GEO

Humanity Georgia – an inexperienced company that has managed to win the government’s favor

22 February, 2016

Humanity Georgia – an inexperienced company that has managed to win the government’s favor

Last week the Minister of Health Davit Sergeenko announced that high-quality medications produced by Humanity Georgia were already available at reasonable prices. The minister explained that the ministry did not aim at lobbying for any specific company, but rather creating a system that would ensure quality and competition. According to the minister, Humanity Georgia may also take part in the universal healthcare program, however, no final decision has been made yet. The minister would like to see other companies enter the market and bolster competition by offering competitive terms, however, at present only Humanity Georgia has done so. Humanity Georgia is being funded by the Partnership Fund for about USD 30 million.

We believe that the Georgian government’s seemingly exclusive relationship with this inexperienced company raises many questions. We also believe that this project could significantly reduce competition on the Georgian pharmaceutical market.

Humanity Georgia was registered as a joint stock company on April 29, 2015. The company is headed by Andrey Kuzma. According to its website, “Humanity is a pharmaceutical concern specializing in the development and production of medications. Humanity’s current product portfolio lists more than 700 discrete medications covering a range of dosages and delivery systems. Humanity currently also has 156 new products in varying stages of development (Humanity Research and Development Center)”. The company's strategy is to import cheap medications, construct a pharmaceutical factory, and produce and export medications. Currently, however, it is limited to working with hospitals. According to the director of Humanity Georgia, the company follows a similar strategy in other countries as well; however, the project is on a development stage there, and has only been completed in Georgia.

According to the Partnership Fund website, on December 24, 2015, “the Partnership Fund and an Austrian company Humanity Holding GmbH are launching a new project with active participation by the Ministry of Labor, Health and Social Affairs of Georgia upon request from the Georgian government. The project aims at building a high-tech pharmaceutical factory in line with international standards located in Orkhevi, Tbilisi. Humanity Holding GmbH established a daughter company JSC Humanity Georgia that will run the project in Georgia. The agreement was signed between the Partnership Fund, Humanity Holding GmbH and project company Humanity Georgia. The European standard pharmaceutical manufacturing factory will be equipped with the latest technology, modern laboratory quality inspection, warehousing and other necessary infrastructure. The factory will produce at least 800 pharmaceutical products, both for local use and export. The company will also import certain drugs to be sold on the local market at a reasonable price. The factory will employ 300 people, including local and foreign specialists. The total cost of the project is USD 130 million.”

As noted above, JSC Humanity Georgia is part of an Austrian company Humanity Holding GmbH. We looked into the history of Humanity Holding GmbH and found that its managing director is Norbert Cuder. The company was registered in Vienna on March 9, 2015, about two months before Humanity Georgia’s registration in Georgia. It is clear that Humanity Holding GmbH is a new company that does not have any experience in this field. The company is wholly owned by another Austrian company ProjectH Holding GmbH, which is also managed by Norbert Cuder. The Austrian business registry lists Cuder as a managing director of five more companies, which raises a suspicion that Cuder may be a manager only by name, and that other individuals are actual managers behind these companies.

According to information provided to us by JSC Partnership Fund, the initial review of Humanity Georgia’s project started on April 8, 2015, and the agreement between partners was approved by the fund’s supervisory board on November 20, 2015. Currently, negotiations are underway on the financial details and implementation plan of the project. The preparatory works for the construction of the factory are expected to launch in April-May 2016, while the implementation of the project is planned to last for 24 months. The Partnership Fund, in accordance with its mandate, will contribute to the project’s capital formation for no more than 49.9% of total shares (about USD 30 million according to the business plan), however, the exact amount of contribution will be specified after negotiations on the financial details and implementation plan are over. The partner company will be responsible for attracting all other funding (loans and capital contributions) for the project, as well as its successful implementation. Upon request from the Partnership Fund, after a pre-agreed deadline the company is also obligated to redeem the fund’s shares for a pre-agreed price (that is higher than the initial investment cost).

From all of the above, it is clear that Humanity Holding GmbH is a recently created Austrian company that is operates on the Georgia market alone. It is also clear that the company was registered in Georgia only after holding negotiations with the government and receiving its favor.

The fact that the Ministry of Health has chosen to work with a new and inexperienced company Humanity Georgia raises questions, especially when there are many other far more experienced pharmaceutical companies on the local market. For example, the founder of PSP Kakha Okriashvili stated in a televised interview that the government had not contacted them with the request to supply medications for the fourth wave of universal healthcare. According to Okriashvili, if requested the company would have been able to offer competitive terms.

We would also like to respond to media reports about Giorgi Saganelidze (nephew of the Partnership Fund CEO Davit Saganelidze) holding a senior management position in Humanity Georgia. Even though it is entirely possible for Giorgi Saganelidze to have high enough qualifications and have a successful career, his family ties still raise questions about a possible corruption deal.

It is also unclear how Humanity Georgia plans to import and produce medications at a price lower than that of its competitors’ while retaining the required level of quality.

As already mentioned, the Partnership Fund website clearly states that the fund’s cooperation with Humanity Holding GmbH was requested by the government with active participation by the Ministry of Health. This directly indicates that the government, or some of its members, are lobbying this company.

Interestingly, the process around Humanity Georgia bears a resemblance with another case involving the Ministry of Health. On April 7, 2015, in order to make substantial adjustments to the universal healthcare program, and develop the national healthcare system the ministry used the simplified (direct) procurement procedure to sign a contract worth USD 300,000 with an inexperienced British company Global Alliance for Health and Social Compact Ltd. At the same time, a few days earlier, on March 18, 2015, Global Alliance received another government contract worth USD 300,000 from the Partnership Fund, also reached through the simplified procurement procedure. Based on the official information obtained by Transparency International Georgia at the time, it was impossible to say whether Global Alliance had enough experience and expertise to properly plan and carry out a comprehensive reform of the Georgian healthcare system.

The circumstances described above suggest that by acting upon uncertain interests the government or its specific members are placing some companies in a privileged position at the expense of others. We believe that a detailed explanation must be offered for these decisions. There can be no doubt that these circumstances raise investor distrust and damage the business environment, negatively affecting the country's economy.

We call on the government to:

  1. Explain why so much trust was placed in an inexperienced company, and reveal what reliable information it holds on the company’s competence.
  2. Inform the public about who is really behind Humanity Holding GmbH, in order to reduce corruption risks.
Author: TI Georgia