Q&A with Minister of Economic Development
On March 13 Civil Georgia interviewed Economy Minister Lexo Alexishvili regarding the current privatization process in the country. On March 15 the Economy Minister published a list of facilities that included both the metallurgical plant and Azot chemical factory in the town of Rustavi near Tbilisi as well as oil-processing plants and the oil terminal in Batumi. According to the Economy Minister, the state budget will receive at least 400 million Lari from this privatization process this year.
Minister for Economic Development of Georgia Lexo Alexishvili also said that the Georgian authorities are not currently focusing on privatization the country’s gas pipeline system. Speculations over this issue have been widespread since President Saakashvili said in February that talks are underway with Russian energy giant Gazprom over privatization of this gas pipeline system.
Lexo Alexishvili also reviewed planned economic reforms, in particular the process of deregulation, and commented on the increase in consumer prices. According to him, the current level of inflation “does not pose a serious threat; however it is better to maintain it at a lower level.”
Q.: What are the government’s plans over trunk pipelines – will they be privatized? Are there any talks over selling the pipeline system to Gazprom?
A.: At this stage the government is not planning to sell the gas pipeline system. The authorities have received a proposal with Gazprom over privatization of the gas pipeline system. If the Georgian government pushes this issue of privatization forward, the company [Gazprom] is ready to participate in this process. We have already discussed their proposals.
We have not accepted a final decision over the sale of the gas pipeline system yet. There is no need to dramatize the issue. Gazprom had simply submitted its proposal and we had to discuss it.
Since this gas pipeline on the list of strategic facilities and the law prohibits privatization of such facilities, we [the government] cannot accept any decision unilaterally. This issue also needs to be discussed in frames of legislative amendments. So, we can not sell it so simply and the issue is not on the agenda.
Q.: What are the government’s plans regarding the privatization of various energy facilities?
A.: We are developing a plan which envisages this process. I cannot speak about the details now, since we have not finalized it yet. A new model is being elaborated which envisages the privatization of the United Power Distributing Company and the power generation facilities as one privatization package. This is a very interesting and good model.
Also noteworthy is the fact that it [privatization of energy facilities] will be a very long process, which will enable us to intensively work with potential buyers and, on the other hand, this process will enable us to finalize an ultimate model of privatization for these facilities.
Q.: Will Russian companies be able to participate in the privatization process of the energy facilities?
A.: It does not matter whether it is Russian or American or any other company. We speak about privatization which should provide an opportunity for effective management and the achievement of specific results. By these I mean: energy supplies should improve in Georgia and the population should be provided with round-the-clock electricity supply. We should put an end to the energy crisis – this will be the major demand [for the potential buyers].
Q.: Which state-owned facilities will be privatized in the near future?
A.: We will start accepting privatization bids on March 15 for the metallurgical plant in Rustavi and the Azot chemical factory, as well as the oil-refinery plant and oil terminal in Batumi. The deadline for submitting privatization bids expires on May 1. All potential buyers will be provided with detailed information regarding each of these facilities.
Q.: Is the initial price of each of these facilities defined?
A.: Not yet; we expect to define prices in accordance with the submitted privatization bids.
Q.: Does the government plan to sell the Madneuli gold-mining company?
A.: We are intensively working over the privatization of this company. We will probably start accepting privatization bids for Madneuli starting in April.
Q.: Have the already privatized facilities, namely Chiaturmanganumi and the Ocean Shipping Co., been handed over to their new owners?
A.: According to the law, a ownership will only be transferred to a company after the company has paid the complete sum. Currently we are defining legal details which are difficult enough. Receiving these funds depends on the finalization of this legal process. Only afterwards will the facility be handed over to the new owner.
This process will end more quickly regarding the Ocean Shipping Co. – apparently in late March, or mid-April.
As for Chiaturmanganumi, it was clear from the outset that the process would be long and will be over by the end of this year.
Q.: How much has the budget received from privatization and how much does it expect to receive this year?
A.: The budget has already received approximately 47 million Lari and these funds have already been reflected in budgetary expenditures.
We expect that at least another 400 million Lari will be received this year from the privatization process. If this process runs smoothly, this amount may increase. However, according to preliminary calculations, this sum will total 400 million Lari.
Q.: As far as we know some changes are planned for the law on privatization. Specifically what kinds of amendments are proposed?
A.: According to the current law, if a facility is not sold during the initial attempt, its initial price is halved automatically. If it is not sold again, the price is halved again.
The amendments have been prepared, according to which the Economy Ministry defines whether to reduce the price and, if so, by how much to reduce the price.
This amendment will help avoid selling state-owned facilities at low prices. However, it has a negative side as well: the privatization process may be dragged out. However, we find it rather important to make sure that we are not selling particular facilities at artificially reduced prices. I consider these amendments to the law good initiatives.
Q.: Your predecessor – Kakha Bendukidze – was actively promoting liberalization of the economy. In particular, the active process of deregulating the economy was planned. What are the current developments in this regard?
A.: I think that the Economy Ministry obligation to remove all state burdens currently existing in the economy and deregulation process is of vital importance in this regard -this will provide private businesses free access the market.
Freedom in economy implies liberalization and the steps which are envisaged by reforms, particularly deregulation. Our attempts in this direction have been effective and we hope to yield particular results.
In terms of deregulation, first of all we are focusing our attention on the construction and transport sectors. It is quite possible to quickly and simply implement reforms in these sectors.
Special attention is being paid to the transport sphere, particularly in civil aviation. The government has adopted a decree which envisages special measures for liberalization in this sector. Bilateral agreements with foreign air companies include a great deal of restrictions, including a restricted number of flights, number of air companies, number of seats, etc.
According to an agreement reached with Britain, the Georgian and British air companies will decide the frequency and routes of flights themselves. Similar actions will be done with regards to other companies and countries.
Currently, Georgia is still failing to create a favorable market, although many companies have expressed willingness to operate flights into Tbilisi and use Tbilisi for transit purposes.
Deregulation of this sector aims to decrease ticket prices, on the one hand, and make Georgia an active point in the region for civil aviation, on the other.
We have already started to work towards this. We have sent letters through diplomatic channels. We are ready to launch talks. I have met with representatives of several air companies. They are ready to increase the frequency of flights here. Austrian Airlines will increase the number of its flights to three per week starting this summer. Turkish Airlines will also increase its flights to four per week, with further plans to increase this number up to seven. Flights on Turkish Airways will be conducted both from Tbilisi and Batumi.
Q.: The International Monetary Fund Mission, which visited Georgia from February 24 to March 7, noted the rise in 12-month consumer price inflation from 3.6% in June 2004 to 7.5% by the end-December and then to 9.2% at the end – January 2005. What is the main reason for this?
A.: The first reason is the increase in excise taxes. The second reason is a general consumption growth, i.e. the fiscal system has been settled, which means that the population is duly receiving their salaries. Consumption levels are stable and higher. This also had a particular influence on the increase of prices.
It is very important to define which commodity products have increased in price. This group includes tobacco products (due to the increase of excises) and real estate. Particular growth of the price of imported motor vehicles from Europe was also observed, which can be explained by the strengthening of the Euro against the USD.
Particular failures were observed in the sphere of agriculture during 2004, which triggered an increase in prices for several commodity products and a level of inflation, generally.
The current rate of inflation is not alarming and it can not cause serious damage to either the economy or to social groups.
Of course, the authorities should ensure against the increasing of this tendency. The authorities control the money supply and any danger that inflation will reach an undesirable level is effectively ruled out.
A 7-8% inflation rate does not pose any serious danger to the economy; however it is more desirable to maintain it at a lower level.