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TBILISI: Russian Owned Madneuli Plans New Investments In Georgia

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  • TBILISI: Russian Owned Madneuli Plans New Investments In Georgia

    RUSSIAN OWNED MADNEULI PLANS NEW INVESTMENTS IN GEORGIA
    Levan Lomtadze

    The FINANCIAL
    Sept 1 2008
    Georgia

    The FINANCIAL -- The Russian-Georgian war was a big test for the
    companies operating in Georgia. Some of them started thinking about
    whether or not it would be profitable to stay in the Georgian market,
    but this was not the case for Russian giant - mining company Madneuli,
    the winner of the most influential award in Georgia, Golden Brand 2007.

    "Madneuli is committed to continue business activities
    in Georgia. Additionally, we are planning to open a new pit in
    Sakdrisi soon. Recently the company opened the Balichi pit and we are
    conducting research in one of our potential pits in Racha, and soon
    another research is coming to the Adjara region," Nikoloz Avaliani,
    Marketing Department of Madneuli, told The FINANCIAL.

    "We have information that foreign investors are going to raise
    investments in the country, especially long-term investments,"
    said Avaliani.

    One of the prior activities of Madneuli is the implementation of social
    projects. In 2007-2008 the amount for charity funds and sponsorship
    of Madneuli will exceed USD 3 million.

    In this difficult situation when there are tens of thousands of
    refugees who need help, Madneuli was one of the first companies that
    contributed a huge amount in order to help the displaced people from
    the conflict zones.

    "In the days of war we visited almost all the hospitals in
    Georgia. Quartzite with Madneuli bought medicines, food, water and
    beds for the refugees and injured people. Also it should be noted
    that we are planning to donate much more to the cause in the near
    future. I think the total amount contributed will exceed GEL 1
    million," Avaliani noted.

    Madneuli is going to actively continue operating in Georgia and
    further more they are going to put more effort into searching for
    new resources.

    Despite the war Madneuli didn't halt its production process. The
    working schedule was not changed because of the conflict. Madneuli
    uses railway to transport products to the seaport Poti, from where
    it goes to different countries.

    According to the Marketing Department of the company the war did not
    have an effect on sales because it coincided with time intervals when
    production is collected and packed for transportation.

    "Now as we know the railway is functioning properly and Madneuli is
    running continuous production process," claimed Avaliani.

    The company also guaranteed the safety of its workers.

    "The Madneuli factory is far away from the conflict zone. It should
    be mentioned that all workers of Madneuli are insured and well
    equipped. During the war special security measures were fulfilled,"
    said Avaliani.

    It seems as though there were minimal or no losses at Madneuli during
    the conflict. "As our production was not interrupted the losses are
    minimal or perhaps even zero, but it is still too early for exact
    calculations."

    According to the company the partners of Madneuli actively paid
    attention to statements made by European leaders and US officials. As
    these statements were in support of Georgia, foreign partners do not
    see reason to worry in the long-term. Furthermore as EBRD and other
    financial institutions released their readiness to raise financial
    injections in Georgia this was signal to all of the partners that
    business conditions in the country are rather good.

    In the first quarter of 2008 the company sold a record USD 50 million
    worth of production. After this data Madneuli became #1 exporter of
    the country. In 2005, 2006 and 2007 the net incomes of the company
    were USD 18,063,968 million, USD 47,745,547 million and USD 15,159,565
    million respectively.

    The company was established in 1975 in the Bolnisi region,
    Georgia. Madneuli contributes more than 10% of Georgian
    exports. Madneuli is operating in gold and copper markets. Over 65%
    of the company revenues come from sales of copper. Madneuli's primary
    focus is on copper because of the experience with and the prospects
    for this metal. The company exports to France, the UK, Germany,
    and Austria.

    The major shareholder of Madneuli is Russian resources holding company
    Geopromining. In Georgia Geopromining owns Madneuli and Quartzite.

    According to Armenian newspaper Hetq online Madneuli is a sister
    affiliate of the Prominvest Corporation whose principal owners are
    Sergei Generalov and Siman Poverenkin.

    Along with Madneuli Russian capital including the banking sector,
    energy, oil, mobile communications, plants, air companies - have all
    felt at comfort in Georgia up till now. During the conflict, which
    is widely expected to be resolved, VTB , Beeline, Telasi and LUKOIL
    worked normally and did not come under attack by the local population.

    The only non-functioning body with Russian capital is the Azoti plant,
    though the reason has nothing to do with war as the plant is undergoing
    renovation works.

    Georgian-Russian company Energy Invest acquired Azot in 2005 for USD
    20 million.

    Energy Invest, which owns fertilizer company Azoti, located in Rustavi,
    35 km from Tbilisi , told The FINANCIAL the only reason why the Azoti
    plant has stopped now is because of the renovation works being carried
    out there.

    "Georgia will not attempt to re-nationalize assets owned by Russian
    companies such as UES, Vimpelcom or VTB following its conflict with
    Russia," the Georgian Deputy Prime Minister Giorgi Baramidze told
    mergermarket, according to the Financial Times.

    Economic expert Soso Tsiskarishvili said that the Georgian government
    should be able to think ahead carefully before making decisions. Today
    in Russia there is no big Georgian business capital, but there's a
    huge physical capital which is in danger. The Georgian government
    can't risk the lives of these people.

    In order to adequately react to Russia's actions, every vague
    transaction that was made with Russian companies should be
    overlooked. There are many questions regarding the legal aspects of
    the contracts with which economically strategic units were sold.

    Vakhtang Khmaladze, the well known Georgian expert, believes that when
    economically strategic units in Georgia were being sold to Russian
    companies the legal rights of the Georgian and Russian companies
    weren't equal. "According to Georgian legislation those foreign
    companies whose main shareholder is the government of another country,
    have the right for acquisition. While in Russia the legislation forbids
    acquisitions by these kinds of companies because of political threats."

    Today the Georgian government is less likely to start nationalization
    of property belonging to Russian corporations, Khmaladze says. "A more
    realistic solution would be to use Georgian legislation. There are a
    number of Russian corporations whose main shareholder is the Russian
    government and own strategically important units in Georgia. The
    law should oblige them to sell their property to other non-Russian
    companies. The price at which the companies will be sold must be a
    competitive price, which will be beneficial for the Russian side too."
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