In February 2013 IDFI has addressed the Ministry of Economy and Sustainable Development of Georgia with the request of copies of agreements by which shares in the property of legal persons of private law have been donated (given as a gift) to the state in 2004-2013. As it becomes clear from the received information, in the period between 2006 and 2012 a number of legal persons of private law have given a gift of shares of their companies to the state. Some cases arouse questions concerning transparency and government pressure. 

 

Donation of Private Property to State

 

 

In September 2007 the Ministry of Economy and Sustainable Development of Georgia has auctioned “Borjomi Trade Centre – 2005” Ltd., with initial price of 190 000 USD. As a result of the auction the company has been bought by “Velajio” Ltd. for 200 000 USD.

 

 

 

On October 11, 2007 the Ministry of Economy and Sustainable Development of Georgia has sold “Gora” Ltd. to “Diplomatic Club Manglisi” Ltd. for 1 620 000 USD through an auction. Interestingly, the company “Darling Worth Limited”, which has been an intermediary company in the process of donating 100% of shares of “Gora” Ltd. to the state, has attracted public interest as long ago as in 2002, concerning the privatization of Poti Shipbuilding Factory.

 

 

 

According to the media, “Rike” Ltd. has constructed the “Peace Bridge”, which was one of the reasons why then candidate for Mayor of Tbilisi, Gigi Ugulava, was accused of using the budget of the capital City. However, since the public registry enlists 18 different companies under the name “Rike” Ltd., registered at different times, it is difficult to claim that the two companies are the same. 

 

 

The company “Iberia Shipping” Ltd. itself was registered on November 30, 1999 with 100% state ownership. The main spheres of activities of the company include freighting of ships, brokerage, sea shipping and dispatching shipment, the Ministry of Economy has auctioned “Iberia Shipping” Ltd. on December 13, 2007. The initial price of the company amounted to 1 100 000 USD, and finally it was bought for 1 120 000 USD by ”YLARA SHIPPING LTD”.

 

 

 

The founding partner of “Geocell” Ltd “Gürtel Telekominikasyon Yatirim Ve Diş Ticaret Anonim Şirketi” Ltd.  donated 2.5% of shares in the capital “Geocell” to Georgian state.

 

 

The state was given 100% of shares of 61 hospitals.

 

 

According to the information as of July 1, 2010, “TbilAviaMsheni” would become subordinated to the Ministry of Defense of Georgia, and the change was initiated by the management of the company.  On the meeting held in Gori on January 29, 2013 the President of Georgia noted, that Tbilisi Aircraft Factory was given to the state in a demolished condition. In response to this statement the former partners and shareholders have claimed, that 26 owners were deprived of the property in 2010 “in a criminal and forceful way, using threatening”. According to the information as of March 22, 2013, Georgian Young Lawyers Association (GYLA) is rendering legal assistance to the former shareholders of “TbilAviaMsheni” and will bring an action with the demand to return the property.

 

 

According to the extract from public registry as of January 18, 2010 51% of shares of FC “Sioni” were owned by Nugzar Lomtadze, while 49% of shares were in property of the Municipal Board of Bolnisi. According to the agreement made on July 6, 2010 Nugzar Lomtadze donated his 51% of shares to the state. According to the order of the Minister of Economy and Sustainable Development of Georgia as of January 1, 2012, 100% of shares of the FC “Sioni” owned by the state were transferred to the Municipal Board of Bolnisi as “supplementary property”. 

 

According to the extract from public registry as of February 18, 2010 50% of shares of FC “Sioni” were owned by the Self-Governing City of Poti and the other 50% was in the property of Teimuraz Barkaia. According to the order of the Minister of Economy and Sustainable Development of Georgia as of August 23, 2011 100% of shares of FC “Sioni” were given to the the Self-Governing City of Poti as “supplementary property”.

 

 

“Demetre 96” Ltd. was registered on September 12, 2007, by JSC “Isani Kartu” (owner of 32% of shares) and JSC “Kartu Group” (owner of 68% of shares). The authorized capital of the company was 265 000 GEL. On October 15, 2007 the both founders of the company sold it to Tata Vardanashvili. 32% of shares owned by JSC “Isani Kartu” have been estimated for 85 000 GEL, while 68% of shares owned by JSC “Karty Group” – for 181 000 GEL. Thus, Tata Vardanashvili has bought “Demetre 96” Ltd. for 266 000 GEL.

 

According to the decree of the Government of Georgia as of May 15, 2008 „Demetre 96” Ltd. was given state loan of 1 350 000 GEL, for the period of 7 years, with grace period of 2 years and annual interest rate of 9%.

On October 26, 2010 an agreement was signed between the Ministry of Economy and Sustainable Development of Georgia and the Ministry of Defense of Georgia, according to which 100% of shares of “Demetre 96” Ltd. were transferred to the Ministry of Defense of Georgia. On April 7, 2011 the Minister of Defense of Georgia has granted representation of “Demetre 96” Ltd. to its LEPL State Military Scientific-Technical Center "DELTA". According to the order of the Minister of Defense as of February 14, 2012 100% of shares of “Demetre 96” Ltd. were transferred with operational right to the Ministry of Economy and Sustainable Development of Georgia. On April 26, 2013 “Demetre 96” was blacklisted by the Competition and State Procurement Agency.

 

In January 2011 director of “M & B” Ltd. Shakro Mirotadze was detained for tax evasion involving especially large amounts. On May 10, 2011 51% of shares of “M & B” Ltd., with estimated worth of 300 GEL, were transferred to state ownership. Since Besik Kalandadze has donated his 35% of shares, Gia Gurgenidze – 10%, and Gia Ghoghoberidze – 6% out of his 22,5%, the partners of the company were as follows: 51% - state, 22% - David Beradze, 16,5% - Giorgi Ghoghoberidze and 10% - Tebrole Gobedjishvili. 

 

According to the order of the Ministry of Economy and Sustainable Development of Georgia as of May 18, 2011, “M & B” Ltd. was registered in the property of the Self-Governing City of Rustavi. Interestingly, on September 16, 2011 the owner of 100% of shares and sole founder of “Mobil Gas” Ltd. David Beradze made decision to buy from the Self-Governing City of Rustavi 51% of shares in the capital of “M & B” Ltd.

Notably, “Mobil Gas” Ltd. was registered in the public registry only two days before, on September 14, 2011, with start-up capital of 10 GEL. According to the decree of the President of Georgia as of November 7, 2011 51% of shares in the capital of “M & B” were given to “Mobil Gas” Ltd. for 150 000 GEL through direct selling. 

 

On April 30, 2012 Gia Getsadze and Lasha Lezhava bought 10-10% of “Mobil Gas” Ltd., for 1 GEL each. 

 

Interestingly, on April 2, 2012 Lasha Lezhava donated 15 000 GEL in the form of nonmaterial donation to the United National Movement. Besides “Mobil Gas” Ltd. he is registered as a partner of the following companies: “L & V” Ltd., “Immo Group” Ltd., “Geobet” Ltd. and “Samtsvade №1” Ltd. It should also be noted here, that when donating to the UNM, Lasha Lezhava had not become owner of 10% of shares in the capital of “Mobil Gas” Ltd. yet. 

 

 

“Zhineri” Ltd. was registered on August 30, 1996. Due to bankruptcy the so called nonmaterial property, namely shares in various companies owned by “Zhineri” Ltd., were given to state free of charge. Particularly, 10% of shares in the capital of “Shevardeni” Ltd., 11,2% of shares in the capital of “Lomisa” Ltd., and besides, 2789 GEL out of 5578 GEL from the demand of the debtor company “Arsi Avlabari” Ltd., and 3299,9 GEL out of 6599,82 GEL from the demand of the debtor company JSC. “Vaziani”. 

 

 

The company had four partners – Natia Mchedlidze (28%), Bairon Abramishvili (28%), Jora Mchedlidze (24%) and Jemal Natsvlishvili (20%). The company was registered on Novermber 21, 2011 and the main spheres of its activities included transit, stocking, technical service of airplanes, organization of cargo shipping etc. Currently the company is liquidated. 

 

 

On February 1, 2012 100% of shares of “Mestia Regional Hospital” Ltd., which were divided as follows – 34% - “Bloc Georgia” Ltd., 33% - “Bloc Invest” Ltd., 33% - “Medimex” Ltd.), was fully transferred to state ownership. As for the three partners of “Mestia Regional Hospital” Ltd., all of them are founded by individual persons, Vakhtang Janashvili appears in two of them, and Mamuka Janashvili – in all three. 

 

“Bloc Georgia” Ltd. is one of the partner companies within the framework of the state program – “Hospital Sector Development Plan”, according to which it was planned to build and repair 100 hospitals throughout Georgia. According to the initial agreement with the state, “Bloc Georgia” Ltd. was obliged to repair 24 hospitals, however, it was unable to meet the conditions. Despite this, the state continued its relationship with the company and in 2010 TBC bank gave it credit of 8 mln USD, half of which was guaranteed by USAID. The conditions of this relationship, namely the preference of holding negotiations with one person over announcing tender, do arouse suspicions. Besides, in 2007-2008 “Bloc Georgia” Ltd. has donated to UNM 100 000 GEL, the maximum amount of donation to parties. 

 

 

The director of State Service Bureau David Kakauridze has transferred to the Ministry of Economy and Sustainable Development of Georgia 33.33% of shares in the capital of “Georgian Film” Ltd., estimated for 3 379 480 GEL.

 

Transfer of Shares in the Capital of Offshore Companies to the State

 

 

Was registered on April 17, 2002, and was initially called “Mziuri XXI Century” Ltd. In 2006 it was renamed into “Logos” Ltd., and at the same time, Rusudan Kervalishvili gave her 29% of shares to Giorgi Isakadze, who became owner of 100% of the shares. On September 28, 2007 Giorgi Isakadze transferred 100% of shares in the capital of “Logos” Ltd. to the company “Fisher Island Limited”, which was registered in the public registry of England and Wales on February 28, 2007. However, in the extracts of public registry Giorgi Isakadze is still indicated as the owner of 100% of shares in the period between January 12, 2010 and April 20, 2012. 

 

 

The representative of “Lexor Capital Corp.”, Dimitri Chikovani donated to the state 70% of shares in the capital of “Georgian Lottery Company” Ltd.

 

 

In 2012 Mikheil Nibladze donated to the state 50-50% in the shares of the three companies, each estimated for 1000 GEL: “Georgian-British Oil Company Nazvrevi”, “Georgian-British Oil Company Norio” and “Georgian-British Oil Company Ninotsminda”. 

 

These companies were founded by Georgian state and the companies registered on Channel Islands – “Ninotsminda Oil Company”, “Canargo-Nazvrevi” and “Canargo-Norio” – all three daughter companies of Canadian “Canargo”. In all the three cases the Georgian side was represented by “SakNavtobi”, and another partner was one of the offshore daughter companies of “Canargo”. In case of each newly-registered company the capital was shared between Georgian state (represented by “SakNavtobi”) and Offshore companies, each holding 50-50%. 

 

With the agreement signed on January 13, 2012, the offshore companies have donated their 50-50% of shares in the capital of each company to Georgian state, and in June 2012 all three companies were liquidated. 

 

Donation of Shares in the Capital of Various Oil and Gas Companies to the State

 

A great deal of the share donation agreements signed in 2006-2012 refers to Oil and Gas companies. Frequently these companies were state-owned themselves. In several cases directors of the companies were detained for having misappropriated state funds. Among such companies there are:

 

 

On May 24, 2007 General Director of “Oil Pipeline Construction Company” David Khmelidze donated 51% of shares in the capital of “Geo Tech” Ltd., estimated for 127 525.5 USD, to the Ministry of Economy and Sustainable Development of Georgia. On September 19, 2011, due to bankruptcy of “Oil Pipeline Construction Company”, its tangible and intangible property was auctioned. Initially the “Oil Pipeline Construction Company” was called “GIOC (Georgian International Oil Corporation) Construction Company” Ltd., and was donated by Georgian International Oil Corporation to the Ministry of Economy and Sustainable Development of Georgia on March 2, 2006. On June 16, 2006 the company was renamed into “Oil Pipeline Construction Company” Ltd. 

 

 

JSC “Teleti Oil Company” was founded on July 19, 1995. According to the order of the Tax Inspection of Revenue Service under the Ministry of Finance of Georgia as of July 27, 2007 100% shares in the capital of the company were transferred to the Ministry of Economy and Sustainable Development of Georgia free of charge. JSC “Teleti Oil Company” has founded “Saknavtobi-Samgori” Ltd. (Now “Spec-kap Service” Ltd.).

 

 

On January 23, 2006 “SakNavtobi” Ltd. registered “SakGeoService” Ltd. According to the order of the Tax Inspection of Revenue Service under the Ministry of Finance of Georgia as of July 6, 2007 the owner of 100% of shares in the capital of “SakGeoService” Ltd. has become “Georgian Oil and Gas Corporation”. On December 31, 2008 JSC “Teleti Oil Company” merged with “SakGeoService” Ltd. After merging the owner of 100% of shares in the capital of “SakNavtobi-Samgori” (now “Spec-Kap Service”) became “SakGeoService” Ltd. 

 

 

On June 25, 2007 the general director of “Teleti Oil Company” Akaki Lodia transferred 100% of shares in the capital of “SakGeoService” Ltd. (estimated for 966 260 GEL) and 50% of shares in the capital of “Iori Valley Oil and Gas” Ltd. (estimated for 5 000 000 GEL) to the Ministry of Economy and Sustainable Development of Georgia free of charge. Interestingly, “Iori Valley Oil and Gas” Ltd. is the largest oil company of Georgia, and was founded in 1995 by “SakNavtobi” from Georgian side and “National Petroleum Ltd.” (NPL) from the Swiss side. 

 

According to the Order of the Tax Inspection of Large Tax-payers as of June 2, 2007 the Ministry of Economy and Sustainable Development of Georgia transferred 50% of shares in the capital of “Iori Valley Oil and Gas” Ltd. to “Oil and Gas Corporation” Ltd., which has thus become owner of 100% of shares in the capital of “Iori Valley Oil and Gas” Ltd. According to the statute of “Iori Valley Oil and Gas” as of 2007 the authorized capital was divided into two equal parts, and both parts were owned by “Georgian Oil and Gas Corporation” Ltd. On October 20, 2011 ended the liquidation process of “Iori Valley Oil and Gas” Ltd. 

 

 

On March 19, 2008 the representative of “ITERA CIS LLC” Ltd. David Beradze signed an agreement, according to which 20% of shares in the capital of “BorjomiGas”, estimated for 43 204 GEL were transferred to state free of charge. Earlier, in 2001 “BorjomiGas” was forcefully auctioned due to failure to pay taxes, where it was bought by JSC “SakGas”. According to the writ of Tbilisi Appeal Court as of December 27, 2007 the Ministry of Economy and Sustainable Development of Georgia agreed with the suggestion of ”ITERA CIS LLC” Ltd., owner of 100% of shares in the capital of “BorjomiGas” Ltd., to become owner of 20% of shares in the capital of “BorjomiGas” Ltd. instead of giving up the appeal demands, concerning nullifying the act of inventory and seizure of property as of August 21, 2001, the protocol of the auction held on December 19, 2001 and the ordinance as of December 19, 2001 about the rights to the property bought on the auction. 

 

 

In October 2008 the general director of “Teleti Oil Company” Teimuraz Barabadze has signed four agreements concerning transfer of shares to the state free of charge. Namely, according to the agreements signed on October 3, 2008 Teimuraz Barabadze transferred 50-50% of shares in the capital of “Georgian Oil Storage Company” Ltd., “Georgian-British Oil Company – Ninotsminda” Ltd., “Georgian-British Oil Company – Norio” Ltd. and “Georgian-British Oil Company – Nazvrevi”. 

 

 

In October 2009 Teimuraz Barabadze was detained for having misappropriated state funds. Shalva Shanidze, director of “Spec-KapService” was also detained on the same case. With the agreement signed on November 19, 2009 the director of “SakGeoService” Giorgi Grdzelidze transferred 100% of shares in the capital of “Spec-KapService”, estimated for 1 515 923 GEL, to the state after which, on November 27, 2009 he was relieved of position of General Director.   

 

Conclusion

 

As it becomes clear from the received documents, in some cases donation of property to the state does not arouse any doubts, since the shares of state-owned companies are transferred to other state representatives, e.g. as in the case of the Ministry of Economy and Sustainable Development of Georgia and state-owned Georgian Oil and Gas Corporation – this is the case of change of partner of state-owned property. 

 

However, in still other cases, when legal persons of private law donated shares in their capital to the state, their motivation behind this donation is not fully clear. Especially in the cases, when in short time after transfer of shares the state would put up an auction for the donated property, and sell it for a much higher price than the authorized capital of the company (e.g. “Gora” Ltd., with authorized capital of 2 000 GEL was transferred to the state free of charge, the state has auctioned the received for 1 620 000 USD). Also, such famous cases as transfer of shares of “TbilAviaMsheni” to the state, the former partners of which still dispute with the government, indicates the possibility that the practice of transfer of shares to state free of charge may have been accompanied by pressure from the government on business sector. 

 

As a result, these conditions add up to the picture, when the government, instead of assisting and promoting private business, supports creation of monopolies and interferes in operation of companies, with the aim of either receiving additional income or avoiding unwanted economical players. Additional research and investigation is needed to question responsibility of particular people, however, it can be said that transparency of acquiring and selling of state property, public accountability and supporting competitive environment for private business are the values for any democratic state. The available data, however, arouse questions in terms of defending these values.