Curb Monopolies to Prevent Price Hikes – Saakashvili Tells Ministers

President Saakashvili has instructed his cabinet to crack down on “import monopolies” which he said were contributing to recent price hikes.

In a live televised cabinet session on October 24, Saakashvili asked his ministers to brief him on the reasons behind the increased prices on some products, particularly foodstuffs. High consumer prices are seen as a factor in public discontent, with the issue gaining greater profile amid the ongoing political standoff between the authorities and the opposition. A mass protest rally is planned for November 2 in a bid to force the government to agree to early parliamentary elections.

Twelve-month inflation was 9% at the end of September 2007, according to the Department of Statistics, but many economists question that figure, saying the real rate of inflation is in fact much higher.

“I know that prices went up on some products and I want to know what the reason behind this trend is,” President Saakashvili told Prime Minister Zurab Nogaideli.

The prime minister blamed factors beyond his control.

“Unfortunately, prices went up on many products in recent months, mainly because of foreign factors. We do not produce these products – I mean wheat flour and bread; we import flour mainly from Ukraine and Kazakhstan where prices have also gone up,” Nogaideli said. “The price of dairy products also went up because of foreign factors.”

“What about the price of sugar?” Saakashvili asked the prime minister, who replied that “although we have a sugar producing factory in Georgia it can only supply 4% of our needs.”

Vano Merabishvili, the interior minister, intervened at this point to say that his ministry had undertaken measures recently which eventually led to a decrease in the price of salt.

“I want to give you one example about prices,” he said. “You know that the price on salt was extremely high recently. So we decided to release 800 tons of salt from our ministry’s reserves, which is now being sold in the provinces. This has resulted in a decrease in the price of salt. The reason for the price hike was that there was a monopoly, with one company importing salt from Ukraine and controlling 70 or 80% of the market here.”

The president, having considered what his two ministers had just told him, then said that the recent price hikes were caused by both foreign factors and homegrown monopolies.

“Unfortunately, a number of sectors, I mean those relating to the import of some products, are controlled by monopolies and the salt case is very good example of this,” Saakashvili said. He then continued: “The case of a company importing hygiene products, which has been involved in a corruption scandal recently, is also a good example.”

Saakashvili was referring to ARTI Group, a distributor company for Procter&Gamble, Gillette, Wella and other companies, which is owned by businessman Kibar Khalvashi, a close friend of the former defense minister, Irakli Okruashvili. The whereabouts of Khalvashi, whom prosecutors want to interview, is unknown. His brother, Niaz, who also has shares in Kibar Khalvashi’s businesses, was recently arrested and charged with buying a stolen car and falsifying a tax paper. Niaz Khalvashi’s lawyer said the charges were fabricated and his client was arrested because he was Kibar Khalvashi’s brother.

Last month, the Revenue Service launched a tax audit of ARTI Group, which resulted in the company ceasing operations. ARTI Group executives claim that despite the fact that no financial irregularities have been uncovered, the company has been prevented from resuming normal business, which has brought the firm to the verge of bankruptcy.

“This one company was importing products ranging from toothpaste to nappies – the later is an acute issue for me [Saakashvili has a two year and ten month old son],” Saakashvili said. “And when another company tried to enter the same market, our precious defense ministry – I’m not referring to [Davit] Kezerashvili [the current defense minister] – prevented it from entering the market by practically using battle tanks. And it happened while we were in power, my brothers.”

Saakashvili’s remarks were an obvious reference to the ex-defense minister, Irakli Okruashvili, who has been accused of improperly lobbying for his friend Kibar Khalvashi’s businesses while serving as Minister.

“So, our major goal today is to curb all types of monopolies,” Saakashvili added. “We will not let anyone have this type of privilege and exclusive rights over any sector of Georgia’s economy. We should create a healthy competitive environment. When there is competition there is also competition in pricing, which in turn means lower prices and better services.”

He instructed the government to immediately abolish the Economy Ministry’s Agency for Free Trade and Competition, which was set up in 2005 to replace the Anti-Monopoly Service.

“This agency should be abolished because there is indication at all that it even exists. I guess they do nothing at all,” Saakashvili said.

He also instructed the government to set up a special inter-agency group under the prime minister’s chairmanship to “regularly discuss issues” related to monopolies.