Privatization of State Property through Auction


Ministry of Economic Development of Georgia approved the regulation “on Privatization of the State Property through the Auction”, #1391, September 11, 2007.

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According to the regulation, selling property through auction gives the possibility of participation to residents as well as non-residents, without extra bureaucratic troubles and the main criteria there is the higher price to be paid. At first sight auction regulation framework follows the world standards and the price announced by the Ministry of Economic Development or conditions for special subjects is prior. If alienation of subject is conduced under certain condition, then the buyer, in case of alienation of the property, sells the property with the same condition. Article 8, paragraph 3.
Article 8, Paragraph 3.
After stating the property right by the seller to the buyer, during the validity of minute (agreement), in case the buyer alienates the privatized property, he/she is obliged to alienate the property to the new owner with the same condition, which was defined under minute (agreement). The ministry should be informed about the alienation of the property in written form.
Article 6, Paragraph 10.
Seller transfers the right on state property to the buyer after he/she pays state property sale price, from the moment of transferring corresponding ownership certificate. In case of auction announced with conditions the ownership certificate will be issued with the condition of fulfilling obligation under minute (agreement). If the winner does not pay the final amount in due time, the winner status is removed and the advanced paid shall not be reimbursed.
Besides, imposed penalty for violating terms and conditions are quite strict
Article 9, Paragraphs 4,5,6,7,
4. Taken obligations under the minute (agreement) are considered to be fulfilled from the moment of their approval by the Ministry.
5. In case of violation of taken obligations under minute (agreement) the buyer receives the written warning, with the indicated date of improving and the amount of imposed penalty.
6. Penalty is defined by minute (agreement) on the basis of auction terms, namely:
a) In case of not providing payment, 0,1% of unpaid amount for each day of delay from the day of violation.
b) In case of not fulfilling the investment liabilities, 0,1% of remaining investment for each day of delay from the day of violation.
c) Impose on the violator, in amount of 0.5% of the sales price of the property for each day of delay.
7. Repeated violation of terms and conditions of minute (agreement) and refusal of penalty payment in due time is reviewed as the basis of annulling auction results by the ministry.
As it seems, the government decisions on property privatization will consider auction rule to be prior. Procedurally it is more transparent and acceptable for investors as it covers less bureaucratic formalities and gives the opportunity of forecasting. Although, the last paragraph 8-e of the article I still remains vague- “Information on auction participants is confidential before conducting the auction”.
Article I, Paragraph 8.
Information about auction participants (including the number of participants) is confidential before conducting the auction.
It would be better if it was open, as potential investors would be able to form their strategies. It bears especially great importance for foreign investors who are less aware of local market and business environment. In spite of everything, we strongly believe that all this should have the form of exchange. It is time to create the institution estimating property, attract investment companies for packing and selling property that would make Georgia’s property and market attractive for investment.