EPI Report: Georgia Privatization and Property Management Strategy

Georgia has made great strides in privatization. Now, almost 20 years after the process began, the State has sold or closed almost all former State owned industrial enterprises. This report outlines a set of operational changes to help the Government of Georgia (GoG) improve how it manages and prepares remaining state property and state-owned enterprises (SOEs) for sale. Its focus is primarily on SOEs and remaining buildings and non-agricultural land. Aside from some hospitals and a few core enterprises (which should either stay in State ownership or only be sold in well-prepared tenders), the National Agency for State Property Management (NASP) of the Ministry of Economy and Sustainable Development (MoESD) has very few real, operating companies left for sale. The report recommends a specific methodology how to analyze all still-functioning SOEs (other than the few core enterprises) and sell them as assets if their asset value seems greater than their going concern value.

While the Agency’s inventory of viable and potentially interesting, functioning enterprises is small, its inventory of unsold real estate – an unknown amount of which is locked in unpromising corporate shells – is overwhelmingly large. Some of these real estate assets are large, valuable and should generate substantial sales revenues. But the asset mix is very mixed, and includes many smaller and less attractive properties. Almost all are suffering from deferred maintenance under State ownership. Both private investment and government administration are dragged down by this overhang of an uncounted number of random, leftover State assets, many with low or negative market value.

The report suggests that the Agency change its perception of its core privatization task. Instead of being an entity, which manages and sells the shares of SOE’s, its primary privatization task really is managing and selling excess State owned real estate. To accomplish this task effectively, the Agency needs to remove assets from non-viable SOEs, place them in a temporary holding company, register and clear titles as efficiently possible, manage them properly, advertise them aggressively and sell or give them away. Clearly, the MoESD has done a great deal of good work, and is moving in this direction. However, current highly centralized rules, difficulties dealing with enterprise liabilities, a passive sales approach and tools not suited to the tasks block progress in a number of ways. This report discusses these blocks and suggests a variety of systemic approaches to remove them. One key recommendation is to include municipalities in the sales process for lower value assets of only local interest. Public education and transparent, simple, decentralized processes are especially needed to help the State justify shedding these assets in ways the public perceives as fair, without the “junk sales” harming sales of more valuable assets. Another key recommendation is for the Agency to become much more active as a seller, rather than waiting for others to initiate sales. As part of this re-activation of the Agency, this report suggests a careful review and re-definition of the role of third party agents in the sales process.