Excusing Fines to Investors
26 November, 2013
Excusing Fines to Investors
The projected 6% growth looks impossible for the Georgian economy this year. In June the International Monetary Fund predicted 4% growth, while the European Bank for Reconstruction and Development anticipated 3%. But recently those figures dropped to 2.5% and 2%, respectively.
The new government will excuse administrative fines for breaking investment agreements to those investors who have implemented their investment projects by today. GEL 2.8 million worth of fines have already been excused to over 40 investors, and GEL 4.6
million worth of fines are under discussion to be forgiven next month.
Some sector pundits approve the initiative as positive, signaling that Georgia is investor-friendly; others disapprove of the idea on grounds that it is non-transparent.
An Inter-Structural Commission set up with Ministry of Economic and Sustainable Development of Georgia (MOED) for the purpose of handling state property has discussed over 50 investment cases of fines being charged for the breaking of investment agreements with the state. Over 40 investors - those who have successfully fulfilled investment obligations by today - were exempted from fines, in order to enable them to carry on investment projects that might have been suspended due to unpaid fines.
The Commission discusses such investment obligation breakage cases each month, starting this past March when the Commission was created under the initiative of Giorgi Kvirikashvili, Vice-Primer and Minister of Economic and Sustainable Development of Georgia, to help investment projects stalled since 2008 by the global financial crisis and the short war with Russia.
The issue is complicated, and in several instances the Commission is staffed by representatives of finance, infrastructure and regional development, as well as justice and interior ministries. The State Property Agency is the secretary and major body raising issues. Other ministries and state structures are also called in to help if a case involves any of them.
As Dimitri Kumsishvili, Deputy Head of Economy and Sustainable Development, reported to media on 14 November 2013, the Commission discusses only those cases when the fines exceed GEL 100 thousand and the investor asks to delay its investment obligations for more than a year. According to Kumsishvili, some agreements entail GEL 500-100 and even up to USD 250 thousand worth of fines per past-due day.
There are two problematic groups: one includes projects that implemented investment agreements, but with certain delay; still, if some terms are not fulfilled, penalties may accrue to millions.
The second group includes companies that are exempted only for a while in order to enable them to continue activity. “At the moment the temporary exemption amounts to more than GEL 10 million. All this enables investors to go ahead with their activity,” Kumsishvili elaborated.
To get temporary exemptions or restructure debts, investors have to apply to MOED, and if the Commission finds their arguments relevant the requesters will get preferences.
Davit Aslanishvili, a co-founder of Georgian Investment Group+, is doubtful however that the Commission makes proper decisions, and thinks it requires more transparency. “Does anybody know what kind of terms the excused investors had with the state? We speak of projects mainly that were initiated in frames of the privatization process; otherwise, the state could not handle the questioned projects. We all remember how non-transparent was the entire privatization process; contracts were not public and nobody could say for sure what the contract terms were. And how can we judge now the relevancy of the Commission’s decisions if these contracts are still not public?” Aslanishvili wonders. “Let them make all excused contracts available through web-sites, and then we’ll see whether or not the initiative is positive.”
Irakli Lekvinadze, an economic analyst, approves the fine exemption and debt restructure initiative, as it indicates that Georgia is an investor-friendly country. “Most of the problematic investment projects faced difficulties after 2008, as they could not recover from the double impact of the war and financial crisis, plus the crackdown on business practiced by the former ruling power. At any rate, this is a good initiative inasmuch as it signals that doing business in Georgia is safe and the ministry of economy is compassionate to business,” Lekvinadze said to Georgian Journal.

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