MYSTERY SURROUNDS GEORGIAN RAILWAY PRIVATIZATION
Dali Bzhalava Natia Verdzeuli
Daily Georgian Times
Feb 4 2008
Georgia
The lack of transparency in the Georgian Railway privatization has
enkindled a number of speculations over who is interested in the sale
and who will become its new owner.
Some say that Kakha Bendukidze, a former state minister was the
initiator of the privatization plan. Many speculate that the idea
originated from Moscow, which tries to establish full control over the
transport infrastructure of the region and prevent a diversification
process of the Caucasian transport system.
Another version states that the process of privatizing the Georgian
Railway is concerned with a statement made by Irakli Okruashvili,
ex-Minister of Defense, that the company belongs to President
Saakashvili’s family.
After Okruashvili’s announcement, the Ministry of Economic Development
abolished an agreement between authorities and British company
Parkfield Investment, winner of the tender on a 99-year management
right. The Ministry did not ever explain the reason for their
withdrawal. Another version of speculation states that authorities
need to sell the Georgian Railway to compensate for money spent during
the elections.
Experts in economic issues say that there are other, objective
reasons as well. The Georgian Railway is one of the largest state
companies that have been consistently profitable. Hence, in terms of
geopolitical, regional or internal financial issues, open and hidden
struggles between neighbors with strategic interests have always
been in the process to seize this important unit. The struggle was
identified among ruling political forces as well.
"The railway always provided cash for the head of the country in
Shevardnadze’s period and later, this trend continues. We hoped to
eradicate corruption and transform the railway into a company serving
the country. However, certain undesirable signs emerged later that
a strange treasury would be formed based on the Georgian Railway. I
made an official announcement then and left the supervisory board
as the game rules were unacceptable for me," says Gia Khukhashvili,
an economist who was formerly a member of the Georgian Railway
supervisory board after the Rose Revolution. Khukhashvili declares
that at that time, the authorities initiated the formation of a
"treasury." He does not mention concrete names.
One oddity is that the replacement of the Prime Minister is always
followed by a replacement of the railway ruling board. The reshuffles
did not always go smooth. Georgians remember the incident that
happened soon after Rose Revolution, when a protege of Zurab Zhvania
was appointed director general of the Georgian Railway and was soon
made to leave the post and the country.
Management changed as soon as Zurab Noghaideli became a prime
minister. Gia Arsenishvili was appointed head of the Georgian Railway
supervisory board. He occupied the post for one and a half years.
Arsenishvili was considered to be a protege of Zurab Noghaideli.
During his term, the railway made a profit of 102 million GEL.
Despite this, he had to leave the post.
According to our source, Gurgenidze, who at that time was a promising
fellow at teha ge of 26, was brought to Arsenishvili to appoint him as
infrastructure director. Arsenishvili refused to appoint a man without
relevant experience. Two weeks later, the parliament adopted a law
under which the supervisory boards were closed in all state structures.
Gia Arsenishvili left Georgian Railway in accordance with the law. He
confirmed that fact in his interview with Georgian Times. However,
there is suspicion that his dismissal had been planned earlier. As soon
as Arsenishvili left the company, Gurgenidze occupied the position
of infrastructure director. After that, Noghaideli’s influence also
started to ebb.
Lado Gurgenidze and Georgian Railway
After Lado Gurgenidze became Prime Minister, the issue of replacing
management was still on the agenda.
Experts think that after the authorities again change power,
management of the Georgian Railway will also change and somebody
may be detained as well. Gia Khukhashvili states that, "The team
managing the railway should serve in favor of the authorities. Hence,
replacement is quite possible."
According to the expert, it is obvious that authorities are rushing
to sell Georgian Railway. However, the reasons are uncertain. "The
requirements for those interested in owning the railway are
unacceptable. It turns out that, in fact, no conditions are offered
to the applicants. It means that the country has no vision of the
railway’s future. Actually, those interested in competing have been
told that they can write anything they wish. All this is unimaginable,"
states Khukhashvili.
Who wants the Georgian Railway?
According to Civil Georgia, five companies have expressed an interest
in buying the state-owned Georgian Railway Ltd. The list includes:
~U Stratton Holdings, a U.S.-based investment management firm;
~U Centre Invest Capital Partners – the Economic Ministry said it
was a Russian company, but no other information is available;
~U Capital Investment Group AG – the Economic Ministry said it was
a Swiss company; no other information is available;
~U East Capital – the Ministry said it was a U.S. company; an internet
search, however, produced a company with the same name based in
Stockholm and specializing in asset management with a focus on Eastern
European markets;
~U Silk Road Group – a Georgian holding with diversified business
interests in transportation, real estate, financial services; the
holding operates a fleet of about 3,000 rail tank cars.
Submitting a proposal, the details of which still remain confidential,
does not necessarily mean that the country’s railway network will be
sold. The Economic Ministry said it still had not decided whether the
network would be privatized or the management rights handed over. A
share issue was also an option, officials said.
An expression of interest by a potential investor, according to
the Ministry, does not oblige the Georgian authorities to sell any
entity. The Economic Ministry said it reserves the right at any time
to withdraw from the purchasing procedures; or suspend or change or
exclude any interested party from the purchasing procedure.
Illegitimate and suspicious privatization
The opposition New Rights Party has demanded that the authorities not
sign any major privatization deals before the parliamentary elections,
in particular one on the Georgian state-run railway.
"It is obvious that through privatization of the railway the
authorities are trying to fill empty coffers," the statement issued
by the New Rights Party says, "We believe that the government, whose
legitimacy is questionable, should refrain from privatizing major state
assets, especially those of strategic importance." The opposition has
refused to recognize Mikheil Saakashvili as the legitimate president.
The opinions of authority representatives also differ regarding
privatization of the Georgian Railway. Niko Lekishvili, head of the
Sector Economy Committee thinks that a moderate position is necessary
in the privatization process of such a big unit as a railway.
According to Lekishvili if we look through the privatization process
we can see that foreign companies bought many state-owned companies
in Georgia. "I don’t understand why foreign state companies are better
than Georgian companies," says Lekishvili.
Economist Soso Tsiskarishvili is also against Railway privatization.
He thinks that Georgian Railway must not be sold, but considering
current developments everything is expected. The expert declares that
it is still uncertain what is included in the privatization package.
Tsiskarishvili says that if the matter concerns tariff policy and
guarantees of international transportation it means that we say no
to a transit policy. Dozens of millions of euros are spent on the
Caucasia-Central Asian railway space to provide transport corridor,
alternative to Russia.
Who owns Georgian Railway?
The Ministry of Economic Development announced a competition for
the privatization of Georgian Railway’s state share last autumn. The
applicant companies had to submit possible price, development plan,
volume of investment and terms for the plan implementation. The
deadline for submitting applications expired at 5pm, January 28, 2008.
Earlier, in summer 2007, the authorities planned to grant the
Railway with 99-year management right to British company Parkfield
Investment. The company assumed responsibility to invest 1 billion USD
in the development of the enterprise during 10 years. However, later
the decision was revised. It was said that the British company did
not satisfy the conditions. The most difficult among these conditions
was the removal of the railway from Tbilisi and Black Sea coast.
It is rumored that in autumn 2007, before the political processes
the authorities tried to strike a deal with Imedi owner and exchange
the railway with Imedi TV. Nona Gaprindashvili, one of the members
of Badri Patarkatsishvili’s political movement also confirmed the fact.
According to Nona Gaprindashvili, the authorities tried to become
involved in the activities of TV Imedi. Later the government members
offered a solid sum to Patarkatsishvili in return for Imedi TV. They
held negotiations about the exchange of Imedi and Georgian Railway.
According to The Georgian Times, a group of businessmen from Israel
visited Georgia. Assuminlgy they were Patarkatsishvili’s partners.
They were interested in buying Georgian Railway and they learned all
the details of the company activities. It is uncertain who took part
in the process on the Georgian side. Irakli Ezugbaia was not involved
in the process.
Bank of Georgia and Georgian Railway
The Bank of Georgia was a partner of Georgian Railway. The Georgian
Railway’s employees received salaries from the Bank of Georgia and
this is an entirely legitimate agreement. However, what is surprising
is that Georgian Railway had 48 million GEL on its account in the Bank
of Georgia. The money has finally become a subject of discord between
the top managers of the company. Some of them thought that the money
should have been withdrawn and invested in the railway to increase
the company’s profits. Some others believed that Railway would have
more benefits if it continued reaping the benefits of the deposit.
In September 2007, ex-Minister of Defense Irakli Okruashvili accused
the President’s family of having financial interests in cellular
company Beeline and in the Georgian Railway. The economic analysts
do not rule out that the government’s rush to sell the railway in
this vague manner is an attempt to legalize the government’s interests.
"It is difficult to comment on the issue as I do not hold sufficient
information. When so many statements have been made on the issue and no
one from the government tried to deny them, it does raise suspicions,"
says Gia Khukhashvili.
Russia’s interest
Experts also worry that Russia may seize Georgian Railway. Russian
Railway officials said they are interested in taking over Georgian
Railway. Russia wants to buy not only the operational part of the
link but also the section running through Abkhazia. Russia already
has a controlling package of the Armenian railway and if it grabs a
stake in the railway, it will emerge as a more serious geopolitical
player in the region.
"I know that Russia will do its best to somehow grab the railway
because the political price of the railway for Russia is too big. No
one will pay for assets as much as Russia would," says Khukhashvili.
Georgian Railway has always been a profitable company and is a
profitable today. However, the experts say that it has serious
problems. The railway needs sound investments to develop its
infrastructure but, since the sale of the company is intertwined
with the security of the country, the railway has acquired political
importance.
Experts say this is one more argument why the railway should not be
disposed of so quickly. The government does not have to necessarily
sell control of the company to attract investments and there are a
number of other options to retain some shares in the company should
there be the political will for it.