GEO

Lottery nationalized and put under management of Georgian Post

03 September, 2011

The Georgian government has recently carried out a de-facto re-nationalization of the lottery monopoly. In a move that received little media coverage, 70% of ownership rights on the Georgian Lottery Company were taken over by the Ministry of Economy and Sustainable Development and handed over to the Georgian Post, a fully state-owned company.

The Georgian Lottery Company

As the result of an opaque bidding process, the Georgian Lottery Company received the exclusive license to run a lottery in Georgia from the Ministry of Finance in June 2009. The company received the license based on its promise to create revenue of GEL 4,428,129,000 over ten years, contributing GEL 913,351,000 (equal to about 21.5% of its revenue) to the state budget. In practice, this business plan envisaged daily sales of GEL 1.164 million, meaning that every Georgian older then 15 years would spend an average of GEL 1,168 on lottery tickets in the next ten years.

The Georgian Lottery Company was founded as a Limited Liability Company (LLC) in 2009, fully owned by the LLC Lexor Capital Corp., registered in the British Virgin Islands (ID 1458139). Dimitri Chikovani, brother-in-law of former Defense Minister Davit Kezerashvili, serves as Lexor Capital Corp's attorney. Mr. Chikovani today is also Chief Executive Officer of several advertising companies, including LLC BSM Georgia, Samkutkhedi and LLC Outdoor.ge, a firm that controls a large part of the outdoor advertising market in Tbilisi.

On 9 August 2011, Lexor Capital Corp transferred 70% of its shares in the Georgian Lottery Company to the Georgian Government, namely to the Ministry of Economy and Sustainable Developments – without receiving any payment for it, according to public records. Two days later, the Ministry transferred the management rights of the Georgian Lottery Company for the next five years to the Georgian Post. The change in ownership received no media coverage and was largely done behind closed doors, but can be traced via public company documents. 30% of shares remain in the hands of Lexor Capital Corp.

The Georgian Post

The Georgian government first talked about plans for a privatization of the largely defunct postal service in late 2009. In October 2010, Ministry for Economy announced that it was accepting bids for the fully-state owned company and its 87,000 square meters of land and 100,000 square meters of office space. The deadline for the submission of interest was prolonged until early 2011.

In June, Vera Kobalia, Minister of Economy and Sustainable Development, said that there were three companies interested in buying the Georgian Post. The three potential bidders were from Georgia, Switzerland and Romania, with which the ministry would negotiate about different concepts for a take-over, Kobalia said (BlackSeaPress, June 7 2011).

Ten days later, Kakha Baindurashvili stepped down as Finance Minister and was appointed chairman of the Georgian Post's supervisory board. A few weeks later, he also became president of the Georgian Chamber of Commerce and Industry.

On June 24, the Ministry of Economy said that it had temporarily suspended the privatization process of the Georgian Post in order to implement a re-branding process to "increase the privatization interest and value" (GBC Daily News, June 24 2011).

With the Post now in control of 70% of the management rights on the lottery-monopoly, we might see that the privatization process will be continued soon. The question of who will be held accountable if the lotteries are not delivering the promised revenues to the state budget has yet to be publicly answered.

Author: Mathias Huter, Mamuka Andguladze