EBRD Loan Revoke Gives Rise to Speculations
24 November, 2011
EBRD Loan Revoke Gives Rise to Speculations

The decision of state owned Georgian Railway LLC to continue the Tbilisi Railway Bypass Project without the EUR 100 million credit of the European Bank for Reconstruction and Development gave rise to the speculations that not the GR but the EBRD declined funding of outrageous violation of property rights in the resettlement process.   

Early in November GR announced it no longer needs the EBRD credit to fin

ance the EUR 300 million worth Tbilisi Railway Bypass Project of the construction of a new bypass to re-route rail traffic beyond Tbilisi centre to improve the efficiency and safety of rail operations as well as to solve environmental issues and release about 83 hectare of land in Georgian capital for urban renewal projects.

The project had three following funding channels: EUR 100 million of EBRD credit, internal GR resources as well as a part of sums that GR yielded through the Eurobond emission [about EUR 80 million] in July of 2010, and EUR 8.5 million through technical assistance and grants earmarked by the EU Neighbourhood Investment Fund.

GR assures that this year’s profit allows to decline the preferential EBRD credit that makes up one-third of Tbilisi bypass project financing.

“The EBRD credit was offered under very preferential terms but this year was very successful to GR that enables us to find internal sources to fund Tbilisi bypass project without the EBRD credit,” Irma Stepnadze, a Spokesperson of GR explained to Georgian Journal.

According to GR official papers, profit and total comprehensive income nearly doubled this year based on six months data compared to 2010. Six month period of 2011 makes GEL 93. 562 million while similar figure of 2010 stands at GEL 30. 558 million. However Ditrikh Muller, a market analyst with the Georgian Investment Group, doubts the GR financing is scarcely sufficient to reimburse EUR 100 million of the EBRD given under most preferential crediting terms and GR very likely would not have declined such a lucrative deal at its own discretion. He presumes that under official reasons of the EBRD credit cancelation stands the EBRD’s strong position cutting funding to GR that did not comply with the EBRD requirements.

Zakaria Kutsnashvili, Head of non-governmental Law for People, also believes not GR but the EBRD cancelled the credit deal for outrageous violation of landowners’ rights in the resettlement process.

Kutsnashvili protects interests of about 100 landowners out of more than 860 proprietors whose rights were infringed by the resettlement plan. GR have been offering trice lower than market price to landowners and implemented illegal expropriation of lands through ministration of government, police and court.

To find truth part of the offended proprietors appealed to the EBRD. The EBRD sent an independent audit to check whether land acquisition, compensation and resettlement activities carried out by GR comply with EBRD requirements that was an obligatory condition for the EBRD funding. These standards first of all include disbursement of fairly calculated compensations to the affected landowners.

“This audit has led to a number of recommendations and questions to GR,” the EBRD source informed Georgian Journal in this past July after the audit was completed, but the EBRD did not disclose details of questions and recommendations under the pretext that the audit is an internal tool.

Nina Phkhakadze, Head of Legal department at GR, assured in this past September that “the EBRD independent audit did not discover any serious infringement and that the compensations were disbursed in full compliance with the Georgian law as well as the EBRD’s environmental, social policy and resettlement requirements.” Therefore GR could appeal to the EBRD for the loan transfer any time.

However the EBRD accentuated that it did not disburse any part of the loan as “per the loan agreement such disbursements are conditional to satisfactory resolution of land acquisition issues, amongst other conditions.”

GR swears the EBRD continues partnership on supporting other priority projects with the railways. However neither the EBRD nor the GR disclose details of other priority projects at the moment.

Neither GR nor the EBRD connect the credit cancellation with the audit findings, however Georgian experts read between lines.

According to Kutsnashvili, GR went ahead with its offensive policy in spite of the recommendations made by EBRD’s audit [GR did not provide GJ with the audit finding papers as of yet] that led to cancellation of the deal. The Court declined the land expropriation claim on the one hand, on the other hand it approved the claim on lands evaluation although assigned the re-evaluation expertise to the similar company that was accused in underestimation of the questioned lands.

Kutsnashvili worries that the EBRD aquittance is a scandal and a great loss to afflicted proprietors who lost serious support in their plea for justice.

“It is a scandal that the biggest European bank that works with 45 Euro Council member-states refuses to cooperate with Georgia for it does not know how to treat people. The reason the EBRD declined financing to GR is quite clear,” he said.

“That will be a huge impact to Georgia’s credit rating and investment climate,” Muller said. “That means that Georgia will not be able to get as cheap international financing as we enjoyed before.”

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