GEO

Who has bought property for GEL 1 in Adjara

19 April, 2012

Updated 16 May, 2012

There are cases in Georgia when government assets are privatized via a “direct sale” method: the property is sold to a specific buyer, for a symbolic sum (often just GEL 1), in return for commitments by the purchaser to carry out some form of investment in the purchased property. We believe that because the standard auction process is bypassed in these cases, the terms and conditions of such sales should be made as transparent as possible in order to ensure that they receive sufficient public scrutiny. Therefore, TI Georgia requested that the Ministry of Finances and Economy of Adjara provide us with information about all cases in which property has been privatized in this way in Adjara over the past year.

The Ministry provided us with information about 52 properties that were privatized through direct sale over the past year. One interesting trend that we noted was that properties are often sold to foreign companies about which little information is available. Foreign legal entities need to register locally in Georgia in order to acquire property here, but they often carry out this registration just days before concluding a privatization deal. In addition, information about their beneficial owners is often difficult to find.

Here is a summary of some of the most interesting cases of direct sales for symbolic prices in Adjara.

1) On February 18, 2011, non-agricultural land located on Gogebashvili Str. (1,621 sq. m.) was sold to “ADOG GEORGIA” Ltd. for GEL 1. “Cubic Tower,” a new five star hotel with 100 rooms, must be constructed in 40 months. According to the contract, the number of employees should be no less than 100 in the 22-floor Hotel. See photo

"ADOG GEORGIA" was registered at the Public Registry on September 16, 2010, represented by Mikheil Dzodzuashvili. The owner of the company is Musa Suleymanov, a citizen of Azerbaijan. We were unable to find any further information about Suleymanov.

2) On February 24, 2011, Head of the Adjara Government sold 1,6 hectares of land and a 1,133 sq. m. building located in Mejinistskali village, in Khelvachauri Municipality through direct sale for GEL 1. The value of the property was assessed at GEL 365 000 by the contract. A Turkish company, Bakara Ltd., bought the property and will be required to invest GEL 1 million in construction of a factory for slaughtering and sorting cattle. The contract obliges the investor to construct the factory in six months and employ at least 60 Georgian citizens.

It is notable that according to the Public Registry data, Bakara was registered on February 23, 2011, a day before the contract was signed with the Government of Adjara.

The deadlines defined by the obligations in this case have been violated several times. However, the Adjara Government amended the contract to change the deadlines instead of terminating it. According to the final contract received from the Ministry of Finances and Economy of Adjara, construction was required to be finished by February 2012, but has not yet been completed. This photo of the site was taken on April 11, 2012.

3. On December 5, 2011, the Government of Adjara sold a 1,556 sq. m.  building located at 5 Javakhishvili Street, (which was formerly the Public Registry building) to the “Secondary School of Georgian University,” which is owned by Giuli Alasania, the mother of Georgian President Mikheil Saakashvili, for a symbolic price of GEL 1. According to the contract, the School is required to invest GEL 500,000 and finish construction of the school building in 12 months. (See Photo) (See Photo 2)

Based on the data provided by the Ministry, we have determined that the first version of the contract was amended, in particular: the required number of pupils decreased from 150 to 60, and the number of people to be employed decreased from 95 to 30. Also, the inventory owned by the Public Registry, which the Government values at GEL 27,672, was included in the sale as well; the Government did not include an assessment of the building’s value in the sale contract.

4. The list of properties sold for GEL 1 is continued by the building on Gogebashvili Street (former Navigation Agency building) which was sold to the Turkish-owned company "Mersin Tourism" on November 17, 2011. The building  is 4706 sq. m. with 5196 sq.m. of land attached to it, and the assessed value of the property is GEL 4,029,848. (See Photo 1) (See Photo 2)

The investor must renovate the façade of the building, and dismantle another building located on the property, on Shavsheti Street. Moreover, the investor is obliged to open a hotel complex in the rehabilitated building by December 1, 2012, as well as to start the construction of a 100-room hotel on the unoccupied land, which must open no later than July 30, 2016. (The contract)

It is notable that Mersin Tourism Ltd. was founded on November 14, 2011, and three days later, the Government of Adjara signed a contract with it. The only information available to us about the investor is that shareholders of the company are citizens of Turkey.

5. On July 18, 2011, “LEGI” Ltd. bought for GEL 1 a 32,382 sq. m. plot of land in Khutsubani Village in Kobuleti municipality, which the privatization contract states is worth GEL 202,711.

LEGI must invest GEL 1 million and build a concrete production factory, employing  40 Georgian citizens See Contract.The company is owned by Leonid Ezik, a citizen of Ukraine. We have not been able to find any further information on Ezik. A part of the factory is currently running, and further construction is in progress. (See Photo 1(See Photo 2)

6. On June 17, 2011, another property (9,900 sq.m.) in Batumi, in the area of Khimshiashvili Street (the new boulevard, between the Marina Hotel and Aqua Park) was sold. The investor is an Azerbaijani citizen, Zarifa Hamzaeva. She conducted the purchase through her representative, Elnur Mamedov. See Photo

TI Georgia investigated Hamzaeva, and found through the Azerbaijani media that she is the wife of Jahangir Askerov,  an Azerbaijani billionaire and  the president of the Azerbaijan Airlines company AZAL. Hamzaeva is also one of the founders of SilkwayBank, one of the largest banks in Azerbaijan, whose other founders include the daughter of the President of Azerbaijan, Arzu Alyeva. SilkwayBank is owned by Silkway Holding, which  includes 23 companies working mostly in the aviation sector. Hamzaeva also owns a network of perfumery stores in Azerbaijan called “Gazeli”.

According to the contract, Hamzaeva is obliged to build and operate a 100-room hotel complex on the territory within 20 months, where no less than 90% of the employees will be Georgian citizens. This photo shows the current condition of the territory.

7. During 2011 the Government of Adjara has sold one more property for a symbolic price of GEL 1, a 301 sq.m. territory located in Batumi, at Rustaveli #4-6, which was bought by “Vento” Ltd. (The ContractThe investor was required to install electricity substation on the site within four months, and has done so. See Photo

8. The information provided by the Ministry of Finances and Economy of Adjara AR helped to determine that during last year, on the basis of the orders #76 and  #77 from May, 10th  issued by the head of the Government  of Adjara, 45 lands were sold out for GEL 1 in Mejinistskali Village, Khelvachauri Municipality. The size of the lands varies from 100 to 200 sq.m. What has particularly drawn our attention is that in this case the reason for selling is unknown and is not reflected in the contract. This, without doubt, raises additional questions.

The head of the Adjara Government is authorized to manage state property based on the georgian legal regulations. (Article 31 (2), Constitution of Adjara AR; Article 5, 8, 12 Law of Adjara AR on “Property management and disposal of Adjara AR”). However, during the decision-making process, senior officials have to consider state interests. TI Georgia has repediately underlined the necessity to improve control over the fulfillment of commitments.

We believe that this monitoring should be conducted more thoroughly towards those investors, who have purchased government property under privileged conditions. Otherwise, it will be difficult to assess whether theses types of sales provide sufficient benefits to justify the greatly reduced sale prices.

TI Georgia will continue further research of this issue in the future and will observe the fulfillment of obligations imposed by the contracts.

This post is based on the information provided by the Ministry of Finance and Economy of Adjara AR.

TI Georgia thanks the Ministry for the assistance of its staff in providing this information. 

Update 16 May, 2012: Since the original post was published, we have monitored this issue. On May 3, 2012  we checked one of the building sites we mentioned in our blog post, where construction is now in progress.(See Photo 1Photo 2) The Gazeli Hotel will be built on the site, to be completed by August 2013. It appears that the company who ordered the construction is “SW INN,” LLC, while the construction company is “MAPA INSAAT VE TICARET A.S.” According to the banner, construction work began on April 2, 2012. However, pictures of the site taken by TI Georgia on April 5, 2012 clearly demonstrate that no work had been started on April 2.

Author: Transparency International Georgia