On June 4, a draft Law on Changes to the Code of Local Self-Government and the Code of Administrative Procedure, which was prepared by MPs Gia Zhorzholiani and Erekle Tripolski, was submitted to the Parliament of Georgia.

According to the explanatory note, the aims of the proposed changes include (1) reinforcing the special legal status of Tbilisi as the capital of Georgia; (2) enhancing the effectiveness of activities of its self-government bodies; (3) accelerating procedures for resolution of issues related to the municipality’s legal entities of public and private law; and (4) creating a flexible system of management of the property of the Tbilisi Municipality which is supposed to help the municipality attract investors and increase its revenues.

The proposed draft law contains a number of changes that are unequivocally positive and welcome. In this respect, we should mention the change which will specify the procedure for approval of statutes/regulations of entrepreneurial and non-entrepreneurial legal entities of private law, as well as for appointment of their heads and exercising control on their activities.   

However, the provisions of the draft law that are related to the Tbilisi City Hall’s authority to dispose of the municipal property raise questions. Particularly noteworthy in this regard are the provisions that authorize Tbilisi to privatize property through direct disposal and abolish the procedure for approval of the list of facilities to be privatized and the privatization plan by the Tbilisi City Council.  

The current wording of the Code of Self-Government only envisages a possibility to privatize municipal property in the form of a public or electronic auction. According to the proposed changes, Tbilisi, unlike other municipalities, will also be granted the authority to privatize property in the form of direct disposal. The explanatory note of the draft law substantiates this change by the necessity to execute the court judgments according to which the Tbilisi City Hall was made liable to transfer property into the ownership of certain persons, as well as by the argument that “in return for implementing large investment projects, investors often demand the transfer of property into their ownership with the method of direct disposal”.

It should be noted that disposal of public property (privatization) is an area with a potentially high risk of corruption. To decrease this risk, it is necessary to ensure maximum transparency and accountability in the process of property disposal, the best method of which is disposal of property through an open auction. Thus, granting the Tbilisi City Hall the authority of direct disposal of property in parallel with an open auction can be considered as a step backward in terms of ensuring transparency of the privatization process and prevention of corruption. For the same reasons, abolishment of the procedure for approval of the list of facilities to be privatized and the privatization plan by the Tbilisi City Council should be assessed negatively.

Regulation of disposal of public property is quite a difficult task; specifically, it is unjustifiable to introduce strict and less strict procedures for disposal of property according to its value, unlike, for example, public procurement where monetary limits are a very important means of risk alleviation. Disposal of property by the executive government without the control of an elective body would be acceptable practice if it were possible to regulate disposal of public property. Control on disposal of public property by an elective body is the only means of ensuring state control on this process. Accordingly, it is very important that an elective body examine cases of disposal of public property.

Georgia has unfortunate experience in the area of disposal of property, as, in some cases, public property was privatized under dubious circumstances. At the same time, there have been cases of privatization of property whose transfer into private ownership is not expedient (for example, land plots in recreational zones of a city). Such negative experience is an additional argument in favor of demanding maximum transparency of the privatization process.

The substantiation offered in the explanatory note is unconvincing, because adapting a law to the interests of individual investors is not desirable, especially when a change decreases the transparency of public property management. Thus, the authors of the draft law should present additional arguments that will substantiate the necessity of such changes.

In addition, it is necessary to explain what mechanisms will ensure the transparency of management of Tbilisi’s public property after the City Hall is granted the authority of direct disposal of property and the City Council is no longer able to approve the list of facilities to be privatized and the privatization plan.