BELARUS NEWS AND ANALYSIS

DATE:

18/11/2008

Privatisation: A cautious welcome for foreigners

By Jan Cienski in Minsk

In countries from Poland to Ukraine and Russia, the signal that a country was shifting from communism to capitalism came when the government began to privatise state assets - and because Belarus never really switched systems, it never sold off its state companies.

But now the government, which controls about 75 per cent of the economy, is thinking about selling some of its largest companies and the reason has little to do with any kind of systemic transformation. The official rationale is that Belarus needs to maintain its growth.

Andrei Kobyakov, the deputy prime minister, says that prior to 2005 the country was building the economy it inherited from the USSR, and "now we need new technology and partners who can add to our wealth".

But the more likely reason is that Belarus is undergoing financial pressure as Russia increases prices for natural gas that fires much of the Belarusian economy.

Some initial sales have already been made, although not always willingly. Last year, Russia's Gazprom agreed to pay $2.5bn for a 50 per cent stake in Beltransgaz, the Belarusian pipeline operator. The move was made possible by Belarus's growing debts as it struggled to pay for more expensive gas and helped cement Russia's control of the Belarusian economy.

The prospect of selling most of its industries to Russia now has Minsk casting about for buyers from other areas. Last year, in a complicated transaction involving Cypriot-based third parties, Belarus sold its second-largest mobile operator to the Telekom Austria Group for $1bn and this year it sold the third-largest operator to Turkey's Turkcell for $500m.

Nikolai Zaichenko, economy minister, says the plans to sell up to 600 companies within three years should add $1.8bn in revenues to this year's budget.

The government has taken steps to make it easier to sell off state companies, including getting rid of a golden share rule that allowed it to intervene in both public and private companies and allowing the foreign stake in local banks to rise from 25 to 50 per cent. It is also preparing plans to sell 25 per cent of the country's two largest banks, Belarusbank and Belagroprombank, with a controlling share to be sold in two smaller banks.

"The banking sector is the testing ground for privatisation in the Belarusian economy," says Vasily Matyushevsky, the deputy chairman of the central bank.

But Belarus has picked an awful time to begin presenting its wares to the outside world. Investors have lost much of their appetite for risk, and emerging markets are out of favour. Belarusbank had to push back plans to sell off a 10 to 15 per cent minority stake and a eurobond issue.

"We were ready but after the start of the crisis we shifted until the beginning of next year," says Vladimir Novik, the deputy chief executive.

Investors have noted the change in the official attitude toward privatisation. Atilla Boros, chairman of OKD Doprava, a private Czech rail transport company, is looking at buying a rail terminal on the Belarusian-Polish border. "We found we could talk business relatively easily with the local government people," he says.

But the dash for cash comes with a lot of strings attached, especially for the largest state-controlled companies. Mr Kobyakov stresses that, despite the financial pressure, Belarus is not rushing into anything. State companies that need money to modernise are reluctant to give up much equity or to change their traditional way of doing business in return for cash.

At Neman glass works, a glassmaker in the west of the country, Ira Klishevich, the finance director, is looking to buy more modern equipment to reduce the company's gas usage. When asked whether that means the government should allow an investor to buy part of the company she looks incredulous: "Neman is Neman. We will take a loan but we would never sell off part of the company, it is ours."

In the nearby city of Grodno, the Grodno Azot fertilizer factory needs $1.2bn to expand production, but management baulks at the idea that a new partner would demand the company get rid of the one-fifth of workers who run the company's Soviet-style day care centres, worker recreation facilities, hostels and children's camps.

"Any investor would be able to make a profit, but would also have the responsibility not to fire people and to support the social area. That is part of our tradition," says Alexander Radzevich, the factory director.

Despite the pressure from higher energy prices, privatisation is likely to be careful and slow.

"That won't be a landslide all-out privatisation typical for the post-Soviet republics," Alexander Lukashenko, the president, said in a recent interview. "That will be a pin-point privatisation. We shall negotiate every particular enterprise on a case-by-case basis."

Source:

http://www.ft.com/cms/s/0/484c1c76-b431-11dd-8e35-0000779fd18c.html

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