Hotel construction in Batumi
The media has been actively reporting about halted construction and investment projects in Batumi. News reports particularly focus on Trump Tower, Holiday Inn, Kempinski, Hotel Reina, and Hotel Princess. The Adjaran government categorically denies claims that the construction of these hotels has stopped. Transparency International Georgia verified the reported information and found that the investment projects have been delayed or obstructed in most cases, but not completely stopped. We found only one case, when the government confiscated privatized property from a company that did not fulfill contractual obligations.
Analysis of official documents requested from the Ministry of Finance and Economy of Adjara revealed that:
- No investor has committed to building a Holiday Inn, Kempinski, Hotel Reina, or Hotel Princess brand hotels by signing a contract. Information about the construction of these hotels was announced by politicians.
- The Ministry of Finance and Economy does not hold any information about the construction of Trump Tower and Ponto hotels.
- Each and every investor company has missed construction deadlines during the previous as well as the current government.
- One company – ENVIL BATUM Ltd. was deprived of the right to property due to unfulfilled obligations.
Construction of the Holiday Inn in Batumi is currently halted. However, the main part of the building is complete. The hotel is located on 10 Gogebashvili Street. It has a total area of 4,478 square meters, with 2,522.27 square meters of land attached to it. The Ministry of Finance and Economy of Adjara sold the property to Arai Georgia Ltd. on July 2, 2008, for USD 3 million, on the condition that the construction would be finished by summer of 2010. The 2008 contract between the Ministry and Arai Georgia Ltd. was amended several times. The original wording of the contract obligated the buyer to build a casino and a hotel with at least 60 rooms within 24 months of signing the contract. The 2011 amendment to the contract gave Arai Georgia additional 2 years to complete the construction. The number of hotel room was also changed, however, from 60 to 150.
Two more amendments were included in the contract in 2013 and 2014. The 2013 amendment changed the name of the construction company from Arai Georgia Ltd. to Krosveisi Ltd.(ID 205180935), fully owned by Teimuraz Ugulava. The 2014 amendment changed the construction deadline to May 1, 2015. In May 2014, the construction company was fined for USD 400,000 for failing to fulfill contractual obligations.
The construction of a hotel building that was announced to be Kempinski was supposed to have been finished by the end of 2009. The building located at the Batumi football stadium (cadastral code - 05.01.02.011) is still unfinished. The main parts of the building are complete. The Ministry of Finance and Economy of Adjara sold the property in October 2006 for USD 2 million. The buyer company GIMG (ID 245549394) made a commitment to invest USD 35 million and employ 500 Georgian citizens. According to the contract, GIMG does not take responsibility to build a Kempinski brand hotel.
The final amendment in the contract between the Ministry of Finance and Economy and GIMG was made on July 4, 2014. The amendment changed the construction deadline to June 30, 2016. The company has to build a hotel complex, a business center, two blocks of residential complex, an entertainment center and a multiplex. GIMG is fully owned by an Austrian registered company GAB-Resort LLC.
Hotel Princess occupies the old Post Office building in Batumi on 33 Abashidze Street. The hotel is currently under construction. The Government of Adjara sold the property to Aktiv Batumi Ltd. (ID 445384753) on March 30, 2010. The buyer was required to gradually pay a GEL equivalent of USD 2,500,000 by December 15, 2011, and open a 100 room hotel within 48 months (spring of 2014). The Ministry of Finance and Economy would, in turn, grant the buyer a 10 year permit to operate a casino without having to pay the relevant fee. The construction was not completed within the agreed time period. The final amendment of the contract in March 30, 2014, set the new deadline to be January 30, 2016. Aktiv Batumi Ltd. is fully owned by JSC Irada registered in Liechtenstein.
Hotel Reina is to be located inside the Batumi Pharmacy N1 building at the intersection of 34 Abashidze and 16-18 Dumbadze Streets. The construction work, however, has not started. The Ministry of Finance and Economy of Adjara sold the real estate and the attached land plot to Jasmine Ltd. (ID 445389259) on January 28, 2011, for GEL equivalent of USD 1 million. The buyer committed to building a 40 room hotel with a restaurant and employing 80 Georgian citizens within 16 months of signing the contract. The conditions were not met within the deadline of June 2012. The last amendment to the contract, made on September 25, 2013, freed the company from sanctions prescribed by the privatization contract. The decision was based on Article 29 of the Law on Management and Control of Property of the Autonomous Republic of Adjara, which provides for exemption of an investor from an imposed fine for the purpose of improving the investment environment. According to the new contract, Jasmine Ltd.has committed to start building a hotel complex within 2 months of obtaining the relevant construction permit and to finish the project within the following 24 months. The construction has not started to this day. According to the Ministry of Finance and Economy of Adjara, the company is still at the project planning stage. A Turkish national Mehmet Kocharslaia holds 10% of Jasmine Ltd. shares, while the remaining 90% are held by Mels Turizm Gida Ve Inshaat Sanaia LLC, also registered in Turkey.
The construction of another 150 room hotel was planned in Kakhaberi (cadastral code - 05.32.03.822), a settlement recently incorporated inside Batumi. ENVIL BATUM Ltd. (ID - 404940640) is owned by two citizens of Ukraine - Volodymyr and Anatoly Drobot. The property was transferred to the company in April 2012 through a direct sale procedure for a symbolic GEL 1. Construction in Kakhaberi never started. The official documentation requested by Transparency International Georgia from the Ministry of Finance and Economy of Adjara reveals that ENVIL BATUM Ltd. was fined for GEL 56,304 on September 2, 2014, for not fulfilling contractual obligations. The contract with the company was canceled and the property returned back to the Autonomous Republic of Adjara. Currently no representative of the company can be found at its legal address.
Archil Khabazi, Chairman of the Adjara Government, held a meeting with non-governmental organizations on December 22, 2014, where he stated that none of the investors, except one (ENVIL BATUM), had left Adjara and that the negotiations with specific hotel operators was being conducted by investors. A similar statement was made by Ketevan Bochorishvili, Deputy Minister of Economy and Sustainable Development of Georgia.
Transparency International Georgia believes that effective control over fulfillment of investment conditions is as important as attraction of foreign investments and implementation of new projects. It is also very important that the government wisely manage its property and establish specific criteria to avoid halting or suspension of investment projects, especially when using the direct sale procedure.