Giving carte blanche to Inter-Rao
20 January, 2011

In quest of money Georgian government decided to divest its 24.53% of shares at Telasi, Tbilisi Electricity Distribution Network. What scares experts is that the state will finally lose control over the strategic object like Telasi and it will remain at full discretion of the Kremlin-owned Inter-Rao, which controls 75% of Telasi at the moment.  
Georgian government plans to divest 24.53% of its shares at Telasi by the end of this year, Aleko Khetaguri, Minister of Energy of Georgia, informed

on December 29, 2010. Shares are to be sold via international stock exchanges. Negotiations with Inter-Rao are close to the end and the government hopes to implement the Initial Public Offering (IPO) of its 24.53% of shares at JSC Telasi by the year’s end.
However,  Khetaguri cannot say at the moment whether or not the entire 24.53% will be sold out. Khetaguri does not rule out to break down this 24.53% in smaller portions so as to attract several petty investors at Telasi. Neither rules he out that Inter Rao itself will acquire part of the questioned state’s share at Telasi but did not elaborate how much.
Presently Inter Rao is a 75% owner of Telasi, out of the remainder 25% Georgian state owns 24.53 and the 0.47% is held by petty shareholders. The state detained 25% of shares in its ownership after privatization of Telasi when American-based AES bought the company for USD 60 million in 1998. Later the state tried to divest its shares at GSE but only 0.47% was sold as there was no special interest for the company considered to be non-profitable at that time.
However after implementing significant investments in infrastructure rehabilitation including completion of the overall individual metering process by almost 90% AES was actually forced to quit the country and hand over the company to  Inter Rao in fall of 2003 [shortly before the Rose Revolution] for USD 26 million. In addition AES paid off USD 60 million of Telasi arrears in effect paying Inter RAO USD 34 million to take Telasi off their hands.
No sooner Inter RAO undertook Telasi assets that it disbursed about a USD 600 million loan to Telasi to finance its further development. Whether or not this debt is paid off by today is not clear, the local office points to Inter Rao head-office in Moscow for an answer. Telasi kept a notorious fame of non-profitable company until 2008. Commensurately its price did not exceed GEL 1 per share and there was no investors’ rush for it, Giorgi Loladze, Director General of Georgia Stock Exchange (GSE), said.
Khetaguri wonders however why on earth the previous government detained 25% during the privatization of Telasi as far as it gives neither privilege nor a voting right to the owner. Therefore he thinks that the state had better enjoy the profit by divesture of the now remained 24.53% rather than keep it forever and never know any benefit.
The pre-Rose-Revolution government can escape responsibility for non –transparent privatization of Telasi and suspicious attempts to oust American-based AES off the country. But the truth is that by the 25% detained at Telasi government kept a right to remain in the supervisory board and keep control over the decision-making process of the company with strategic importance. According to law valid till 2009, an owner of at least 20% in the company had a guaranteed member in the supervisory board.
In the meanwhile the incumbent government aggravated rather than retrieved the mistakes of its predecessor.
In December of 2009 the current government amended the law on entrepreneurs that revoked the right of 20%-stake-holder to have its guaranteed member at supervisory board. And the privileges granted by 24.53% vanished. Looks like Khetaguri had better inquire his colleagues why on earth they amended the law in this way [that affects the entire Georgian investment climate] rather than put out rhetoric questions referring to previous authorities.
“Thanks to old law, Georgian state still has its member at Telasi supervisory board today as far as the board is elected for two years and the office-term of the current board is not expired as yet,” Ditrikh Muller, one of the founders of the Georgian Investment Group [operating at GSE], told Georgian Journal.
On the other hand, he fears that the only interested investor for Telasi shares may be Inter Rao that owns 75% and covets for full control of Telasi. This here amendment gives a carte blanche to Inter Rao that can become the single decision-maker in the company by acquiring just one more share.
Economic analysts say it is crucial for Georgia to detain its 24.53%  completely  as far as if Inter Rao acquires even one more stock above the already owned 75% Georgian state loses its  right to participate in decision-making process of the company. According to Georgian law on entrepreneurs, the owner of more than 75% stocks can draw out any decision without agreeing the issue with other  stakeholders. 
If it acquires 20% and enhances its packages of shares to 95% Inter Rao acquires a right of forceful acquisition of the remainder stocks and can become a 100% owner in the end.
On the other hand acquisition of the even entire share of 24.53% [been in the ownership of Georgian state] can attract any other investors in the not much profitable company like Telasi that went on profit just three years ago. Its profit accounted for about USD 60 million past year – not too big a sum to lure petty investors if taken into account that 75% of it belongs to one investor alone.
“No serious investor will acquire the entire 24.53% [I do not say anything of less amount] if it gives no right to participate in the company’s decision-making process. According to Georgian law, any stakeholder with at least 5% has a voting right and now “thanks to” the new amendment it comes out there is no difference between owning 5% and 20% actually, as privileges are similar. It deteriorates the investment climate of Georgia very seriously as scares petty investors off, while petty investors lay ground to attraction of bigger investors,” Muller said.
He thinks that handing full control of a strategic object like Telasi [that is of social importance] to single investor company owned by the other state is a no-no deal and no commercial profit can justify this step. The more so if this single investor is based in Russia that openly claims that the year of 2011 is the last year to conquer Georgia.

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