Barriers Proposed for Foreign State-Run Companies in Georgian Privatization

Economy Minister Kakha Bendukidze’s ‘wide-scale privatization’ policy might be hindered by the Parliament.

The Parliamentary Committee on Sector Economics approved a proposal on September 24 to restrict the selling of more than 25% of the total shares of any Georgian state-run facility to the foreign state-owned companies. The draft law may seriously hamper the Economy Ministry’s wide-scale privatization process.

In an interview to Civil Georgia MP Gia Natsvlishvili of the ruling National Movement party and co-author of the draft law, made no secret regarding his opinion that that the proposal is mainly politically-motivated.

“The draft law aims at restricting the participation of particular companies, like the state-run Russian energy giants Gazprom and Uniform Energy Systems, in the privatization process, so as to avoid Georgia’s direct energy dependence on Russia,” he said.

According to the law on privatization the Georgian state is restricted from purchasing more than 25% of the shares of the companies. MP Gia Natsvlishvili says that this restriction should be in force regarding foreign state-run companies as well. “So both the local and foreign state-run companies will fall under equal conditions,” he said

“At the same time, it is very important to encourage the attraction of private capital, instead of the state capital. The latter very often turns into leverage for political pressure. This initiative restricts the participation of state capital, which, as a rule, is always politicized, while private capital takes up the initiative,” MP Gia Natsvlishvili added.

The Ministry of Economy has already expressed his protest regarding the new proposal. “We are doing our best to attract as many foreign companies to Georgia as possible and, by adopting such laws, we actually push them away. They will have no willingness to invest money in Georgia,” Georgian Deputy Economy Minister Natia Turnava said.

Opponents of the draft law exist among the Parliamentarians as well; it particularly seems that no unanimous position persists in the ruling coalition. MP Shota Gvenetadze of the National Movement is a member of both the Parliamentary Committees on Finances and Sector Economics. He told Civil Georgia that the proposal is purely politically-motivated and “from an economic point of view the draft law is absolutely unjustified.”

“Any unfriendly country can easily impose an economic blockade if it wishes, even through private investors. Therefore, we cannot close the economic space. On the contrary, we should attract as many investors as possible from our neighbors or other countries, including state-owned companies, if they establish business relations with our country, pay taxes and meet their commitments to Georgia honestly,” MP Shota Gvenetadze said.

Representatives from the Russian energy giant GazProm were visiting Tbilisi on September 22. According to unofficial reports, GazProm is eying the Tbilisi gas distribution company Tbilgazi. However Davit Morchiladze, General Director of Tbilgazi, as well as the Tbilisi Municipality, which owns 96% of the companies shares, denied these reports on September 24.

Currently the Ministry of Economy is holding talks with various companies from Russia, Turkey, Israel, Azerbaijan, Ukraine, Turkmenistan and Kazakhstan over selling 372 enterprises which have already been placed on the privatization list. A list of state-run enterprises which will be privatized within the next two years includes the Rustavi Metallurgical Plant, a manganese mining enterprise in Tchiatura, state-owned shares of Georgia Telecom, airports in Tbilisi and Batumi, as well as hotels and sanatoriums in the Adjara Autonomous Republic.

Since the launch of the first stage of privatization, 21 facilities have been sold through an auction in the Adjara Autonomous Republic. The Ministry of Economy has welcomed the process as “successful.”