Administration Gives Away Its Share In Oil And Gas Corporation
15 September, 2011
Administration Gives Away Its Share In Oil And Gas Corporation

 

Draft Law in which experts see threats

The Authorities are disposing of 25% in the share of Oil and Gas Corporation and are ready to reduce its ownership down to just over 50%. Experts believe this decision of administration is connected with certain risks.

 

We would like to remind the readers the statements and actions of the State Department of the United States regarding key gas pipeline and railway. In the recent past America gave financial assistance to Georgia in the form

of a grant to enable rehabilitation of that pipeline without its alienation. In the preceding years, this issue used to be the cause of permanent debates. Eventually, the Authorities found the solution, i.e. they removed the key gas pipeline and other similar items from the list of strategic objects. While doing so, they swore that those items, which had been removed from the list, would not be sold. However, several months ago Georgian PM aired the Governmental position that 25% of shares of these objects would be placed on a stock exchange.

According to the draft law, shares in the Governmental property would be allowed for alienation at foreign exchanges. The current version of the law defines the alienation as either their privatization or transfer to others persons with the right to manage the shares. Privatization can happen either through auction or direct sale. However, the draft law sets forth that alienation can happen via privatization, or direct sale, or in the form of global depositary hand written letters or via public or other forms of offers - recognized at the given time on the international capital market – made on recognized stock exchanges of foreign countries.

After the opposition and experts expressed their discontent, the Authorities announced,  “Controlling stakes of strategic objects will not be sold until the National Party holds the powers.” In other words, it turns out that disposal of minor shares is now allowed. So, where is the guarantee that in the future they will not start selling large shares too?

The current law on Oil and Gas reads that national oil company is an enterprise, which is owned by the Georgian State with over 75% of its shares and which is given a status of national oil company by the Presidential decree. However, the draft law lowered the threshold of this provision by quoting just “over 50%” for the obligatory Governmental ownership. Accordingly, while today only 25% of national oil company shares can be sold (the company owns the gas pipeline and associated infrastructure), the law, if adopted, will raise the number of shares allowed for selling till the Governmental part is reduced to slightly over 50%. Certainly, this decision would mean that the Authorities could sell 49.9% of the shares. While this way the control package would remain in the hands of the Government; losing only extra 0.2% would mean losing the control packet. That is why experts and opposition are increasingly upset by this Governmental move.

Party of Christian Democrats already warns about the threats and demands the termination of the draft law promulgation. The Government, on its part, argues that it is not going to sell control packages. Significantly, as a parallel move, another draft law is also promulgated to reduce obligatory Governmental shares of the gas corporation to 50%.

However, there are other experts who do not share these fears. They believe that in this way shares would be placed at strong exchanges and state enterprises would be strengthened by attracting extra capital and investments, which will enable them to boost employment rates.

 

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