TBILISI: Georgia's President Mikheil Saakashvili conceded defeat on Tuesday in parliamentary elections to a coalition led by a tycoon who has promised to ease tensions with Moscow, four years after the staunch U.S. ally lost a war with Russia.
Saakashvili's acceptance that his party will go into opposition to billionaire Bidzina Ivanishvili's Georgian Dream raised the chances of the country's first peaceful transfer of power between rival parties since the Soviet Union collapsed in 1991.
But although it strengthens Georgia's democratic credentials, it could lead to an uneasy cohabitation between Ivanishvili, who is likely to become prime minister, and Saakashvili, who is due to step down as president next year.
Instability in the Caucasus country would worry the West because it is a conduit for Caspian Sea energy supplies to Europe and has a strategic location on the Black Sea between former Soviet master Russia and Iran, Turkey and central Asia.
"According to preliminary results, it is clear that Georgian Dream obtained a majority in this election," Saakashvili said in a televised address. "This means that the parliamentary majority should set up a new government."
"Despite a very polarising campaign that included harsh rhetoric and shortcomings, the Georgian people have freely expressed their will at the ballot box," Tonino Picula, who led a mission monitoring the vote, said in a statement.
Georgian Dream supporters had already marked their victory, waving flags and sounding car horns in the capital Tbilisi on Monday in celebrations evoking the euphoria of the 2003 Rose Revolution that propelled Saakashvili to power.
"I expected this result. Justice has finally been restored," I believe that Bidzina will make our lives better," said Nino Kantaria, 42, in central Tbilisi. "This is not a time for protests, it is a time for celebration."
Defeat for the ruling United National Movement (UNM) was a heavy blow for Saakashvili, who was brought to power by the bloodless revolution that swept away the Soviet old guard but drew his nation into a humiliating five-day war with Russia in 2008.
Tbilisi resident Zaira Khabuliani said she was hopeful of change for the better but was unsure of the opposition's ability to govern, adding: "I don't know how Ivanishvili will behave and what he will do for people."
Ivanishvili, a once reclusive businessman who built his estimated $6.4 billion fortune in Russia, said he was confident of becoming prime minister as partial election results put Georgian Dream on course to victory.
Saakashvili had said Georgian Dream would move the country of 4.5 million away from the West and back into Moscow's orbit, suggesting Ivanishvili would do the bidding of the Kremlin.
Ivanishvili, 56, denied this and said Saakashvili was raising the spectre of a Russian plot to avoid addressing internal problems.
But he said he was better placed to mend relations than Saakashvili, who is depicted by the Kremlin as a unbalanced hothead and whose years in power have brought war, the severing of diplomatic ties and Russian bans on Georgian wine and mineral water.
"We'll do our best to sort out relations with Russia," Ivanishvili told reporters but added: "Our main aspiration is Europe and our security is NATO."
Governing the country could be much more difficult as, until Saakashvili's term ends next year, the president will no longer have a compliant parliament and his ability to work with Ivanishvili is unclear.
Saakashvili said he would accept the will of the majority but that he considered some of Georgian Dream's views are "fundamentally unacceptable" and saw "very deep differences between the opposing parties".
"My political plan is very simple," Ivanishvili said in televised comments before Saakashvili's concession speech. "When our victory is officially confirmed, I hope ... parliament will approve me as a prime minister."
Under reforms that take effect after a presidential election next year, the authority of the head of state will be weakened and more power will go to parliament and the prime minister, who will become the most powerful executive official.
Ivanishvili, who has little experience in politics after giving up his business career only a year ago, set out plans he would pursue as prime minister, saying a balanced budget would be a priority.
He said the diverse six-party Georgian Dream might split up into as many as three factions in parliament but that "we all have a common vision on all the main issues".
Ivanishvili had claimed victory after polls closed on Monday. The UNM also said on Monday it thought it had won but its hopes faded as the official results trickled in.
U.S.-educated Saakashvili curbed corruption and presided over an economic resurgence, but the war with Russia set back efforts to bring Georgia into NATO and gain control over the Moscow-backed breakaway regions of South Ossetia and Abkhazia.
Opponents say he has monopolised power, mistreated opponents and trampled on rights and freedoms. Video footage of torture, beatings and sexual assault of prison inmates, aired by opposition channels before the election, had led to protests.