By the end of this week the Montenegrin privatisation agency is expected to narrow down the list of prospective buyers from eight to four or five.

"I am expecting Sual or Rusal (to be the buyer)," KAP's market analyst Goran Djukanovic told Reuters on the sidelines of a Metal Bulletin aluminium conference in Oslo. Djukanovic works as a senior adviser to KAP's top management.

Djukanovic said that he based his view on the degree of interest shown by the prospective bidders, not on knowledge about the preferences of the privatisation agency. He said Sual had been especially active, visiting KAP several times.

"Rusal has also visited, but not as often as Sual," Djukanovic said.

A week ago the privatisation agency said that eight buyers had shown an interest in buying KAP, which has an ingot smelter which aims to produce 120,000 tonnes this year, a 240,000 tonnes alumina refinery and related government-owned bauxite mines.

KAP accounts for half of Montenegro's industrial output and 80 percent of exports.

"Buying KAP is not just buying a company - it is (like) buying half of Montenegro," Djukanovic told the conference.

STRATEGIC PARTNER

Besides the Russian groups, the interested companies are Swiss-based commodities trader Glencore, Indian firm Vedanta Resources (VED.L: Quote, Profile, Research) , Germany's BAGR group, Austrian firm A-TEC, Monenegro's Vectra and Lithuania's Ukio Banko Investicine Grupe (UAB). Final bids are to be submitted by December 1.

Montenegro has said it wants a strategic partner with 2003 aluminium production of at least 120,000 tonnes or annual sales of at least 165 million euros. Financial investors could qualify only if they manage funds of at least 300 million euros.

The government has said it wants a buyer ready to invest at least 100 million euros to upgrade and develop the plant and improve its standard of environmental protection.

Djukanovic said it was clear that KAP would not be sold for cash, but for a commitment to invest and to assume debts to the Montengrin government, Vectra and international debt-holders.

The government has said that the buyer of KAP could also purchase the government's minority stake in a bauxite mine and get a concession to exploit bauxite ore to be processed only by KAP. Bauxite, which is refined into alumina, is the main raw material for aluminium.

Djukanovic said he believed that Montenegro's bauxite reserves, which he estimated at 70-80 million tonnes, would be the main attraction for investors in KAP which has 30-year-old production technology.