Privatization of the biggest monopolist state enterprise goes on in Georgia

FROM THE REDACTION

The era of big objects’ privatization continues. Investors are mostly interested in the fields that were called natural monopolies in economic literature, now they are called – regulating fields of turning goods involved in supply and generation.

These types of monopolists are Tbiltskalkanali, Tbilisi Rkinigza (railway), Tbilgazi, Telasi, Saktelecomi etc. These fields attract investors as both, market and prices are guaranteed. Therefore, important capitalization and perfect capital for IPO can be found here.
One of the latest examples is Tbiltskalkanali – Tbilisi water supply and Sewerage Company. It may be called a concern that grew in October. This giant passed to a private owner’s hands. What does it promise to Tbilisi city population and to the business existing in Tbilisi?

Tbiltskalkanali includes Zhinvali reservoir and Hydro Power Plant, Mtskheta water supply, cleaning objects at Tbilisi Sea with its infrastructure, Tbilisi pipelines with its service pumps and offices.
Water tariff regulation first began in 2005 and two types of tariffs were introduced as projects, for population and for organizations as well as private businesses. There is a great difference between them: 4, 5 and 1, 4 Gel.
According to the number of experts this would lead to price increase on other products due to the reason that water, as a raw material, would be expensive for business. On the other hand, Tbiltskalkanali infrastructure was fully amortized: Zhinvali – Tbilisi derivation tunnel, cleaning and filtration equipment, water pumps to lift water on high floors, pipes. Renovation of the amortized infrastructure would take tens of millions. The third important point was the population, having no possibility to pay a real fee. Fixing the real fee is difficult within ineffective management.
The above mentioned project was launched in 2005. There was a counters’ installation problem that still exists.
Tbiltskalkanali started imposing taxes by means of archaic calculations on population and business. For example, a small business unit, that has no connection to water consumption and employees only 5 persons, was imposed 70 Gel each month. Even in case of real increased tariffs, installed counters calculate 35-40 Gel. Despite number of works implemented by company management, the above mentioned problem still remained active and the main reasons of privatization was to return market from water, management and tariffs point of view to the sphere of economics as well as modern management methods (not communes and communal counters).
Investor’s interest probably were the following: a guaranteed market, quite high tariffs on business, artificially low tariffs on population, resources. According to the tariffs, Tbilisi business pays additional taxes instead of population. For instance, Tbilisi uses 100 sqm water. Business uses 30 sqm and population – 70 sqm. Business pays 135 units, Population – 98. Water supply totals 233 units. Real price of water is 2,33 units and population should pay 163 units. Accordingly, business covers the difference between real and existing, the basis of capital’s economics by paying its direct taxes. It is an important existing problem. An investor will leave it the way it is.
The Process was conduced in the following way:
Investors obligations:
1. Forming an agreement on water supply with organizations, as well as with population;
2. Publishing new water tariff components;
3. Introducing energy saving equpment;
4. Installing individual counters;
5. Improving water quality and sypply scales without any schedule;
If the above mentioned requirements are met, privatization will be justified. Otherwise, it will be a step to capitalize someone. Tbilisi will be supplied with the same low quality water with schedule and with the only differacne: higher price.