Land Grab Penalties Forgiven

 The contracts often call for huge fines if those conditions are not met.

Instead, a Studio Monitori investigation has found that at least 47 companies who have not fulfilled their conditions will not be paying fines. They have received letters from the Prime Minister's office stating that the fines have been forgiven. The companies get to keep the valuable land.

 These fines totaled more than US$ 500 million in a country where the entire proposed 2016 budget is US$ 3.845 billion. And while this figure is inflated by one huge fine for a refinery/seaport complex that even a former Deputy Minister of Economics concedes was never a realistic project, the struggling Georgian budget could use the missing money to help cover sagging revenues and a currency that has depreciated 33 percent in the past year.

TBC Bank is one of the most prominent and profitable companies in Georgia. Listed on the London Stock Exchange, it is known for its generous support of business initiatives and the arts community.

When businessman Mamuka Khazaradze bid $182 million for 354 hectares of prime recreational land, the contract conditions included development of sports fields and designing a system to supply fresh water for a lake. The work was not done, and Khazaradze later bought much of the same land for only $55 million. So in 2007, when a private venture company organized by TBC Bank chairman Mamuka Khazaradze bid US$ 182 million at auction for 354 hectares of prime recreational land around scenic Lisi Lake in the highlands above the capital city of Tbilisi, defeating a bid by Israeli investors in the process, his enthusiasm was no surprise.

"This is the best privatization deal you ever had," he told government officials that day. "We had to buy this land on principle, so that Georgians might develop it. I have nothing against foreign investments. But I believe this land needs to be developed by Georgians."

Eight years later, they have committed to spending US$ 20 million. They built a 160-unit housing complex, and plan another 260-unit project. They have built an apartment complex, a university building and some cafes.

But the original contract conditions required a US$ 30 million investment within five years and the development of recreational areas and sports fields, a system to supply fresh water to the lake, and an environmentally-friendly cable car system to carry visitors up from the city of Tbilisi. None of those conditions have been met.

Khazaradze's company never paid the US$ 182 million. The company quickly demanded that US$ 30 million of that amount be paid by the city to upgrade utilities. The city refused.

So Khazaradze formed two new companies. Instead of an auction, the companies bought the land directly from the government in two separate parcels, spending only US$ 55 million -- a savings of US$ 127 million. Instead of being required to spend US$ 30 million on improvements, the only obligation in the new contracts is to build housing.

Khazaradze and his representatives refused on several occasions to answer questions about the land. When finally cornered at a public function, Khazaradze's first reply was: "Are you looking for trouble or something?" When shown documents about the property, he said: "You have the numbers. Look at them."

Much larger fines were forgiven for other companies listed. They include:

• Movat Georgia, which in 2007 spent about US$ 600,000 to buy the Tbilisi Hypermarket Building located in Freedom Square in the heart of the city. The building, once a massive Soviet-era department store, never reopened. The government in 2013 forgave a US$ 12 million fine against Movat. In April of 2015, Movat sold the building for an undisclosed price to an investment group created by billionaire Bidzina Ivanishvili, a former Georgian Prime Minister. There was no language in the original sales contract prohibiting Movat Georgia from selling the property.

• Businessman Lasha Papashvili paid a token price of about US$ 420 in 2009 to buy the Soviet-era Aghobili Health Resort in Abastumani in southern Georgia. He was obligated to invest US$ 7 million and build a hotel within four years. No serious work was done, but his fine of US$ 260,000 was forgiven. Papashvili claims the project is ongoing, but when a Studio Monitori camera crew visited the site, there was no sign of activity.

• In 2007, Black Sea Industries paid US$ 7.25 million to buy 301 acres near the Black Sea port city of Poti. They promised to invest at least US$ 250 million to build a liquid gas terminal, a refinery, and improve port and railway infrastructure. They guaranteed they would employ 3,000 people and pay them about US$ 250/month, an above-average salary in Georgia.

The work was never done. SOCAR-Georgia Gas, a branch of neighboring Azerbaijan's state-owned oil company, took over the Black Sea Industries contracts in 2013. The contracts were rewritten so that the only condition was that SOCAR-Georgia Gas install pipes to supply heating gas to 250,000 households in Georgia by 2017.  According to the Ministry of Energy, SOCAR-Georgia Gas has so far installed pipes for 119,143 households.

The Aghobili Health Resort, a popular Soviet-era destination (photo at left), was sold for only $420 on the condition that a hotel would be built on the site (design plan in center photo). Six years later, there is no sign of significant work at the site (photo at right).

According to the Ministry of Economics, Black Sea Industries was forgiven fines totaling US$ 438 million, based on a daily fine rate written into the original contract.

At least one other company who failed to meet contract conditions appears to have simply vanished. In 2007, Georgian Property LLC purchased the former Ministry of Agriculture building, a massive structure on busy Kostava street in Tbilisi, for US$ 6 million. Contract conditions called for a US$ 35 million investment to build a five-star hotel.

The project was postponed three times, and the building remains boarded up. At the company's listed business address, nobody has ever heard of Georgian Property LLC. The government admits it cannot locate the company, which the Ministry of Economics says owes a fine of US$ 59.6 million for not fulfilling contract conditions. In October, the government sold the property to a new company that promised to spend US$ 20 million to complete the hotel project.

Minister of Economics Dimitri Kumsishvili defends the forgiven fines, deadline extensions and failed ventures. "We give (companies) a chance to fulfill their contractual obligations aimed at creating new jobs and increasing GDP," Kumsishvili said. Asked again specifically about why the fines were forgiven, he replied only: "We're proud of what we accomplished."

 The story was corrected to reflect the correct 2016 budget for the Republic of Georgia.  OCCRP regrets the mistake.