Russian Tycoons Swoop Down On Georgia

Publication: Eurasia Daily Monitor Volume: 1 Issue: 23

Kakha Bendukidze, one of Russia’s leading industrialists, is in Tbilisi today to accept appointment as minister of economics in the government of Georgia. President Mikheil Saakashvili and Prime Minister Zurab Zhvania decided to appoint Bendukidze during the May 27-29 visit to Tbilisi by a group of Russian business leaders, including Bendukidze of United Machine-Building Industries, Viktor Vekselberg of Access Industries-Renova, Valery Ochertsov of Itera, Vladimir Yevtushenkov of AFK Sistema, Valery Okulov — Yeltsin family member literally as well as figuratively – of Aeroflot, and top managers of LUKoil, Rosneft, United Energy Systems, Foreign Trade Bank and other companies, as well as Russian government officials. (Interfax, May 27-28).

Bendukidze, the new Georgian minister, is a Russian citizen, and a Tbilisi native. He is a graduate of the state university in biology. He worked for leading microbiology institutes in Moscow during the 1980s before going into private business, first in biotechnology and then in banking, oil, and ultimately as chairman of the board and 26 percent owner of United Machine-Building Industries (OMZ). He is considered to be a billionaire. Announcing his acceptance of the post in Moscow on June 1, Bendukidze said that he is resigning from the OMZ board, and placing his personal OMZ stake in trust management for three years. He is also resigning from the presidium of the Union of Russian Industrialists and Entrepreneurs, but intends to facilitate its corporate members’ access to Georgia.

In Tbilisi, an appreciative Saakashvikli termed Bendukidze a “Georgian patriot” as well as a “world-class businessman.” Zhvania announced that Bendukidze would be free to invest his funds in any Georgian enterprises, except those subordinated to the Ministry of Economics. Outlining policy proposals at his June 1 news conference in Moscow – in effect, his inaugural conference as Georgian minister — Bendukidze promised “maximum deregulation,” a shift of the tax burden from business to the populace, and rapid, full privatization for cash. Describing his proposals as “ultraliberalism,” he argued that it is the optimal process to launch long-overdue macroeconomic reforms and high-rate growth. According to Bendukidze, the current Georgian leadership’s popularity and the resulting consensus in Georgian society are a good political basis for jump-starting economic reforms. He also said he would recommend that Georgia’s political leaders proceed during the current year with privatization of the transport and energy sectors to Russian interests. However, Saakashvili stated during the business visit – called the Georgia-Russia Economic Forum — that “strategic” assets in those two sectors would not be open to foreign takeovers, or at least not to “someone who would exercise a monopoly” over these sectors. (Interfax, May 27-31, June 1-2).

Russia’s Economics Minister German Gref accompanied the approximately 100-strong business group to Georgia on instructions from President Vladimir Putin. The business coalition’s meeting was planned during recent visits to Moscow by Saakashvili and Zhvania. This forum is almost certainly the most impressive descent by Russian business leaders on any CIS country since 1991. Russia’s ambassador in Tbilisi, Vladimir Chkhikvishvli, declared that “one may term this event a historic one.” (RFE/RL, May 28).

In their addresses to the forum, Saakashvili and Zhvania announced that Georgia’s tax and customs code are being rewritten to simplify and reduce taxation on business and investment. They also announced that new legislation to stimulate foreign investment is being drafted, pending which Saakashvili promised political guarantees as well as his “personal guarantees” to investors. Apart from energy and transport, the Georgian leaders solicited investments in agriculture and food-processing, and also in Georgia’s massive but decaying Soviet-era tourism infrastructure. They also announced that Georgia, as a member of the World Trade Organization, would support Russia’s accession to the WTO. This implies that Georgia no longer links this issue to corrective steps by Russia regarding unauthorized trade with Abkhazia and South Ossetia, visa discrimination and related issues).

During and since the May 27-29 forum, several major pending transactions have been announced. Aeroflot has begun talks on acquiring 100 percent of shares in Georgia’s national carrier, the privately owned Air Zena. The latter operates flights to Paris, Amsterdam, Frankfurt, Vienna, Athens, Tel Aviv, Kyiv and Moscow. If consummated, this deal would represent Aeroflot’s first outright acquisition of a national carrier in a CIS country. (RIA, May 28; Moscow Times, May 31).

Russia’s Foreign Trade Bank (Vneshtorgbank) announced an agreement of intent to buy a majority stake in the largest Georgian bank, the United Bank of Georgia. Vneshtorgbank recently acquired a 70 percent stake in Armenia’s Savings Bank, the second-largest bank in that country. Both moves form part of Vneshtorgbank’s recently announced strategy to develop a CIS-wide network of banking services, with the aim to become the main clearing bank in the CIS. (Interfax, May 28; MosNews, May 31).

United Energy Systems intends to expand its holdings in Georgia’s electricity sector, after having acquired in December majority stakes in the Telasi power-distribution network, which services Tbilisiand, as well as other installations. This Russian state monopoly, headed by Anatoly Chubais, plans also to use Georgia as a bridge to Turkey’s electricity market. (Interfax, May 28).