Chinese Companies in Georgia: Sanctions, Delays and Concerns

Chinese state-owned engineering companies have been entrusted with numerous ambitious infrastructural projects in Georgia. Despite the stalled constructions and breached deadlines, analysts say the government remains loyal to many blacklisted and sanctioned companies, sometimes overpaying for projects that have overrun the schedule for years.

Khulo-Zarzma road project

In 2014, residents of the Khulo municipality asked Prime Minister Irakli Garibashvili to rehabilitate the Khulo-Zarzma road, which provides a direct road connection between the Samtskhe-Javakheti and Adjara regions of Georgia. Locals hope the road will boost tourism by connecting the Beshumi mountain ski resort to Batumi and Tbilisi.

The Roads Department of Georgia announced in 2016 that the rehabilitation of the road would begin in one year and would be financed by the Kuwait Fund for Arab Economic Development (KFAED). In August 2018, the Italian company TODINI COSTRUZIONI GENERALI S.P.A. won the tender worth GEL 110.2 million to build the 42-kilometer section of the road. But the contract was terminated in February 2020: the Ministry of Roads said the company had failed to “mobilize and carry out the works required by the contract.”

A few months later, the renewed tender was won by the Chinese state-owned company Sinohydro Corporation LTD. Since 2013, Sinohydro has been working on the Tbilisi-Rustavi road, Samtredia-Grigoleti highway, the Rikoti highway, the Kobuleti bypass, the construction of the Zemo Osiauri-Chumateleti section, and several other contracts. While working on these projects, the Ministry of Environment estimated that the company caused GEL 2.8 million worth of damage to Georgia’s environment, for which it was fined a mere GEL 49 thousand, watchdogs say.

The company has a questionable international track record. In 2014, the World Bank temporarily blacklisted Sinohydro in Africa for project irregularities. Similarly, in 2017, the African Development Bank blacklisted the company for fraudulent practices in Uganda. The Georgian organization “Young Barristers” published a report in 2018 highlighting Sinohydro’s misconduct both locally and internationally, noting that in public procurement processes, Sinohydro would provide a low-cost bid to win the tender and later would implement the projects with significant flaws due to lack of resources.

Sinohydro Corp. LTD was supposed to complete the Khulo-Zarzma project in 2 years with only GEL 95.7 million. In August 2023, an MP raised concern about the timely completion of the works, but there was no official response from the government.

In September of the same year, the European Investment Bank reached a settlement agreement with Sinohydro to address misconduct in five EIB-financed projects, including those in Georgia. The company was excluded from EIB-financed projects for 12 months, starting 30 August 2023.

Finally, after three years and a court case against the state initiated by the Chinese company in November 2023 (there is no publicly available information on what prompted the court case), on January 15, 2024, the Georgian government decided to terminate the contract with Sinohydro. According to Levan Davitashvili, the Minister of Economy and Sustainable Development of Georgia, the contract was terminated due to the company’s inability to fulfill its obligations within the agreed timeframe. With elections looking, the Georgian government said it plans to launch a new tender soon to find a company capable of completing the project within the current year.

Rikoti Highway

The Rikoti Highway is strategically important to Georgia, serving as a vital link between the eastern and western regions of the country. As a key transit route, the highway facilitates the transportation of goods from the Turkish border and the port of Poti to eastern Georgia. Work on the road began in 2019 and included the construction of 51 tunnels and 97 bridges. The government says the works would halve the 6-hour journey from Tbilisi to Batumi.

The road through the Rikoti Pass is part of the East-West Highway or the European Transit Road E-60, the second largest European transit corridor, starting in Brest (France) and ending in Irkestam (Kyrgyzstan). In Georgia, E-60 starts near the border with Azerbaijan and ends near Poti. The length of the corridor in Georgia is 392 km.

Four Chinese companies are involved in the construction of the road, which is divided into four sections. The table below provides a list of the contracted companies, including links to reports conducted by the watchdog “Civic Idea” which studies Chinese-Georgian relations, on three of these companies:

The entire project is financially supported by the World Bank, the EIB and ADB. The construction cost is GEL 2.6 billion, and the work was scheduled for completion in 2023. Yet, almost half of the road is still under construction. In October 2023, only the 27-kilometer Khevi-Shorapani section of the road, with its 65 bridges and 38 tunnels, was officially inaugurated by PM Garibashvili.

The works were plagued by landslides ( such as these ones, in June and July, 2023), which considerably slowed down the project. Geology experts voiced their concerns about the planning quality. There are also concerns about the reputation of the companies involved in its construction.

Civic Idea found several red flags:

• China Road and Bridge Corporation – The World Bank has sanctioned the China Road and Bridge Corporation for fraudulent practices in connection with the Philippines’ National Road Improvement and Management Program (NRIMP 1).
• China State Construction Engineering Corporation – The World Bank blacklisted China State Construction Engineering Corporation Ltd. in the Philippines for its involvement in collusive practices and a corruption scandal involving the Philippine NRIMP 1 Program. In 2020, the Trump administration accused CSCEC of cyber espionage and banned U.S.-registered companies from becoming shareholders in CSCEC.
• HUNAN ROAD AND BRIDGE CONSTRUCTION GROUP CO LTD – Due to their poor construction, the 328-meter Tuojiang Bridge in China collapsed in 2009. As a result, 64 people died, 22 were injured, and the economic loss reached 39.747 million yuan (about 6 million U.S. dollars). 20 local government officials and HNRB board members were sentenced to 19 years in prison in China for bribery, malfeasance, negligence, and racketeering.

In Georgia, the workers complained about poor working conditions and went on strike several times. There were deadly incidents, too, notably in June and August 2023.

Other concerning companies

The Civic Idea also points to other companies that are not part of the large projects, but whose active involvement in Georgia, they say, should be the cause of concern:

• Nuctech Company Limited (serves the borders of Georgia with a scanning system) – In 2009, the European Union accused Nuctech Company Ltd. of dumping and imposed anti-dumping duties on imports of Nuctech scanning systems. In the United States, the Transportation Security Administration (TSA) initially banned Nuctech’s equipment in 2014 and, based on its international experience, presented a detailed review of the company’s misdeeds in a secret document, which led to restrictions on its services by various countries. One of the last was Lithuania, whose authorities officially decided in 2021 to ban the supply of Nuctech equipment to three international airports in Lithuania.
• CEFC China Energy Co – Ye Jianming, former head of CEFC China Energy Co, was charged in the US in 2017 with several crimes, including bribery. In 2018, the Chinese state investment company took control of CEFC’s foreign assets after Jianming’s disappearance. Despite CEFC officially declaring bankruptcy in 2020, Georgia’s government and courts, allegedly influenced by individuals tied to the businessman Ivane Chkhartishvili and Bidzina Ivanishvili, have not acknowledged the bankruptcy documents. The Poti Free Industrial Zone, owned 75% by CEFC, remains in the company’s possession.

Closer to China, further from the West?

In recent years, Georgia has strengthened its ties with China, culminating in signing the agreement on Strategic Partnership. This has raised concerns among Georgia’s Western partners. Tina Khidasheli, who leads Civic IDEA says there is a risk of economic dominance of the Chinese companies in Georgia, but finds more worrying that the political practices may converge with the Chinese model, too.

Echoing the concern during an interview with Forbes Georgia in 2020, the Ambassador of Poland to Georgia, Mariusz Maszkiewicz, commented on the construction of highways in Georgia and said the Ambassadors’ Club of Georgia “was a bit surprised” when it found that Georgia decided to cooperate with China, while using EU funds. Questioning whether price alone is the best evaluation criterion when deciding on the best bidder, he said: “We have very good companies in Austria, Germany, Poland. We can offer high quality at a reliable price”.

Mari Imerlishvili/Civil.ge

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