Home / Economy / Outcomes of Unreasonable Privatization

Outcomes of Unreasonable Privatization

Government Loses 5 million GEL from Sales of Economy Ministry Building and Constructing New One. No Investments Made Yet.

On June 26, 2015, the building of Ministry of Economy and Sustainable Development was sold for 9 450 000 USD. Physical body Tamar Maziashvili bought the building by auction. Later, it was clarified that Tamar Maziashvili represents Chinese Hualing Group. The company confirmed this fact.

Starting April 1, 2016 Ministry of Economy and Sustainable Development rented the building at Chovelidze Street N10, Tbilisi, from LLC Business Center Belinski. Monthly rental was 75 000 USD. Total rental of the building in 2016 constituted 675 000 USD. The building was furnished by due furniture for working process, material-technical basis and parking space. However, Ministry of Economy spent 33 600 GEL on arranging Internet network in the building. As to 2017, Ministry of Economy spent 900 000 USD in rental and if we take into account the first quarter of 2018, in 2016-2018 Ministry of Economy has spent 1.8 million USD on only rental (in April 2018 the Ministry moved to Justice House, on the territory of former Energy Ministry).

The world practice suggests that, when a government office sells its own property in the center of a city, to a private investor, it moves to a cheaper building at the outskirts. The government office may either construct a new building or overhaul an old state-owned building. Similar measures are taken for cost-efficiency purposes, however, the case with Georgian Ministry of Economy and Sustainable Development has no relation with cost-efficient purposes. The state budget has raised 9.45 million USD from sales of the building of Ministry of Economy, however, Ministry of Economy spent about 2 million USD after moving to the new building, which makes up 19% of the privatization amount. At the same time, the 2018 state budget comprises expenditures of 30 million GEL for constructing a new building of Ministry of Economy. Under the current exchange rate  ($1=2.46 GEL), this signifies a construction of the new building will cost 12.19 million USD, while the state budget collected only 9.45 million USD from sales of the old building. At the same time , if we deduct 1.8 million USD rental,  the funds raised from privatization will be reduced to 7.65 million USD.

As as result  of “valuable and professional” plan by former and acting Ministers of Economy, the state budget losses from sales  of the old building and constructing a new one made up 5 million USD.

At the same time, hotel construction works have not started at the former building of Economy Ministry. More than 2 years have passed since the building privatization, but Hualing Group does not specify the time for starting works. At this stage, the investor has agreed only a preliminary design with Tbilisi City Hall. Under the project, the investor plans to broaden the existing building, however, the company has not agreed a detailed project with Tbilisi City Hall. Consequently, the company has not received a building license either.

According to National Property Agency, Hualing Group is to fulfill investment obligations until April 20, 2019. In this period the company must open a hotel with at least 100 suites. If the company fails investment obligations and there is much probability for that, the company is expected to be fined, However, the Georgian experience shows that similar major business companies are fined rarely.

As a rule, the Government revises investment obligations and business companies maintain state-owned properties for lower prices, when properties are worth of several millions of GEL. Under current reality, it is impossible to build a hotel with 100 suites up to April 20, 2019. Consequently, the time will show whether Government imposes fines on the large Chinese business group. Otherwise, we will have one more fact, how the investor will maintain the state-owned property  despite violation of preliminarily agreed conditions.

The case with the building of Ministry of Economy and Sustainable Development is an evident proof of Georgia’s unreasonable privatization policy, which is carried out without any strategy or preliminary calculations. As a result, we receive the situation, when the Ministry was to save budget funds by sales of its building in the center of Tbilisi and through constructing a cheaper building, but we have received absolute opposite reality.

By Merab Janiashvili
Economic Analyst
More by By Merab Janiashvili