Draft on Rescheduling State Company Debts Sparks Controversy

Experts criticize government’s decision to reschedule debts of the state-owned strategic industries for 15 years.

The draft law, elaborated under the direct instruction of the President, considers rescheduling or even pardoning of the credit and tax debts of up to 40-45 large-scale enterprises. The government authorities believe this decision would help to privatize the state-owned companies.

Experts fear however, that well-linked financial groups would use the decision for their own benefit. Roman Gotsiridze, head of the budget office of the Parliament, thinks that with adoption of this law “debts of only those enterprises, which are in the sphere of interest of the influential economic groups would be rescheduled”.

Demur Giorkhelidze, member of the Budget and Fiscal Committee of the Parliament, agrees. He believes that only those entities that developed close links with the government would be allowed to reschedule their debts.

The draft law “On Rescheduling of the Tax Debts and State Loans” was developed in the Ministry of Finance. The law applies to the enterprises in which the state has a share of 50% or more. The majority of the debts accumulated in 1995-97 and is heavy burden for these entities’ development.

The Minister of Finance Zurab Nogaideli says that the fears on misuse of the law are groundless and provides his own rationale: “In order to successfully privatize these enterprises we should allow the investors to immediately direct their investments towards the rehabilitation of these enterprises and to worry about their debts later” – says Nogaideli.

But experts believe that in many of the enterprises the company bosses accumulated the debts intentionally to buy of the companies at a fraction of the market price later on. Large enterprises were routinely privatized for just couple of thousands of dollars, because they were on sale with millions of dollars in debts.

“The debts were good for distraction of the potential buyers. Directors of these enterprises and the influential governmental officials acquired them almost for free. Now they want to reschedule those very debts they used to buy-off the companies,” Roman Gotsiridze says.

There is yet another issue, which is a subject of serious controversy. The President must make selection of the companies whose debt should be rescheduled personally. Absence of the checks on unilateral authority increases the possibility that certain privileged groups may benefit from this law.

Roman Gotsiridze thinks that the decision on rescheduling should be made only by the Parliament. President might only act as an initiator of the process.

Finance Minister Zurab Nogaideli names companies such as “Azoti,” “Ferrous Alloys,” “Chiaturmanganum” and Rustavi Steel Factory among the enterprises anticipating their debts to be rescheduled. These companies are located in Tbilisi, Rustavi and Kutaisi, three major cities of Georgia.

A part of these companies does not operate at the moment. Rustavi Steel Factory is a case in point. Almost in every public speech President Shevardnadze urges for necessity of recovering this giant company, which once was a workplace for a whole city of Rustavi.

Chemical industry giant “Azoti”, also located in Rustavi, ends every fiscal year with losses. Privatization of “Azoti” in 1999 caused a major scandal as Gia Jokhtaberidze, President’s son-in-law, acquired the company. As a result of the public scandal Jokhtaberidze was forced to return shares of the company to the state.

Privatization of Zestafoni Ferrous Alloys and “ChiaturManganum” ended in disgrace as well, when the investors failed to fulfill their liabilities.

Privatization of these enterprises with millions of dollars of debts is a complicated process indeed. However, current level of corruption provokes suspicions that even in case of rescheduling of the debts these entities would be taken over by those very officials that have been accumulating debts intentionally.

If these fears are proven true the new owner would rather look at breaking down and selling off the monstrous soviet-style factories rather that at resuming production. Metal scrap and alloy scrap has been one of the major Georgian exports throughout the last years.

It is yet unknown when the parliament will decide to discuss the draft, however it already sparked controversy and arouse fears that the rules of the fair play in Georgian economy are violated again for the benefit of the few, but under the banners of economic growth.

By Giorgi Kalandadze, Civil Georgia