The new Partnership Fund for economic development: transparency concerns

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Keti Bolkvadze

In February 2011, Prime Minister Nika Gilauri suggested the formation of a joint stock company (JSC) 'Partnership Fund', with the aim to develop cooperation between the public and private sector to finish stalled investment projects, create employment, attract foreign investments, and develop Georgia’s economy. The Fund's supervisory board, led by the Prime Minister himself and staffed by ministers, will be accountable to the President. The bill was approved in April.

According to the bill, the JSC 'Partnership Fund' will be financed by loans received from international financial institutions, co-financed from the private sector, revenues from privatization, and dividends, either from government-owned companies or state-owned enterprises transferred to the fund.

The aforementioned dividends and privatization proceeds represent a significant part of the state’s budget revenue. In 2011, the state budget is expected to receive GEL 50 million in the form of dividends (from the government-owned industries) and GEL 150 million from privatizations that altogether makes up around 3% of the state budget revenue (GEL 6,304,657,000).

It is also worth mentioning that the 'Partnership Fund' has been launched as a joint stock company (JSC) – a type of corporation involving two or more individuals that own shares of stock in the company. However, the names of the shareholders have not been announced yet and will, according to information received from the Sectoral Economy and Economic Policy Committee of the Parliament, change frequently depending on the project being implemented. The Fund will consider projects if their value is at least GEL 30 million, or GEL 5 million in the agriculture sector only. Participation of the private sector should not be below 25% of the project’s total value and upon completion of the project, the Fund will sell its shares.

TI Georgia believes that:

  • There is a need for the Government to provide more information on which and how much income generated by privatizations and dividends will be transferred to the Partnership Fund; it also needs to be clarified whether income generated by dividends and privatizations will first go to the state budget, or will be transferred directly to the Fund. In the latter case, Chamber of Control will not be allowed to audit these incomes, as according to the Law on Chamber of Control (chapter II, article 6k) only those entities financed from the budget can be subject to scrutiny by the chamber;
  • The Fund’s activities might lack sufficient oversight: Our understanding of the law is that if specific projects implemented by the Fund do not use direct funding from the state budget, these activities will neither be subject to audit by the Chamber of Control, nor subject to General Administrative Code FOI requests (General Administrative Code of Georgia, Chapter III, Article 27a). As mentioned above, the Fund will be obliged to provide a full financial report to the President. However, while public funds generated through dividends, privatizations or other state-owned companies might be used for the Fund’s projects, there are no appropriate accountability mechanisms in place to monitor the use of these funds;
  • Also, a legal basis should have been defined for the private sector’s involvement in the Fund’s projects in order to guarantee transparency of the private sector participation in the Fund’s activities.