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Caucasus Report: June 25, 2001

25 June 2001, Volume 4, Number 23

ARMENIAN PRIVATIZATION EFFORT 'MOVES FORWARD.' The failure of international bidding for electric utilities may have been a major setback for the decade-long privatization process in Armenia. But it does not appear to be having a major impact 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 more or less 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," said 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 underway. 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, Mars, is located in the southern outskirts of Yerevan. Built and equipped with 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 USSR 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 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 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 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 a highest outside bidder.

Yet even this process is not unaffected by populist discourse, which is contributing to 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 the 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 in order 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 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 the Hayelektro engineering giant, which is also awaiting privatization.

Some observers believe that President Robert Kocharian is keen to strip his rivals of their economic base to ensure his re-election 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 and senior Holsim representatives were 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.

Many Armenians feel that the $205 million paid for the national telecom operator by a Greek firm or the $30 million netted from the sale of the Yerevan cognac distillery in 1998 was a rip-off, but 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 during the Soviet era 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, which is still reeling from the collapse of the early 1990s. Markosian says the remaining state firms are hard to sell because of their huge 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 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 the 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. A separate government commission is deciding its fate. (Emil Danielyan)

IS GANTEMIROV BEING GROOMED FOR CHECHEN PRESIDENCY? One month ago, on 17 May, Beslan Gantemirov announced his resignation as mayor of Grozny, explaining that he could no longer work together with such a "strong-willed" individual as Chechen Prime Minister Stanislav Ilyasov. At that time, Gantemirov told "Kommersant-Daily" that he had received other offers of employment, ranging from deputy premier to deputy presidential envoy. One month later, on 14 June, Gantemirov was promoted to the post of a chief federal inspector on the staff of Viktor Kazantsev, presidential envoy to the South Russia federal district.

The appointment of an ethnic Chechen to such a post is in itself surprising; but the choice of Gantemirov is even more so given the vagaries of his previous career. Gantemirov was born in 1963 in the then Checheno-Ingush ASSR and studied law before entering the republican Ministry of Internal Affairs. He worked his way up through the ranks to head the OMON special police detachment, then was named mayor of Grozny and chairman of the municipal council in the early 1990s by then President Dzhokhar Dudaev. But in 1993 Gantemirov broke with Dudaev and joined the ranks of the Chechen opposition, simultaneously creating his own paramilitary band which participated in the shambolic attempts to oust Dudaev in the fall of 1994.

After the federal forces took Grozny in 1995, Gantemirov was again appointed city mayor, but one year later, in April 1996, he was dismissed and arrested on charges of embezzling millions of rubles allocated for reconstruction. He remained in jail for three years, finally being sentenced in April 1999 to six years imprisonment on those charges even thought the court failed to prove his guilt. Gantemirov later said he had been made "a scapegoat" for senior Russian officials who had creamed off millions of rubles intended for reconstruction.

In November 1999, then Russian President Boris Yeltsin amnestied Gantemirov (see "RFE/RL Caucasus Report," Vol. 2, No. 46, 18 November 1999) who returned to Chechnya and again recruited a band of fighters who fought alongside federal troops in the battle for Grozny. When the city fell in late February last year, Gantemirov was named deputy to Russian government representative in Chechnya Nikolai Koshman; in June he was named deputy to Akhmed-hadji Kadyrov, and in October, after two highly publicized personality clashes with Kadyrov, he was appointed Grozny mayor for the third time.

Gantemirov's value to the Russian leadership presumably lies in his implacable enmity towards "terrorists" (he was quoted by "Izvestiya" last month as saying that "wiping out terrorists should become a Russian tradition") and his consistent rejection of any negotiations with Chechen leader Aslan Maskhadov on ending the war in Chechnya. "Kommersant," which on 2 June had predicted his most recent appointment, interpreted it a possible indication that Gantemirov is being groomed as a possible pro-Russian Chechen president.

Gantemirov himself has said on more than one occasion he considers himself qualified for that post, although in January 2001 he told Interfax that he had decided to support Kadyrov's candidacy for that post, rather than contest it himself. Consistency is not, however, one of Gantemirov's strongest points: he originally registered to contest the August 2000 ballot for Chechnya's Duma deputy, but later withdrew (see "RFE/RL Caucasus Report," Vol. 3, No. 33, 18 August 2000).

Announcing Gantemirov's appointment, Kazantsev told journalists his duties in his new position include drafting a new constitution and helping to organize elections to a new Chechen parliament. Koshman had predicted in February 2000 that those elections, and elections for a new Chechen leader, would take place in late 2000 or early 2001; Russian Central Electoral Commission Chairman Aleksandr Veshnyakov said on 19 June that "it may be possible" to have municipal elections in Chechnya next year, but added that a new Chechen constitution needs to be drafted before such elections can take place.

Gantemirov will also monitor relations between the local population in Chechnya and the Chechen diaspora and liaise with Russian and international organizations providing humanitarian aid to Chechnya. Those duties should give his patrons in Moscow a chance to assess his organizational and diplomatic skills, and to decide whether he is indeed suited for the role of Chechen leader. (Liz Fuller)

QUOTATIONS OF THE WEEK. "People who try to solve even very complicated ethnic and religious problems by force of arms are not worthy of support from the international community." -- Russian President Vladimir Putin, speaking in Ljubljana on 16 June (quoted by Interfax).

"Constitutional and human rights in Chechnya will be restored resolutely and irreversibly." -- Russian army Chief of General Staff Anatolii Kvashnin, quoted by Interfax (19 June).