According to financial analysts, Georgia already has trouble attracting investors and therefore the confusion surrounding privatisations is just slowing down or endangering the whole process. What do you have to say about it?

The foreign companies that take part in the privatisation process are divided into two groups: those who have a good reputation and resources and those who are simply “cowboys”. Unfortunately, the latter take part in the privatisation process because the law forbids us from filtering candidates.

But the debate about privatisations is inevitable. For example, hasn’t it affected France recently on the SNCM affair (the French ferry operator for Corsica and the Mediterranean – translator’s note)? In every privatisation, when the State has to give up its shares, the principle is to sell to the buyer who makes the best offer. But it is true that in Georgia we rarely go through the same process because we have inherited a very complex history. To take the steelworks in Rustavi as an example, its debts exceeded 100 million dollars. It was impossible to sell it as a company. The bankruptcy process had to be set into motion.

Moreover, there are two main systems of privatisation: auctions and invitations to tender. Auctions represent 90% of privatisations. In this case it is impossible for us to impose conditions on companies such as resolving ecological issues, sticking with the same line of business or keeping on the same number of salaried workers.

Invitations to tender represent about 10% of the privatisations. Up till now, this process has been carried out in two stages. After the first stage, a selection of bids was made after examination of the proposals submitted. The selected companies were free to make a higher bid, that is to say, to raise the price. That is an inefficient and dangerous system. Henceforth, we now have a one-stage process: after opening the envelopes, the contract is awarded to the company that has submitted the higher bid.

The second issue that has now been resolved is that up till now, nothing was stopping a company from offering to pay the maximum price offered by other companies plus an additional amount. Such offers were dishonest. For the last six weeks, invitations to tender have a clause forbidding submitting a bid with reference to another company’s bid. This could result in their disqualification. We are trying to erase the loopholes that could favour companies that wanted to win for sure. If this practice had continued, it would have meant an end to the privatisation process.

In addition, there is a third privatisation process: that of direct sale by presidential decree. But this is an exceptional procedure that concerns only four specific cases and all of them had been carried out before I became minister.


In mid-November, Prime Minister Zurab Nogaideli declared that the energy sector and the Electrokavshiri telephone company would soon be privatised. Can we deduce that these two privatisation projects will be your priority for 2006?

Absolutely. To guarantee a better organised process, we will initially try to hire the services of investment banks, that is to say, the financial and legal services that will organise the bidding process openly and beyond reproach. We will then open an invitation to tender for the financial and legal services within the next few days, which will become the Georgian government consultant for these two privatisations.


Still on the issue of energy, in actual fact it has been shown that Tbilisi could diversify its gas supply sources, through Kazakhstan in particular …

That is essential. But this option is bound by conditions, principally because this gas must pass through Russian territory. Until we have Russia’s full agreement to allow us to transport Kazakh gas through its territory, this contract will not be fulfilled. But we have good reason to be confident about this dossier, which is being negotiated bilaterally between the Georgian and Kazakh governments, and also between Georgia and Russia, and between Russia and Kazakhstan. For the time being, no trilateral meeting has been anticipated.


What part do Kazakh investments play in Georgia?

In the future, over 2006-2007, we estimate that Kazakh investments in Georgia will be in the region of 1 million dollars, not including the energy sector, and 2.5 to 3 billion dollars if you include the energy sector. They play a considerable role if you consider that the GDP of Georgia accounts for 6 to 7 billion dollars.

Kazakhstan is by far the first investor in Georgia, ahead of Turkey and Russia, who both invest equal amounts. French investors are also present in Georgia, mainly in the wine and spirits industry. There are also many Georgian companies based in Russia and the Ukraine who reinvest money into Georgia, particularly in real estate.

In the private sector, Turkey is present with its mobile telephone company Geocell - a highly competitive market with the American group Magti. As for infrastructure, Turkey is also about to make a capital investment in Tbilisi’s international airport of 77 to 95 million dollars together with the TAV company. They are going to increase the size of the terminal from 19,000 sq m to 24,000 sq m, without changing the terms of the contract.


You mentioned French investors in Georgia. What part do European investors play in your country?

They could play a larger role. Why do foreign companies have so much trouble competing with Russia, Kazakhstan and the Ukraine in Georgia? The answer is simple. These countries do not perceive the risk to be as great and they are prepared to pay more. Russian, Kazakh and Ukrainian companies compare the Georgian situation with the situation within their own borders. The result is clear: less risk, at a better price.

The Russians, for example, are prepared to pay the same trade price in Georgia (the trade price being a unit of assessment for companies) as in Russia or Kazakhstan. A French investor is prepared to buy assets in Georgia for 30, the same asset in Russia for 60 and in France for 200. A Russian investor however, is prepared to buy the same asset in France for 200, in Russia for 60 and in Georgia for 60. A difference of risk assessment has created this problem for Western investors, European and American alike, for taking part in the process of privatisation and staying competitive.


Is there any rivalry between American and European investors in Georgia?

I don’t think so. There is competition for projects between Russia and Kazakhstan, and between Russia and Turkey. There is an American presence in Georgia, a presence which is due to Georgian national security, but also the Millennium Challenge corporation which set aside 299.4 million dollars for Georgia and there’s also the restoration of the Georgian - Armenian gas pipeline and mutual interest in the stability and security of the Caucasus.
But today it is difficult to speak of a significant European presence in Georgia. European investments remain centred around the wine and spirits industry. For the time being, the essential aim for Georgia is to reach an agreement on free trade with the European Union. We hope to be able to achieve that within a year.