GEO

Property sold for GEL 1 in Ajara in 2013-2017

21 July, 2017

Transparency International Georgia continues studying the investments made in Ajara. This time, the organization decided to look into the property sold by the Government of the Autonomous Republic of Ajara between 1 January 2013 and 30 June 2017 for a symbolic price of GEL 1. Based on the information provided by the Ministry of Finance and Economy of Ajara, it has been established that, in 2013-2017, the Government of Ajara sold 23 properties for a symbolic price of GEL 1 through the direct sale procedure.

Legal basis for sale

The sale of property is regulated by the Law of the Autonomous Republic of Ajara On Administration and Management of Property of the Autonomous Republic of Ajara. According to the amendments made to the law in 2017, the government chairperson (personally) was given the authority to sell property based on competitive selection, while the Ministry of Economy was only tasked with carrying out measures of technical nature. According to the current legislation (the law adopted in 2010), however, the government chairperson was given exclusive rights with regard to property management. Specifically, he or she can choose the form and entity [buyer] of property sale at his or her own discretion. Usually, this information is not made public. According to the law, when state property is sold using a direct sale procedure based on concrete selection, certain conditions need to be in place and the entity receiving this property has to fully comply with these conditions and should also be able to fully and scrupulously fulfil the privatization obligations attached.

The following trends were identified based on the information obtained from the ministry:

  • The total of 23 properties were sold for a symbolic price of GEL 1 in 2013-2017. The largest number of these properties (11) was sold in 2013 (in Khelvachauri and Kobuleti Municipalities, 30,849.6 sq. m of buildings and 76,015 sq. m of adjacent non-agricultural land plots were sold). The amount of investment that year was GEL 5,231,600; only GEL 731,600 of that amount was paid for nine properties. In addition, individual entrepreneurs and legal entities who bought properties for a symbolic price were registered several months and, in one case, days prior to signing an agreement. Most of them did not have any experience of economic activities.
  • In 2014, the Ministry of Finance and Economy of Ajara started selling land plots in the central parts of the city of Batumi for a symbolic price of GEL 1 to development companies at the time when residential construction there was booming. The selection of the development companies was not made in a competitive environment.
  • In 2014, a land plot of 1,115 sq. m (cadastre code 05.24.08.123) adjacent to No 5 Tbel Abuseridze Street in Batumi was transferred to the DS Group development company. Until 2014, this territory was the property of Batumi City Hall and had the status of a recreational zone.
  • An agreement signed with Metro Atlas Georgia in 2016 can be considered a positive occurrence. The company received for a symbolic price of GEL1 a land plot located in Riketi Settlement of Khulo Municipality on condition that it would make a significant investment: the company undertook an obligation to build a hotel with at least 100 rooms and invest USD 10m (the high-mountain region of Ajara has a resource for developing a ski resort, and attracting such investment would significantly contribute to the country's economic development).
  • In 2013-2017, compared to 2008-2012, the number of properties sold for a symbolic price through the direct sale procedure decreased considerably. (For example, in 2011 alone, the Government of Ajara sold 52 properties for a symbolic price using the direct sale procedure.
  • There have been cases when property was sold to legal entities for a symbolic price but the companies failed to fulfil the undertaken obligations in time and, correspondingly, changes were made to the sales agreements.
  • The Ministry of Finance and Economy of the Autonomous Republic of Ajara failed to provide us with the documents with a substantiation for not terminating a contract with companies which failed to fulfil their obligations (for example, Mekanizatori, LLC, TCF Georgia, LLC).

The following is the list of properties sold for GEL 1 by the year:

2013

In 2013, the Ministry of Finance and Economy of Ajara exercised its right to sell property for a symbolic price of GEL 1 with the condition of making an investment 11 times. The total amount of investments was GEL 5,231,600, of those the investment in nine properties amounted to only GEL 731,600. The Ministry of Finance and Economy of Ajara sold the total of 30,849.6 sq. m of buildings and 76,015 sq. m of non-agricultural land plots adjacent to those buildings. In 10 out of 11 cases, citrus sorting enterprises became operational in Kobuleti and Khelvachauri Municipalities of Ajara.

Out of 11 sold properties, selling six buildings at No 67 Tavisupleba Street in Kobuleti and 23,344 sq. m of adjacent non-agricultural land to TCF Georgia can be considered the largest investment – the project was accompanied by a condition to invest GEL 3,500,000. According to the condition, 175 citizens were to be employed by the enterprise for at least two months per year.

The contracts signed with 11 companies and individual entrepreneurs in 2013 can be found here.

2014-2015

According to the information obtained from the Ministry of Finance and Economy of Ajara, in 2014, property was sold for a symbolic price of GEL 1 only once while in 2015, the government chairperson of Ajara exercised the exclusive powers established by the law three times.

During these years, the Government of Ajara sold for GEL 1 the total of 16,730 sq. m of land plots to four companies; in exchange, the government and the local administration of Batumi received a substitute land plot, 3,075 sq. m of living space in a newly constructed residential building and a pledge of investing GEL 1,200,000.

In 2014-2015, the Ministry's policy with regard to selling property changed: in 2013, property was sold on condition of putting plants into operation while in 2014-2015, land plots in the central part of Batumi were sold for a symbolic price to development companies for residential construction. In one concrete case in Batumi, a land plot on Abuseridze Street which had a status of a recreation zone and was owned by Batumi City Hall, was first stripped of its recreation zone status and then transferred into the ownership of the Ministry of Finance and Economy of Ajara with the aim of improving the chances of attracting investment. The Ministry then sold it for a symbolic price to DS Group, LLC. DS Group is a limited liability company established on 22 June 2012. The owner of 100 percent of its shares is a citizen of the Russian Federation, Benia Davidov, and its director – Davit Saladze. It is one of the largest companies in the construction sector of Ajara. This was not the only case when the chairperson of the Government of Ajara sold land plots on the territory of the city of Batumi – which are in high demand on the market – for a symbolic price and without any investment conditions attached. In two cases, the obligations of these companies constituted the provision of residential spaces to Batumi City Hall and [the Government of] the Autonomous Republic of Ajara.

The list of properties sold by the Government of Ajara for GEL 1 in 2014-2015 and the corresponding contracts can be found here.

Properties sold for a symbolic price of GEL 1 in 2016

In 2016, the Government of Ajara sold up to 10,000 sq. m of property for a symbolic price of GEL 1 to four companies with the condition of making an investment of GEL 10,950,000 in total. The same year, several properties were transferred to Energo-Pro Georgia, JSC for technical purposes (installation of power transmission lines and housing a transport station).

The agreement signed with Metro Atlas Georgia, JSC envisaged the largest investment – for GEL 1, the investor received non-agricultural land plots of 3,926 sq. m (cadastre code: 23.14.36.2640) and 2,246 sq. m (cadastre code: 23.14.36.263) in Riketi Settlement of Khulo Municipality. The company is to ensure the construction and launch the operation of a multifunctional building (hotel with at least 100 rooms, places to eat and a parking space for no less than 40 cars). The buyer has to invest USD 10,000,000 into the project, employ 60 people of whom 90 percent have to be citizens of Georgia.

Properties sold for a symbolic price of GEL 1 in 2017

As of January 2017, the Government of Ajara transferred 6,396 sq. m of land plots into the ownership of two companies with the condition that they make an investment amounting to GEL 730,000. On 10 January 2017, Akhalsoplis Tsitrusis Kombinati, LLC received a building of 2,616.54 sq. m and an adjacent non-agricultural land plot of 5,440 sq. m (cadastre code: 2229.01273) in the village of Akhalsopeli of Khelvachauri Municipality with the following obligation: putting into operation a citrus sorting line (with the capacity of no less than 7 tons per hour) and a juice production facility, installing a machine making plastic and cardboard boxes, putting into operation a refrigeration facility, paying GEL 20,000 of debt owed by Akhalsopeli Citrus Plant, investing GEL 640,000, maintaining the specialization for 20 years and employing at least eight citizens.

On 17 January 2017, a 956 sq. m non-agricultural land plot adjacent to a kindergarten located at No 96 Lermontov Street in Batumi was transferred to Skola Nike, LLC for GEL 1 with the condition of investing GEL 50,000 and maintaining the sports ground and the garden indefinitely.

Conclusion

Selling property using a direct sale procedure is common practice in many countries. As a rule, this serves to create favourable conditions for investment, which, in turn, stimulates the inflow of investments into a country. Property rights should be transferred through a direct sale procedure to a buyer who will fully and scrupulously fulfil the conditions attached to the privatization of the state property. It is very important that the state manages its assets reasonably. Selling state property should serve specific goals, namely, it should facilitate strengthening the private sector and increase its efficiency, attract investments, ensure employment and so on. When selling its property, the state should give preference to the investors (property buyers) who will ensure that the transferred property is used for the benefit of the country's economy.

The study of property sold for a symbolic price of GEL 1 in Ajara in 2013-2017 has shown that the companies that bought the property for a symbolic price in some cases did not have a condition to make a significant investment attached to the purchase agreement. In addition, given the fact that residential construction is booming in Batumi, selling non-agricultural land plots to development companies for a symbolic price raises suspicions and prompts speculations about corruption and unfair selection of buyers. It is desirable for the property to be sold in a competitive environment and for the process to be more transparent. Some of the problems related to selling state property for a symbolic price through the direct sale procedure stem from inadequate regulation. Correspondingly, in order to address the problem, the following needs to be done without fail:

  • Legal regulations should be improved and the accountability of responsible persons needs to be increased;
  • The process should to be made as transparent as possible and the public should be efficiently informed.

Transparency International Georgia continues studying this issue and will monitor the fulfilment of the obligations envisaged by the agreements. The second part of the study will be devoted to the property sold for a symbolic price through the direct sale procedure whose privatization project cost exceeded GEL 1.