Who received property from the state at a symbolic GEL 1 price?
Transparency International Georgia (TI Georgia) continues to investigate the cases of state property disposed of through direct sale for a symbolic price between 2007 and 2012 (Who has bought property for GEL 1 in Adjara, Property for GEL 1 in Adjara – part II, Property sold for GEL 1: problematic trends).
According to the information we requested from the Ministry of Economy and Sustainable Development, tens of thousands of square meters of agricultural and non-agricultural land, as well as buildings and a sizeable amount of moveable property, have been disposed of at the price of 1 GEL. It is unknown to us whether the persons concerned were paying income tax or were carrying out the undertaken obligations in good faith, or even whether the provided investment conditions were fulfilled or not. These questions however merit a separate study. The fact is that over the years, the state has handed over various types of property to individuals with either certain conditions attached, or else unconditionally.
The information we received can be divided into two categories: property transferred to individuals unconditionally at a symbolic price, and, property transferred at a symbolic price in exchange for investment conditions.
The recipients of state assets include well-known public figures, politicians, government officials, as well as their family members. Among them can be found: Tbilisi Mayor Gigi Ugulava’s brother Irakli Ugulava’s company Geo Land Ltd.; Bejan Pharcvania, the former deputy head of the Tbilisi Chief Division of the Ministry of Interior’s Counterintelligence Department; Levan Kardava, head of the 2nd Chief Division the Ministry of Interior’s Constitutional Security Department; Crossways Ltd belonging to the businessman Teimuraz Ugulava; Avante Hospital Management Group, whose 25% shares are owned by the former MP Gia Nacvlishvili, the company's director being Ivane Qachiuri, formerly director of the Public Health Ministry LEPL "Health and Social Projects Implementation Center". Public property was transferred at a symbolic price to the New Office Ltd, the founder of which is Silk Road Business Center.
Unconditional transfer of property
Only two instances of property donation were discovered during this period. One involved apartments being granted to the families of police officers killed in the line of duty. The other concerned the Turkey – Georgia Education and Culture Foundation, which was granted 12 kinds of movable property (i.e. Georgian national costumes and musical instruments).
Unconditional transfer of property
In this year, the then Minister of Economy, issued the infamous order on May 19, under which several buildings (571 sq. m.), located on the governmental residence territory in Tskneti settlement, along with the non-agricultural land attached to them (31.696 sq. m.), and the movable property (equipment) within them, were transferred into ownership of Nino Burjanadze at a symbolic price. After taking up an important political position, however, Ms Burjanadze was deprived of the property for non-payment of property taxes.
In 2008, the Georgian Patriarchate received through direct purchase a building for 1 GEL located on # 13/40 Sioni Str. with a total floor area of 971.44 sq. m. and its attached 2272 sq. m. of non-agricultural land. In the same year, the Patriarchate received the Khulo cinema building, located in Khulo municipality, with a total utility area of 486.1 sq. m. and the 462 sq. m. of non-agricultural land attached to it.
Unconditional transfer of property
In 2010, a total of 8.200 sq. m. of non-agricultural land, and 1.310 sq. m. of buildings variously located in Zestaphoni municipality, Gardabani, Rustavi, Aspindza, and Tbilisi, were transferred into the ownership of the Georgian Patriarchate through direct sale.
Under the Presidential ordinance, Bejan Pharcvania, the former deputy head of the Ministry of Interior’s Counterintelligence Department Tbilisi Chief Division, received an apartment located in Didi Dighomi after paying a token price of one GEL.
In 2010, state property (21 plots of land in the village of Teleti, Gardabany) was transferred to Teleti 2009, a NELP, for one GEL without a privatization term.
Property transferred under investment condition
In 2010, Wissol Petroleum Georgia JSC came into the possession of a 127.64 sq. m. building and 22.518 sq. m. non-agricultural land located in #1 in Akaki Khorava Str., Kutaisi.
Investment condition: The investment requirement imposed on Wissol Petroleum Georgia was to ensure free use of the space for Kutaisi Athletic Games Integrated Sport School #11 tennis section pupils, Kutaisi tennis team, Kutaisi Integrated Sport School #10 pupils, and Kutaisi swimming and water polo teams.
Unconditional transfer of property
1. The assets transferred to the Georgian Patriarchate in 2011 are located across the country: in Mestia - 1.206,5 sq. m. of non-agricultural land with a 122 sq. m. building; in Kareli - 2.137 sq. m. of state-owned non-agricultural land located in Abisi village and buildings with a total area of 402.17 sq. m. as well as 1.235 sq. m. of non-agricultural land and a building with a total area of 108,92 sq. m. located in Elbakiaantkari village; in Shuakhevi municipality - 61.776 sq. m. of state-owned non-agricultural land and buildings with the total area of 17.055,86 sq. m. located in “Khichauri'', Takidzeebi village; in Tbilisi - 3.830 sq. m. of non-agricultural land and buildings located in Tsinandali Str.; in Lentekhi Municipality - 189.86 sq. m. of state-owned non-agricultural land and buildings located in the town of Lentekhi; in Senaki municipality - 1864 sq. m. of non-agricultural land and a building with a 119.54 sq. m development area located in the town of Senaki, and 913.7 sq. m. of state-owned non-agricultural land and building with a 147.8 sq. m. development area located in Gejeti village.
2. State-owned assets were transferred to certain individuals in 2011 for 1 GEL under Presidential ordinance for reasons unknown. Among them can be counted: Hamest Apoian (10001 sq. m. of agricultural land located in Sulda village of Akhalkalaki municipality); Artiush Apoian (239265 sq. m. of agricultural land located in Sulda village of Akhalkalaki municipality); Murtaz Kupreishvili (386 161 sq. m. of state-owned rural agricultural land located in the village of Akhalsopeli in the Senaki municipality); Koba Akhvlediani (apartment # 12 under construction (with a total area of 78.50 sq. m.) located on the fourth floor of the building in #3b Kipshidze Str., Tbilisi, and its small plot of attached non-agricultural land); Zurab Shamatava (apartment # 43 under construction (with a total area of 132 sq. m.) located on the fifth floor of the building in #3 b Kipshidze Str., Tbilisi, along with its non-agricultural land); Marina Kupatadze (325 sq. m. of floor area on the 2nd floor of # 5 building in Pirosmani Str., city of Borjomi, and attached plot of non-agricultural land).
3. State-owned property was transferred at the token price of one GEL without any investment conditions to Megis Kardava’s brother Levan Kardava, head of the 2nd Chief Division of the Ministry of Interior’s Constitutional Security Department (2.501 sq.m. of non-agricultural land located in Kojori). TI Georgia has even released a special statement concerning this topic.
Unconditional transfer of property
In 2012, through direct sale the Georgian Patriarchate paid the token price of one GEL for real estate in Tbilisi, Poti, Kvareli municipality, Tskaltubo, Baghdati, Kutaisi, Dusheti municipality, and Oni. The total amount of real estate property transferred amounted to 149.541.29 sq.m.
In the same year, state-owned property was transferred without investment conditions to: Hospital Dighomi Ltd ( #5 Ljubljana Street, Tbilisi - building # 7, with floor area of 206.89 sq. m. and attached non-agricultural land, as well as 4,283.3 sq. m. of area plus attached non-agricultural land); Caucasus Mountain Group ( # 2 Aghmashenebeli Str., Bolnisi – 29.813 sq.m. of non-agricultural land); Godako + (520 sq. m. of non-agricultural land located in Kvareli (Ilia Lake)), Lopota Tour Service (4 lands located in Napareuli village, Telavi), Kobuleti Str. 3/15 Partnership (387 sq. m. of non-agricultural land in #15 Kobuleti Str., Tbilisi and # 1 and # 2 buildings located on it); Inter Business Services JSC (13 15 sq. m. of non-agricultural land located on # 23 Iumashev Str., Tbilisi and 1685 sq. m. of non-agricultural land); "Caucasus Road Project" Ltd (1312 sq. m. of non- agricultural land located in Kudigora, Kvareli).
Property transferred under investment condition
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3. Avante Hospital Management Group Ltd (Part 1) 4. Avante Hospital Management Group Ltd (Part 2) 8. NLP Central Public Health Referral Laboratory 10. Metropolis Center of Georgia Ltd |
1.^ On October 10, 2012, under the Presidential ordinance, Geoland Ltd was transferred state-owned real estate, 8, 000 sq. m. of non-agricultural land in Kazbegi municipality to be exact, through direct sale for one GEL.
Investment Term: Within two years of signing the contract, Geoland Ltd shall build a mountain hut and organize a camping area on the territory in question.
Geoland Ltd was registered on July 10, 2003. 50% of the company's shares are owned by Tbilisi Mayor Gigi Ugulava’s brother Irakli Ugulava.
2.^ The Ganmukhuri Hotel Ltd located in the village of Ganmukhuri, Zugdidi municipality, was transferred 14 699 sq. m. of state-owned non-agricultural land.
Investment Term: Within 18 months of the completion of the foundation construction, a medium and / or high-class hotel shall be built on the transferred land. The equivalent of one million dollars in lari will be invested for this purpose.
3.^ Avante Hospital Management Group Ltd was transferred 100% of “O. Chkhobadze Clinical Rehabilitation Center of the Disabled and Elderly" shares.
Investment Term: The company was charged to install 200 high-tech medical beds, as well as to relocate "Kutaisi # 5 Polyclinics for the Adults" Ltd, "Kutaisi # 3 Women's Consultation"Ltd, "Kutaisi Mental Health Center" Ltd,"Kutaisi Regional Narcotics Treatment Center" Ltd,"Kutaisi Regional Blood Bank" Ltd, and "Kutaisi # 2 Women's Consultation" Ltd services owned by "O. Chkhobadze Clinical Rehabilitation Center of the Disabled and Elderly". At least one month employment of the existing medical staff had to be ensured, with their positions and compensation maintained.
In addition, the medical profile of “O. Chkhobadze Clinical Rehabilitation Center of the Disabled and Elderly" had to be maintained for 7 years from the signing of the contract.
4.^ Avante Hospital Management Group Ltd was transferred, once again for one GEL, 15.140 sq. m. of state-owned non-agricultural land with buildings located on #3 Khelaia Str., Zugdidi.
Investment Term: The company's investment term included the condition of installing 80 high-tech medical beds and maintaining the transferred property’s status as hospital for the 7 years following the signing of the contract.
Importantly, Avante Hospital Management Group Ltd is headed by Ivane Qachiuri, director of LEPL "Health and Social Projects Implementation Center" of the Ministry of Labor, Health, and Social Protection. The company’s 75% shareholder is Givi Kapanadze, and 25% of the shares are held by the former MP Gia Nacvlishvili.
5.^ Crossway Ltd was transferred 3875.63 sq. m. of building located in #1 Rustaveli Square, Borjomi, with attached fractional non-agricultural land.
Investment Term: Within 1 year of concluding the contract, to carry out construction and rehabilitation works of the above property and invest GEL 1 000 000 for this end. Furthermore, within 10 months of signing the contract, to implement and/or finance municipal projects to be carried out by Borjomi Municipality to the amount of GEL 1 300 000.
The company has fully implemented all investment obligations.
The sole founder and 100% shareholder of Crossways Ltd is the well-known Georgian businessman Teimuraz Ugulava.
6.^ The same year, the state transferred to Vellagio Ltd 4782 sq. m. of non - agricultural land located in #25 Vazha – Pshavela Ave., Tbilisi, with 7 buildings for a token price.
Investment Term: Investing USD 3 985 239.8 to finance the resettlement measures implemented by the Ministry of Internally Displaced Persons, Accommodation and Refugees; depositing USD 14 760.21 in the account indicated by the Bank of Georgia within 10 days of signing the contract.
7.^ New Office Ltd was transferred various properties: 3259 sq. m. of non-agricultural land located on Rose Revolution Square, Tbilisi; 521 sq. m. of non-agricultural land; building # 1 (the fountain); and 90.95/416 part of the building located in #23 Sakanela Str., Tbilisi along with its attached non - agricultural land.
Investment Term: Until 1 May 2013, to carry out improvements to the 3259 sq. m. of non-agricultural land located on Rose Revolution Square, Tbilisi, the 521 sq. m. of non-agricultural land and building # 1 (fountain), and 2491 sq. m of non-agricultural land north of Rose Revolution Square, Tbilisi.
In order to meet such investment requirement an investment worth at least GEL 800 000 will be made.
New Office Ltd was founded by Silk Road Business Center.
8.^ NLP Central Public Health Referral Laboratory - 37366 sq. m. of non - agricultural land and buildings located in Kakheti Highway #3 Military District, Tbilisi.
Investment Term: Within 18 months of signing the contract, to build on the basis of the transferred property and install a laboratory complex, which should be in compliance with certain conditions.
9.^ Jemedi Ltd – 183 sq. m. of non-residential area on the ground floor of the building located in #2 Sanapiro Str. Tbilisi, and attached non - agricultural land.
Investment Term: Install a catering facility on the transferred property and put it into operation. For this purpose, an investment of a minimum of USD 200 000 USD equivalent in GEL must be made.
10.^ The Metropolis Center of Georgia Ltd - Basement (705.29) of the building #1, the first floor 771.95, buildings #2 - 54.46, buildings #3 - 325.39 in #67 Chargali Str., Tbilisi with attached non - agricultural land and 384 pieces of movable property.
Investment Term: Construction and rehabilitation work on the transferred property within 1 year of concluding the contract, and an investment of minimum USD 100 000 to carry out the contract conditions.
11.^ JSC Georgian Agricultural Corporation
1) 4 141 sq. m. of land plot located in the airport territory, Tbilisi, adjacent to the airport parking lot; 5307 sq. m. of land plot in airport, Tbilisi
Investment Condition: Organizing infrastructure on the transferred property no later than June 1, 2013, with the purpose of promoting vine cultivation.
2) 18910 sq. m. of plot located in Dighomi village, Tbilisi; 12026 sq. m. of land located on the Kakheti highway, Tbilisi, adjacent to “Avtovaz”; 4711 sq. m. and 3229 sq.m both located on the Mtkvari left embankment, adjacent to Vakhushti Bridge, Tbilisi.
Investment Condition: Organizing infrastructure on the transferred property no later than June 1, 2013, with the purpose of promoting vine cultivation. Investing in the transferred property a minimum amount of GEL 10 000 to implement the privatization terms.
12.^ State-owned assets were also transferred through direct sale for the token price of 1 GEL and under certain investment terms, to twenty-seven other legal entities; these investment term implementation deadlines have not yet elapsed. These include: NELP Caucasian University Foundation who received 13 741 sq. m. of non - agricultural land and buildings located in Gegeshidze Str. Samtredia. The contract terms stipulates the use of the transferred property for educational purposes and maintaining its educational profile for 20 years after signing the contract; EKO GEORGIA Ltd, one of whose heads is Osman Chalishkani (Mzhavanadze), the General Secretary of the International Investors Association.
In 2012, alongside real estate property, the state also disposed of moveable items without investment terms through direct sale for one GEL. During this period, seven Ltd-s were transferred a total of 1365 items of movable property, including several luxury cars and a variety of technical equipment.
The Alienation of state-owned property for a symbolic price is not in itself a violation of the law; in special cases, the law does allow for the transfer of property at a token price. However, when property is purchased through direct sale for GEL 1, it should be done openly. The reason being that other companies may put forward better investment terms, ensuring that the given property is used for the benefit of the national economy. Furthermore, the lack of clarity could allow for corrupt deals to prosper. In terms of transparency, the current practice contradicts the goals and requirements of the law. It is also necessary to carry out monitoring over the implementation of the investment terms after these disposal properties have been transferred at a symbolic price. If a violation is then detected, the person or company responsible should then be held legally responsible.
Alienation of property through direct sale is a common practice in many countries. This typically creates favorable conditions for investors, which, in turn, stimulates investment in the country. Ownership rights acquired through direct sale should be transferred to the buyer who fully and faithfully complies with the terms put in place for the privatization of state-owned property. It is very important that the government disposes of its assets wisely. Alienation of state property should serve specific goals; notably, it should contribute to the strengthening of the private sector and increase its effectiveness, attract investment, secure employment, etc. Priority during property alienation should be given to the investor (the purchaser) who ensures that the transferred property is used for the benefit of the national economy. It is therefore necessary to establish certain criteria and conditions for the transfer of property. Decisions that result in unconditional property disposal are fraught with risks. In such cases, justification should be provided for the necessity to dispose of the property. The documents that we have examined, as a rule, do not provide justification for similar cases.
Recommendations
Problems associated with the direct sale of state-owned assets at a symbolic price either stem from imperfect regulation or area result of the government's decisions that are inconsistent with the law. Therefore, the following steps need to be taken to address the problem:
- Improve legislative regulations and enhance the accountability of those responsible;
- Ensure maximum transparency of the process and effective public awareness;
- Provide complete justification of the petition submitted to the President and ensure public access to decisions in accordance with the requirements of the law.