of the year -- but politics and populism are getting in the way. Here is his report.

Yerevan, 22 June 2001 (RFE/RL) -- The failure two months ago of an international tender on electrical utilities was a setback for the decade-long privatization process in Armenia. But it seems to be having little bearing on the sell-offs of 14 large enterprises decided upon more than a year ago. Their sales are moving rapidly, and government officials hope that they will be largely completed by the end of the year -- thereby adding to the private sector's dominance of Armenia's economy.

Ashot Markosian, deputy minister of state property, tells our correspondent:

"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."

Seven of the 14 enterprises -- including the Yerevan Jewelry Factory and a cement plant in the central Armenian town of Hrazdan -- have already been sold off. Bidding for several of the remaining businesses is in progress. Officials say foreign investors are interested in at least three state-owned factories producing precious and semi-precious stones, cement, and electronic equipment.

The electronics company, called Mars, is located in the southern outskirts of Yerevan. It was built and equipped with state-of-the-art production lines in the final years of the Soviet Union. For a variety of reasons -- the disintegration of the Soviet Union being one of them -- Mars was never able to operate at full capacity. The company has tried to remain afloat by leasing part of its premises to a Swiss-Armenian joint venture and to a pharmaceutical firm partly owned by the giant Glaxo Wellcome company.

One local and two British companies are now competing for control of Mars. A government commission overseeing the privatization has recently extended the deadline for the submission of bids to September.

Another company attracting foreign interest is Ararat Cement, based in the town of the same name in southern Armenia. Among its potential buyers is Switzerland's Holsim group, a leading international producer of construction materials. Deputy State Property Minister Markosian says Ararat Cement's new owner will be selected within the next few months.

The privatization process has also been accelerated by the government's recent decision to sell its 50 percent stake in Armgold, an Armenian-Indian joint venture that 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 is not, the government will sell its share to the highest outside bidder.

But in Armenia, the privatizing of major enterprises remains subject to populist rhetoric, which for years has helped create a negative attitude about privatization in general, and foreign investment in particular, in the public at large. Armenian newspapers often provided space to opposition politicians to denounce the government's plans to privatize the energy sector. It is unlikely the same media will be any more positive about the forthcoming privatizations.

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, when neither of two short-listed Western companies submitted a bid.

Privatization problems are compounded by the fact that some of the enterprises now up for sale are managed by prominent politicians who oppose the present government. 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 People's Party leader Stepan Demirchian.

Some analysts suggest that President Robert Kocharian is eager to strip his opponents of their economic base to ensure his re-election in 2003. Whether this is true or not, the coming sell-offs will inevitably take on a political dimension.

The first warning signal came earlier this month, when Minister for State Property David Vartanian accompanied senior representatives of the Swiss firm Holsim on a visit to the Ararat Cement plant. The group was forcibly barred from entering Ararat's premises by angry workers opposed to the company's privatization.

The problems confronting the privatization process also have to do with the overall state of the Armenian economy, which is still reeling from the collapse of the early 1990s. Deputy Minister Markosian says enterprises still owned by the state are hard to sell off because of their large debts, obsolete equipment, and the loss of traditional markets in the former Soviet Union. Some 1,200 small and medium-sized Armenian enterprises remaining under state ownership have so far been unable to attract buyers.

Armen Yeghiazarian is a former minister of economy who now heads the Association of Armenian Banks. He tells RFE/RL that even the privatized Soviet-era enterprises have yet to become successful businesses:

"We must decide what we should do with them because, essentially, they are not participating in [the country's] economic growth at the moment."

Deputy Minster Markosian, however, remains convinced that privatization is an essential step toward economic recovery. He says:

"We hope that after the privatization of these 14 strategic enterprises we will turn to other big [state-owned] companies."

But the sale of the 14 enterprises will leave the Armenian government with little else to privatize, except its energy utilities. The private sector already accounts for more than three-quarters of the country's gross domestic product (GDP). With that in mind, economists say that reforms should now focus on the improvement of the business climate in Armenia -- which means ensuring the rule of law and fighting rampant corruption.