A Breakthrough for Carriers
23 January, 2014
A Breakthrough for Carriers
Georgian carriers, opposed to a state-supported monopoly, have finally broken through. A year ago the Ministry of Finances (MoF) granted Georgian Post a monopoly. But those regulations have been canceled, and private carriers are back in business beginning 20 January. Carriers believe political will has shifted, and have hopes for the future, but still worry that the monopoly has compromised Georgia as a regional transit hub.
According to Tea Machavariani, a founder of a private carrier, Stargroup LLC, that started litigation
against the state, out of original 25 small carriers operating in the business only 3 remain.
Others now operate through Georgian Post; it is hardly possible they can start up independently in the near future; they have financial obligations to the Azeri cargo shipping company VAGO, which offered support to small Georgian carriers if they would operate through Georgian Post. Small carriers agreed who otherwise faced bankruptcy. As a result, VAGO was able to dominate the sector almost completely.
The Georgian carriers’ problems started in 2006, when the former government gave cargo shipping to Georgian Post, which normally handled only parcels; its justification was that this would prevent smuggling. But some carriers and analysts regarded this as a loophole for corruption, saying that Georgian Post could not handle cargo clearance transparently since it had only the capacity for post parcels, and it is not connected to the international customs network identifying and providing complete data on transported cargo.
Carriers hoped the new government would make changes, but it continued the policy. In January 2013 MoF required stricter licensing, making customs clearance available at Georgian Post only. Ultimately 10 carriers stopped activity, facing bankruptcy. Two sought answers to questions about the policy through the court and Transparency International Georgia, which found the new licensing terms to be a violation of competition rules and contrary to Georgian legislation.
In April 2013 MoF canceled the licensing terms effective 1 January 2014. This allowed the disputed regulations to remain in effect for another eight months, during which some small and medium-sized shippers were ousted from the market. However, on 31 December 2013 MoF issued a new order prolonging the regulations until January 20 of this year. Customs could not insure needed technical support to carriers earlier, MoF explained. Carriers believed eight months was plenty of time to effect this, and wondered if MoF did not plan to admit small carriers to business again. They expected more difficulties after the regulation deadline expired, but got a green light instead.
“This is a real breakthrough that we are admitted to the business at last,” Machavariani said in an interview with Georgian Journal. “This is a merit of the current authority and it means that the new government is really disposed to listen to business; that was impossible during the former regime. As a matter of fact, Georgian Post was put into the monopolistic position by the previous authority who acted in a deal with Azeri companies. The latter were interested to win the key transit hub function for Azerbaijan and control the freight shipping business. And they achieved the goal in fact: out of 25 private carriers there are just 3 of us remaining able to act independently. Those ten companies who operate through Georgian Post very likely cannot start independent operations until they pay off their financial obligations to the Azeri company.”
She plans to go ahead with the fight against the Georgian Post monopoly and put it out of the cargo shipping business so Georgia can fulfill its function as a regional transit hub. Moreover, lack of competition affected consumers when prices doubled.
“This is beyond the best international practice. You find no other civilized country where the state company handles cargo shipping; it undermines competition and sends prices up,” Machavariani said. Other carriers who suffered also plan to calculate losses and ask the state for compensation.
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