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Home / Business / Whether Actions by KaztransGas and Inter RAO Damage Reputation of Georgia

Whether Actions by KaztransGas and Inter RAO Damage Reputation of Georgia

INTER RAO has launched an investment dispute against Georgian Authorities to claim a compensation after GEL exchange rate depreciation.

Moreover, KaztransGas has also sued Government of Georgia to London Arbitration Court. Businessman Fady Asly, president of International Chamber of Commerce – Georgia (ICC Georgia), also argues with Georgian Authorities.

The Caucasus Business Week (CBW) has prepared an analysis.

whether the existing reality can harm Georgia’s investment environment.

Doctor of Economics, professor Rati Abuladze explains that today in Georgia there are many organizations founded by foreign capital. Moreover, Georgian economy operates stakes of foreign investments, various projects are implemented by  foreign specialists (including state projects), he said.

It should be noted that Georgia is recognized to be an investment-friendly and safe country, where interests of any investors are protected. In Georgia, for many years, competitive advantage of foreign companies were posing serious challenges to Georgian companies, while today Georgian politics is facing significant challenges.

Over the past period, disputes by KaztransGas Tbilisi (claiming 180 million USD from Georgian government  at International Arbitration Court) and the Dutch branch of Inter RAO (threatening to appeal to the court) have caused certain embarrassment in Georgia. Moreover,   Georgian Office of International Chamber of Commerce (ICC) has also expressed protests and  British American Tobacco Ltd has submitted an action to Constitutional Court against Parliament of Georgia. It should be stressed that the country respects interests of any foreign company and reacts to their complaints based on state interests. «It should be stressed that position of foreign companies  in relation to environment and Authorities is one of the key indicators of a strong country. Amid the existing situation, regretfully, it should be noted that:

  • Foreign business «has fixed eyes» on Georgian State Budget, which owes 15.5 billion USD. Consequently, additional debts of several tens of millions of USD will strip many citizens of financial resources.
  • There are conditions arisen in the country, when the state may become a field of struggle for foreign business (traditionally, business sector becomes such a field). Similar scenario may be developed because of the existing political and management factors, as well as political skills that have direct relation with strength of the state system and in this case, conduct of foreign companies;
  • Amid a lack of global politicians, expected processes have not been foreseen and steps taken by international business organizations turned out «unexpected».
  • Georgian political establishment has not given due reaction to this grouping of foreign interests and assessments made by them in relation to Georgian court system;
  • The ongoing developments will be reflected on Georgia’s investment attractiveness, shaping of global and local reputation of the country. As a result, the society will analyze and appraise outcomes and activities of the governing chain.

Rati Abuladze explains that Government should carry out adequate legal measures in relation to foreign organizations that cannot be integrated within domestic system, including, at the expense of investment attractiveness and expected changes in global reputation.

Situation arisen around KaztransGas and Inter RAO may damage Georgia’s investment environment, but this factor cannot be a determinant factor», economic expert Gia Khukhashvili noted regarding two legal disputes instituted by two major foreign companies against Government of Georgia.

Khukhashvili explains that this incident will not make positive affect on investment environment, but we should realize that the mentioned problems were accumulated for many years.

“In due time Government of Georgia made due reaction to this factor. There are no absolutely right or wrong parties in the history with TbilGas. There are many ambiguous aspects in terms of investments. The Problem is that our government has not paid debts so far. Finally, it turned out that the Authorities have set endless control over the company  without any perspective. And this fact caused discontent of Kazakh party”, Khukhashvili noted. This is a problematic issue and this fact may complicate situation with Kazakhstan, he said.

Moreover, if Georgia intends to be a hub connecting East with West, the country should keep intense cooperation with Kazakhstan, he added.

“Everybody understands very well that this is not business and this is business on the verge of politics. Similar factors may damage Georgia’s investment environment, but this cannot be a determinant factor”, Khukhashvili pointed out.

The history with Fady Asly is an absolutely different case, because this issue can bring real damages to the country, Khukhashvili added.

Expert of economics and lawyer Akaki Chargeishvili explains that there are many questions around these two companies. Namely, there are many issues that should be substantiated and analyzed. We should cast light on claims by KaztransGas against Government and only after that we will be able to conclude whether the existing circumstances may affect investment environment, he said.

KaztransGas should submit substantiations and after this we will be able to make due analysis, Chargeishvili noted.

«We need due substantiation. Maybe they just try to frighten the country. They argue that Government has failed to sell the asset, but this cannot be a real pretension. All claims  must have legal grounds and substantiation», Chargeishvili pointed out.

Before applying to arbitration court, domestic legislation could have been applied, he explained. And Georgia has adopted legislation for protection of investments, under which, first of all, domestic jurisdiction must be used. This signifies that the mentioned issue was to be discussed by domestic court. In the event the issue  remained unresolved on domestic level, the company could apply to other international arbitration court after that, Chargeishvili said.

This step should not be directed to defaming the reputation of our country. Otherwise, our government should institute opposite legal dispute, Chargeishvili said.

«I believe our Government should provide due explanations over the issue. There are many questions in this case for not only Government, but also private business. Explanations must be made by the private company too», Chargeishvili noted.

As to Inter RAO, in this case the affairs seem easier, because the case does not refer to bankruptcy, he noted.

«I think there are certain faults and misunderstandings. In these relations, it is upon GNERC, as an independent regulatory company, to set tariffs. Consequently, if TELASI company has applied for growth in tariffs, we do not have any information about this. Consequently, GNERC should make explanations», Chargeishvili said.

We realize that GEL depreciation causes growth in tariffs, but we have certain tax preferences in the part of profits. Therefore, we should cast light how TELASI has taken into account these aspects and so on.

«In this case it is also necessary to immediately involve GNERC and make explanations, based on privatization agreement, about the essence of the case and about TELASI demands. At the same time, TELASI should also make a statement about its pretensions against Government of Georgia», Chargeishvili noted.

It is a bad coincidence that KaztransGas has submitted an action to arbitration court in parallel regime with the action of INTER RAO, while there were no due preconditions from either Government or these two companies, he noted.

We remind you that KaztransGas has sued Georgian Authorities to court. According to Kazakh media agencies, the company failed to sell its subsidiary in Georgia and now it is trying to take back the company. KaztransGas Tbilisi director general Sanjar Shokataev told Commersant that KaztransGas Tbilisi will argue against Government of Georgia at London Arbitration Court. However, submission of an action to London Arbitration Court does not signify the negotiating process has been finished and we are ready to continue a dialogue with Government of Georgia in the future, he said and added that the company will recall the action in case the parties reach an agreement.

The Dutch branch of INTER RAO also plans to launch legal dispute against Georgia at an arbitration court and claim millions of USD as a compensation for losses after GEL exchange rate depreciation. According to Russian  media agencies, the company has evaluated the losses by tens of millions of USD. Businessman Fady Asly, president of International Chamber of Commerce, also talks about existing problems with investors in the country. Last night frontier guards made several top investors wait at the state border and humiliated them, while these investors were going to meet with the Prime Minister. And they let investors enter the country only after my interference. As a result, the country will lose investment projects they were bringing to this country! And we have similar results when ignorant people set regulations.

Do you seek foreign investments again? Trust me, you should forget them!» Fady Asly wrote on his own Facebook page.