Ana Tsitlidze: “The Chinese company you (Prime Minister) worked for was supposed to make USD 150 million investment in the Poti Industrial Zone, although this commitment has not been implemented.”

Verdict: FactCheck leaves Ana Tsitlidze’s statement WITHOUT A VERDICT.

Resume: The Poti Free Industrial Zone (FIZ) was created on 15 December 2009 for a period of 99 years. The Arab company, Rakia Georgia Free Industrial Zone, was the developer of the FIZ. In 2016, Rakia transferred 85% of the shares of the Poti FIZ to the government. It was reported that non-implemented commitments were the reason behind this decision. Rakia failed to deliver on commitments for the development of the Poti FIZ which resulted in a penalty. In exchange for an annulment of the penalty, the investor transferred the FIZ control package comprising 85% of the shares to the government.

By the end of October 2017, the Government of Georgia signed a contract with the Chinese China Energy Company Limited (CEFC) and transferred the Poti FIZ management rights to the company. According to the contract, the Chinese conglomerate acquired 75% of the government-owned Poti FIZ for GEL 24,589,000. The same contract also obliged the Chinese company to make USD 50 million in investment no later than December 2020 and an additional USD 100 million in investment before 2028.

According to the Poti FIZ’s 2019 audited financial statements, the group and the company had no capital or other commitment as of 31 December 2018 and 31 December 2019. The document contains no other specific references on any investments made. The information or any document which would confirm investment from the Chinese company also cannot be found in other open sources. Therefore, we cannot discuss whether or not the company had made USD 50 million in investment by the end of 2020.

However, of additional note is that based on foreign press reports, the China Energy Company Limited had been involved in financial schemes and its property is frozen.

In regard to the Prime Minister’s ties to the aforementioned company, Irakli Gharibashvili served as an advisor to the Supervisory Board of Euro Asia Management Group LTD in 2018-2019. Since July 2018, the rights to manage the China Energy Company Limited’s share were transferred to this company.

Given all of the aforementioned, FactCheck leaves the statement without a verdict and limits this article to only an analysis.

Analysis

MP from the United National Movement, Ana Tsitlidze, at the session of the Parliament of Georgia, spoke about the Poti Free Industrial Zone and stated: “As we know, the company in Poti was changed in 2017 and instead of the Arabs, there is now a Chinese company you worked for when you were dismissed from the position of Prime Minister. According to their commitments, this company was supposed to invest USD 150 million in the Poti Free Economic Zone, although this commitment has not been implemented.”

The Free Industrial Zone is a free zone envisioned by the Customs Code of Georgia where additional conditions and tax preferences apply. The Free Industrial Zone is a part of Georgian territory with defined boundaries and a special legal status which is granted for economic activities for a certain period of time and provides for a special economic and legal regime. It can be established on any territory with an area more than 10 hectares, for except protected areas, as defined by Georgian legislation. The powers of local municipal authorities do not apply to the Free Industrial Zone.

The Free Industrial Zone can be created under the government’s initiative or as a result of a request from a developer – either a physical person or a legal entity. Any currency can be a legal tender in the Free Industrial Zone.

Poti Free Industrial Zone

The Poti Free Industrial Zone (FIZ) was created on 15 December 2009 for a period of 99 years. The Poti FIZ was created at the harbour’s former extensive development zone territory on an area of 3,000 hectares. The developer of the FIZ was an Arab company, Rakia Georgia Free Industrial Zone, which also owned the Poti port. However, the company sold 80% of the shares of the Poti port in 2011 to the APM Terminals company.

In 2016, Rakia transferred 85% of the shares of the Poti FIZ to the government. It was reported that non-implemented commitments were the reason behind this decision. Rakia failed to deliver on commitments for the development of the Poti FIZ which resulted in a penalty. In exchange for an annulment of the penalty, the investor transferred the FIZ control package comprising 85% of the shares to the government.

By the end of October 2017, the Government of Georgia signed a contract with the Chinese China Energy Company Limited (CEFC) and transferred Poti FIZ management rights to the company. According to the contract, the Chinese conglomerate acquired 75% of the government-owned Poti FIZ for GEL 24,589,000. Fifteen percent of the Poti FIZ is owned by the Ras al Khaimah investment body and 10% remains government-owned.

According to the investment contract on purchasing 75% of the company’s share signed in 2017 between the CEFC LTD and the LEPL National Agency of State Property, a parent company or any legal entity which conducts business in Georgia’s Poti FIZ is obliged to make at least a USD 50 million investment before December 2020 and an additional USD 100 million in investment by December 2028.

Since July 2018, the CEFC transferred the rights to manage its shares to the Euro-Asian Management Group whose co-chair of the supervisory board is businessman Vano Chkhartishvili.

According to the Poti FIZ’s 2019 audited financial statement, the company’s revenue in 2019 was GEL 4,408,000 which is 21.4% more as compared to the previous year (revenue in 2018 was GEL 3,467,0000).

In total, the Poti FIZ’s net profit in 2019 was GEL 289,000 which is 35.5% (GEL 448,000) less as compared to the previous year. In 2018, the total value of the Poti FIZ’s assets amounted to GEL 13,005,000.

In regard to the company delivering its investment commitments, the CEFC was supposed to make USD 50 million in investment before December 2020. According to the Poti FIZ’s 2019 audited financial statements, the group and the company had no capital or any other commitments as of 31 December 2018 and 31 December 2019. The document contains no other specific references on any investment made. The information or a document which would confirm the fact of an investment from the Chinese company cannot be found in other open sources. Therefore, we cannot discuss whether or not the company had made USD 50 million in investment by the end of 2020. Accordingly, we are unable to issue a verdict on this statement.

China Energy Company Limited

The CEFCT was founded in China in 2002 and the company’s annual income reached billions. In 2014 alone, the company earned USD 35 billion. The earnings were mostly made in the oil and gas trade as well as through financial services. However, the company also conducted business in other fields, too, such as transport infrastructure, forestry and hotel management.

In 2017, the company announced it was acquiring 14% of the Russian oil giant Rosneft for USD 9 billion.

Afterwards, the company was involved in numerous scandals. In 2017, one of the leaders of the CEFCT, Patrick Ho, was arrested in New York under the charges of corruption and the creation of a criminal network.

According to CNN’s article, Patrick Ho is not the only leader of the company who is currently in jail. The founder and head of the company, Ye Jianming (who had visited Georgia), disappeared in 2017 and contradictory information has been reported about him. As the article says, Mr Jianming is the subject of investigation for matters not publicly revealed and supposedly remains in prison.

The NGO Civic Idea has also written about the controversies around the CEFC. According to their information, on 27 March 2018 Bloomberg reported that all property of the “troubled Chinese conglomerate” was frozen, its chair faces legal prosecution and the company awaits to be transferred under government ownership. On 14 March, the New York Times reported that the state-owned Chinese conglomerate Citic took over the CEFC’s international property.

The NGO Civic Idea released a statement when Irakli Gharibashvili was nominated as a candidate for the Prime Minister of Georgia for the second time and indicated his ties with the CEFC. The NGO also highlighted the financial problems of the Chinese company in its statement.

The statement reads: “Georgia is in an extremely difficult situation today and the important line for the country’s security goes across Chinese and Russian interests in Georgia. Seventy-five percent of the Poti FIZ still remains under the ownership of the CEFC. Although the Chinese company itself is bankrupt, failed to respect commitments and is still paying its debts, the Government of Georgia still has not launched a process to get back its property. The problem is getting bigger every day, since Poti’s strategic assets may end up as property owned by the Russian national bank because the Chinese company is vastly in debt vis-à-vis that very bank.”

Irakli Gharibashvili and China Energy Company Limited (CEFC)

In regard to the Prime Minister’s ties to the aforementioned company, Irakli Gharibashvili was appointed as an advisor to the Supervisory Board of Euro Asia Management Group’s regional project management company in February 2018. As mentioned earlier, this is the company where the Chinese CEFC transferred the rights of the management of Poti FIZ shares.

According to Mr Gharibashvili’s asset declarations of 2019 and 2020, he received GEL 169,926 in remuneration in 2018 in his capacity as an advisor of the Euro Asian Management Group’s supervisory board whilst for the first seven months of 2019 he earned GEL 240,776.

Given the nature of materials reviewed for the article, FactCheck leaves the statement without a verdict.