GEO

Defunct Investment Projects: is the state asking for its due?

25 August, 2011

When privatizing prestigious real estate property or state-owned companies, the Georgian government has often designed specific conditions that the successful bidder had to comply with. These conditions go beyond the requirement for a one-time payment (at times of symbolic sums) to the state.

When the government privatized prime real estate such as the Soviet-times shopping center next to the Freedom Square Metro station, the Imeli building on Rustaveli avenue, or the former building of Ministry of Agriculture on Kostava street, it required the winning bidder to make significant investments on these properties. These development projects were to create the Willbrook Platinum Tbilisi Plaza shopping mall, the Kempinski Hotel Tbilisi and the Intercontinental Hotel Tbilisi, respectively.

Although the initial declared deadlines have long passed, all three of these downtown Tbilisi development projects remain stalled and look abandoned.

These are not the only well advertised investment projects to go sour. Others include Park Hyatt Tbilisi and development of the Czarist era Likani resort.

While investment contracts generally ought to have clauses dealing with situation when contractual obligations are not met, there is no indication that Ministry of Economy of Georgia, representing the state in these contracts, has taken any action.

In spring 2010, then Minister of Economy, Zurab Pololikashvili, stated that the Ministry had not fined any investor who had failed to deliver on promises. His ministry was individually negotiating with companies to find mutually acceptable solutions that would not violate Georgia’s national interest, Pololikashvili said.

This announcement came as Kala Capital, founded by Georgian footballer Kakhi Kaladze was rumored to have been sued to be fined by the state for failure to meet the obligations. These rumors have not disappeared since. However, there is no information publicly available on whether the situation regarding investors’ liability has changed.

On June 10, TI Georgia sent a freedom of information request to the Ministry of Economy and Sustainable Development, seeking to get the list of companies with investment contracts concluded for in the past two years and information on investors whose contracts had been canceled due to their inability to fullfill their commitments. We further specifically asked for contracts of the companies who were contractually obliged to develop the five properties mentioned above, and whether they have met their obligations.

We have made several follow-up phone calls to the ministry, and explicitly reiterated that we would not mind getting this information after the deadline of the ten working days that is specified in Georgian freedom of information rules. More than two months after our request, we still have not received any answer from the ministry. Since our original letter was addressed to the Ministry of Economy and Sustainable Development, we have no other means of redress than taking the case to the court.

Author: Mariam Gabedava