PINT-SIZED PRIVATIZATIONS UNDER WAY WHILE

C O N F I D E N T I A L SECTION 01 OF 02 MINSK 000696

SIPDIS

SIPDIS

E.O. 12958: DECL: 08/13/2017
TAGS: ECON PGOV PREL BO
SUBJECT: PINT-SIZED PRIVATIZATIONS UNDER WAY WHILE
BELARUSIAN REGIME DENIES REALITY

REF: A. MINSK 620

B. MINSK 250

Classified By: DCM Jonathan Moore for reason 1.4 (d).

Summary
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1. (C) August could become a relatively significant month for
privatizations. An Austrian company apparently fronting for
Belarusians will purchase a controlling packet in an ailing
bicycle factory. More significantly, potential investors
submitted bids for one of the country's largest breweries.
However, the failure of the GOB to accept offers for Belarus'
cement industry suggests larger-scale sales of state property
will come only when state coffers begin to run bare. End
summary.

Tour de Farce: "Austrians" to Prop Up Bicycle Plant
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2. (C) On August 2, media reported the Austrian company ATEC
Holding GmbH would pay USD 7.3 million for a 99 percent stake
in Motovelo, an unprofitable bicycle plant in central Minsk.
Aleksandr Chubrik of the Institute for Privatization and
Management Research Center (IPM) and Yaroslav Romanchuk,
Director of the Mises Research Center, independently told
Acting Pol/Econ Chief that ATEC was likely a cover for
Belarusian interests. Romanchuk argued Motovelo's location
provided the motivation for the purchase. He predicted
bicycle production would continue due to political
considerations, but the new owners would profit by converting
much of the desirable land to office space.

Bottoms Up to Brewery Privatization
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3. (C) In a more significant move for the economy as a whole,
the President appears on the verge of authorizing the
privatization of one of the country's largest breweries,
Krinitsa. Nikolay Dudko, the Director of private competitor
Olivariya, reasoned that Krinitsa had taken on so much debt
to modernize that privatization was the only option to pursue
further upgrades. He estimated the privatization could bring
up to USD 500 million for the GOB.


4. (C) Dudko said the Golden Share rule, which allows the
government to renationalize from state property, did not
hinder privatization of breweries. With the market expanding
at a rate of 20 percent annually, all breweries could expand
production, satisfying the GOB's desire to see the food
processing section double its output during the 2006-10 five
year plan.


5. (C) Sergey Levin, Director of the private Detroit Belarus
Brewing Company, said Lukashenko and an army of mid-level
bureaucrats opposed privatization. Yuriy Slepich of
Priorbank (owned by Austria's Raiffeisen bank) and a member
of Krinitsa's board of directors by virtue of the bank's
loans to the brewery, noted that one bidder for Krinitsa paid
a substantial sum to a consultant. The sum was supposedly to
properly value Krinitsa. Romanchuk believes private
interests with ties to the government have a personal stake
in the privatization, and commented that Austrians do not
invest unless they have good connections.

Bureaucrats May Still Tell Brewers How to Make Beer
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6. (C) Sergey Zhbanov, economics correspondent with the
independent weekly "Belgazeta," said demands by the
government that breweries use domestic hops would scare off
any Western investor interested in producing a quality
product. Levin also complained of frequent demands from
state organs that his company's Bobruysk brewery buy
Belarusian. The resulting inefficiencies among local brewers
allow Russian importers to command 15 percent of the market,
whereas in most countries importers have only a one-percent
share, according to Dudko.

Cement Plant Privation Talks Fail to Bring Concrete Results
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7. (C) Roman Osipov, Head of Investments at Uniter
Investments, told Acting Pol/Econ Chief earlier in the year
that foreign companies were considering purchasing stakes in
Belarus' cement industry. However, on July 27, Lukashenko
announced Belarus would seek USD 600 million in loans to

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modernize (although the GOB will consider allowing the
construction of up to three new private cement factories).
Irina Tochitskaya, Deputy Director of IPM, cited the decision
to keep existing plants in state hands as an indication that
the government did not have a clear intention to push forward
with privatizations.

Comment: The Main Event is Still to Come
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8. (C) The privatization of relatively small employers in
sectors viewed by Lukashenko as non-strategic shows some
movement away from almost paranoid state control of the
factories. The resolution, at least temporarily, of
inter-clan struggles within the regime (ref A) may have at
last provided the dictator with breathing room to sign off on
even these small-scale deals. However, prospects for more
privately produced beer and bicycles do little to change
earlier forecasts (ref B) that Lukashenko will look at more
serious sales only when energy price increases begin to hit
the economy even harder.
Stewart