Grape Harvest and Elections — Overview of the State Subsidy Program for Grape Harvest - საერთაშორისო გამჭვირვალობა - საქართველო
GEO

Grape Harvest and Elections — Overview of the State Subsidy Program for Grape Harvest

29 April, 2022

In 2021, the government subsidized the grape harvest with GEL 138 million in total. They named excessive crops and the global pandemic as the reasons for the subsidy. The facts cited in the present study make it clear that the process of subsidizing the grape harvest reveal a number of corruption-related problems, including giving a preference to companies that have donated to the ruling party and those with links to high-ranking officials.    

The government subsidizes the harvest directly from the state budget, including through the National Wine Agency (hereinafter “Wine Agency”).

The main amount of the subsidy was transferred to the state-owned Crop Management Company LLC. In 2021, this amount equaled more than GEL 107 million in total: Crop Management Company received GEL 86,500,000 directly from the budget and was given an additional GEL 20,872,727 by the Wine Agency. With the funds received from the Wine Agency, the company was supposed to accept both sound and hail-damaged grapes, and with the GEL 86,500,000 it was supposed to process, store, and transport the accepted crops, as well as to pay off the loan obligations. With these funds, the company continues to announce simplified procurements and operates during the year.

The Wine Agency has given a total of GEL 47,447,110 to finance the grape harvest. As already noted, GEL 20,872,727 from this amount was transferred to the account of Crop Management Company and the remaining amount – GEL 26,547,383 – was spent on subsidizing 82 wine cellars. Eighty-three wine companies altogether had been registered at the Wine Agency in advance.

According to Decree No. 626 of the Government of Georgia of April 23, 2021, Crop Management Company LLC was tasked with equipping grape acceptance locations with instruments for automatic measurement of sugar content and was given an additional GEL 3,500,000 from the state budget for this purpose. 

Crop Management Company LLC mostly announces simplified procurements that are mainly obtained by companies loyal to the Georgian Dream. From the 83 companies that were registered for subsidies at the Wine Agency, 31 belong to current or former members of the Georgian Dream or have links with them and their families. These 31 companies were given an amount of GEL 30,343,512, which equals 22% of the total subsidy. 

The study has also revealed that the companies that receive subsidies also receive grants from the state program Enterprise Georgia, use preferential – practically interest-free – agro loans, and are, at the same time, donors of the Georgian Dream party. They donated GEL 3,626,420 to the ruling party in the years 2016-2021.

The simplified procurement contracts were obtained by companies linked with the Prime Minister Irakli Garibashvili: Wine Kakheti LLC owned by his brother-in-law, Aleksandre Tamazashvili; wine cellar Kindzmarauli LLC owned by Irakli Shiolashvili, a former member of the parliamentary majority and former Governor of Kakheti; and Rtvelisi LLC, a company owned by the former Minister of Internal Affairs, Aleksandre Tchikaidze, received more than GEL 800,000 in total. 

D G L LLC, a company founded nine days before – whose owner, Tamar Alughishvili, is a daughter of Nugzar Alughishvili, a businessman from Dedoplistskaro – obtained a simplified procurement contract worth GEL 900,000. According to news reports, Nugzar Alughishvili is a member of a close circle of Irakli Garibashvili’s family and a factual manager of his businesses.

Five large companies that have received subsidies have links with Bolero and Company, whose director is Vakhtang Karichashvili. These companies have received more than GEL 6 million in total. According to news reports, Vakhtang Karichashvili is a business partner of Ucha Mamatsashvili – a cousin of Bidzina Ivanishvili – and co-owns a company in Great Britain together with him.

JSC Kotekhi – Winery of Gurjaani and Dugladze Wine Company LLC have received more than GEL 2 million. These companies have links with Zaal Dugladze, a member of the Parliament of Georgia from the Georgian Dream.    

It is also noteworthy that a wine company could only participate in the subsidy program if it accepted more than 1,000 tons of grapes from vine-growers. Due to this artificial barrier, small wine cellars were not able to make use of the subsidy.  

 

 

 

In 2021 the grape harvest coincided with the local self-government elections. The government subsidized the grape harvest with a total of GEL 138 million. They named excessive crops and the global pandemic as the reasons for the subsidy.

The scheme for receiving the subsidy is as follows: the procedure for giving a subsidy and the price of grapes are determined by the government. Companies that are willing to accept grapes get registered electronically in advance at the grape harvest coordination headquarters – www.portal.wine.gov.ge. After the start of the grape harvest, the wine company pays vine-growers a predetermined price of grapes and submits documentation confirming the payment to the Wine Agency, which, in its turn, transfers the subsidized amount directly to the wine company. In 2021, the following subsidy rates were determined for grapes: for 1 kg of Rkatsiteli – GEL 0.35, for 1 kg of Kakhuri Mtsvane – GEL 0.35, for 1 kg of Mujuretuli and Aleksandrouli – GEL 3.

According to information provided by the Wine Agency, from the subsidy allocated by the state in 2021, GEL 47,447,110 was distributed to 83 wine companies (here we mean small wine cellars and sole entrepreneurs as well as large companies). However, almost 45% of this amount – GEL 20,872,727 – went to the state-owned Crop Management Company LLC, to which the government has assigned a special role. A 100% stake in the company is owned by the Rural Development Agency. The government created this company on August 4, 2020, on the premises of the wine factory of the state-owned JSC Akura, and now the state is already trying to accept/process excessive crops, produce the raw material for spirits, and sell it by means of this company.

In addition to this amount, the government has also allocated an additional GEL 86,500,000 for subsidizing grapes, by which the loan obligations taken by JSC Akura at the time of the grape harvest of 2020 were partially covered, while a large part of the amount was directly given to Crop Management Company LLC for accepting, transporting, and processing of grapes as part of the 2021 grape harvest in the regions of Kakheti, Racha-Lechkhumi and Kvemo Svaneti and for covering the lease payments and loan obligations, as well as for purchasing hail-damaged grapes.   

Crop Management Company LLC makes simplified procurements on the basis of Decree No. 1461 of the Government of Georgia of August 20, 2020. The decree is not posted on the government’s website. It is this decree that allows Crop Management Company to make simplified procurement contracts bypassing market research and other procedures. Crop Management Company processes, warehouses, and stores the accepted crops in the subcontractor wine companies and sells the products by means of an auction. 

We don’t have information about the profit and turnover of Crop Management Company LLC yet. A company representative has written to us that they are going to release the report at the end of the year.

The government created Crop Management Company LLC to solve the problem of excessive crops and to ease the discontent of vine-growers, especially when the grape harvest coincides with elections. This gives us grounds to assume that the taxpayer money is spent to achieve political ends and does not serve to create public good.

In the present study, we have paid particular attention to companies that receive quite large subsidies and, at the same time, are donors of the Georgian Dream, participate in public procurements, and mainly obtain simplified procurement contracts. In total, a subsidy of GEL 30,343,512 has been given to 31 such companies.

Large beneficiaries of the subsidy

JSC Sarajishvili                                                                        

JSC Sarajishvili has received a subsidy of GEL 4,460,683 from the Wine Agency. The Director- General of the company, Zurab Bubuteishvili, is quite a large donor of the Georgian Dream. From 2016 up to September 2021, he donated GEL 290,000 to the ruling party. In 2021, Sarajishvili got involved in the state subsidy program and also accepted hail-damaged grapes in the Kvareli Municipality: Crop Management Company LLC awarded a simplified procurement contract worth GEL 648,000 to Sarajishvili Winery and Distillery LLC, one of the directors of which is Zurab Bubuteishvili, while it awarded a simplified procurement contract worth GEL 1,080,000 to one more subsidiary – Sarajishvili Distillery LLC.

Wine companies of the brothers Chkhaidze

Kakhetian Traditional Winemaking LLC

The company has received a subsidy of GEL 4,366,848.50 from the Wine Agency. The Director-General of the company and the owner of a 100% stake is Zurab Chkhaidze. Kakhetian Traditional Winemaking LLC and Zurab Chkhaidze jointly donated GEL 420,000 to the Georgian Dream from 2016 through 2021.

Askaneli Brothers LLC

The Wine Agency has given a subsidy of GEL 2,576,109.25 to Askaneli Brothers. The director of the company, Irakli Uglava, donated GEL 35,000 to the Georgian Dream in the years 2020-2021, while the Chairperson of the Supervisory Board of the same company, Jimsher Chkhaidze, donated GEL 10,000 to the Georgian Dream in 2019. The owner of a 55% stake in the company is Gocha Chkhaidze, who is simultaneously a citizen of the Russian Federation.

Kartveli LLC 

The owner of a 100% stake in Kartveli LLC is L.S.A. Group LLC, in which a 100% stake is owned by Jimsher Chkhaidze. This company received a subsidy of GEL 326,900 from the Wine Agency.

Vakhtang Karichashvili and companies linked with him

Universal Spirits LLC

The largest beneficiary of Crop Management Company LLC is Universal Spirits LLC, which received GEL 3,912,000 from the grape harvest subsidy of 2021 through simplified procurement and purchased hail-damaged crops in Gurjaani. Currently, the company is owned by Distillers’ Association of Georgia LLC, in which the owner of a 80% stake is the President of Bolero & Company, Vakhtang Karichashvili. Karichashvili has a double citizenship (of Georgia and Russia). According to news reports, he is a business partner of a cousin of Bidzina Ivanishvili, Ucha Mamatsashvili, and co-owns a company together with him in Great Britain. 

The director of both Bolero & Company and Distillers’ Association of Georgia LLC is Irakli Bekauri, who, in the years 2018-2021, donated GEL 150,000 to the Georgian Dream and Salome Zurabishvili, the presidential candidate supported by this party. In 2018-2019, another director of Bolero & Company, Tornike Makhatadze, also donated GEL 15,000 to the Georgian Dream.

Gruzwinprom LLC                        

Bolero & Company LLC owns a 100% stake in one more company, Gruzwinprom LLC. In 2021, Gruzwinprom LLC received a subsidy of GEL 47,901 from the Wine Agency and obtained a simplified procurement contract with a value of GEL 743,810 from Crop Management Company LLC. The director of this company is Mamuka Potolashvili, who donated GEL 50,000 to the Georgian Dream before the 2017 local self-government elections, when he was the director of Bolero & Company LLC.

Atena LLC

Atena LLC has received a subsidy of GEL 627,581.50 from the Wine Agency. The owner of a 100% stake in the company is Milada International LLC, which donated GEL 100,000 to Salome Zurabishvili before the elections. In 2018, the company had other owners; today, the owner of a 100% stake in Milada International is Vakhtang Karichashvili, who also owns Bolero & Company LLC. The director of Milada International, Leri Razmadze, has donated a total of GEL 9,000 to the Georgian Dream. He has close kinship ties with Vakhtang Karichashvili: Leri Razmadze is a son of Davit Razmadze, the Chairperson of the Gori City Council, while Vakhtang Karichashvili’s spouse is a sister of Davit Razmadze. After the 2021 local self-government elections, Davit Razmadze was elected as the Chairperson of the City Council of the Gori Municipality for a third term.   

Rock Logistics LLC

Crop Management Company LLC has awarded 4 simplified procurement contracts – with a total value of GEL 720,000 – to Rock Logistics LLC, whose owner and director is Leri Razmadze.

M.M.B. LLC

M.M.B. LLC has obtained a simplified procurement contract worth GEL 70,000 from Crop Management Company LLC. The owner of a 100% stake in the company is the Patriarchate of Georgia. Its director is Kakhaber Makhatadze, who donated GEL 90,000 to the Georgian Dream in the years 2016-2017 and was the Mayor of Zestaponi in 2017-2019. Today his son, Tornike Makhatadze, is one of the directors of Bolero & Company LLC. One more person associated with the company, Ioseb Sikhashvili, donated GEL 30,000 to the Georgian Dream in 2021.

Companies directly linked with the Prime Minister Irakli Garibashvili and his family

Wine Kakheti LLC

Wine Kakheti LLC has obtained a simplified procurement contract with a value of GEL 550,000 from Crop Management Company LLC. This company belongs to Aleksandre Tamazashvili, a brother-in-law of the Prime Minister Irakli Garibashvili and a former MP from the Georgian Dream. The director of the company is Levan Zilpimiani, a son of MP Davit Zilpimiani (parliamentary group European Socialists).

D G L LLC

D G L LLC, a company registered on August 23, 2021, obtained a simplified procurement contract with a value of GEL 900,000 exactly nine days after the registration. The address of the company is the village of Mirzaani, Dedoplistskaro Municipality; the owner is Tamar Alughishvili, and the director is Zakaria Bostoghanashvili. Tamar Alughishvili is a daughter of Nugzar Alughishvili, a businessman from Dedoplistskaro. According to Georgian news media reports, Nugzar Alughishvili is a member of a close circle of Irakli Garibashvili’s family and a factual manager of his businesses. At the time of preparation of this study, Nugzar Alughishvili filed a claim in court against journalists in connection with the report related to him. 

Kindzmarauli LLC

Kindzmarauli LLC has obtained a simplified procurement contract with a value of GEL 150,000 from Crop Management Company LLC and received a subsidy of GEL 50,428 from the Wine Agency. This company is owned by Irakli Shiolashvili, the former Governor of Kakheti and former MP from the Georgian Dream.

Rtvelisi LLC                                                       

Rtvelisi LLC has received a subsidy of GEL 57,368  from the Wine Agency. A 25% stake in the company is owned by the former Minister of Internal Affairs, Aleksandre Tchikaidze. TI Georgia also wrote about the suspicious enrichment of Aleksandre Tchikaidze before, after he left the minister’s position. 

Companies linked with MP Zaal Dugladze

JSC Kotekhi – Winery of Gurjaani

Joint stock company Kotekhi – Winery of Gurjaani has received a subsidy of GEL 1,342,509 from the Wine Agency. The Chairperson of the Supervisory Board of this company is Davit Dugladze, and members of the Board are Ekaterine Dugladze (the spouse of Zaal Dugladze, the majoritarian MP of Khashuri and Kareli, brother of Davit Dugladze) and Aleksandre Ivanishvili, a brother of Bidzina Ivanishvili.  

Dugladze Wine Company LLC

Dugladze Wine Company LLC  has received a subsidy of GEL 759,988.25 from the Wine Agency.

Owners of 23% stakes in this company are Davit Dugladze, Zaal Dugladze (who sold his stake in this company to his brother), Aleksandre Ivanishvili, and Malkhaz Kanchaveli. An 8% stake is owned by Giorgi Kapanadze, who has a double citizenship of Georgia and Russia. The director of the company is Davit Dugladze.  

Davit Dugladze is a large donor of the Georgian Dream. In the years 2016-2020, he donated GEL 155,000 to the ruling party. In 2012, he donated GEL 60,000 to the United National Movement. Zaal Dugladze gave GEL 115,000 to the ruling party in the years 2016-2020 (before he became an MP). Malkhaz Kanchaveli donated GEL 105,000 to the Georgian Dream and the presidential candidate Salome Zurabishvili in the years 2016-2018. 

Other recipients of the subsidy

In the table below, we present the companies that have received funding from the State Subsidy Program for Grape Harvest and are, simultaneously, donors of the ruling party and its presidential candidate.

Instruments for measurement of sugar content in grapes

According to Decree No. 626 of the Government of Georgia of April 23, 2021, Crop Management Company LLC was supposed to buy 30 units of the instrument for measurement of sugar content in grapes through simplified procurement. These instruments are not manufactured in Georgia. They were imported by Enogrup LLC, whose head office is located in Ukraine and has branches in Russia and Georgia. The director of the company is a citizen of Ukraine, Konstantin Baltazhi. The branch of Enogroup in Georgia is registered in the Telavi Municipality. It was the only bidder that participated in the public procurement, and it obtained a procurement contract with a value of more than GEL 3 million.

The Government of Georgia knew when the grape harvest was supposed to start and could procure instruments for measurement of sugar content in grapes much earlier, announce an international tender and possibly buy the instruments for a lower price, although it didn’t do so and opted for the method of direct/simplified procurement. One unit of the instrument has cost the state budget GEL 100,000, and Crop Management Company bought 30 units of the instrument in total.

According to information provided by LEPL Georgian National Agency for Standards and Metrology, instruments for measurement of sugar content in grapes are not subject to mandatory standardization, because they have not been included in the Register for Mandatory Standardization and no one has requested the Agency to conduct a voluntary calibration of these instruments. Accordingly, the quality and origin of the instruments, whether or not they have a corresponding warranty, and the obligations of the importing company in the event of a manufacturing defect or other technical malfunction are not clear.  

Preferential agrocredit – an additional benefit from the state

In addition to receiving of budget subsidies, participation in tenders announced by the state, and winning of simplified procurements, the aforementioned companies are active beneficiaries of various state programs and receive funding from such programs as Enterprise Georgia and Preferential Agrocredit Project.  

According to information requested from the Rural Development Agency, in the framework of the Preferential Agrocredit Project, the Agency gives funds to cover the interest of loans.

The co-funding given by the Agency in 2013-2021 to those wine companies that simultaneously use the state subsidy and are donors of the Georgian Dream is as follows:

Wine cellars that use the preferential agrocredit:

Recommendations:

The Anti-Corruption Agency of the State Security Service should study the simplified tenders announced by Crop Management Company LLC and respond to them.

The Anti-Corruption Agency should also study whether or not the procurement of the instruments for measurement of sugar content in grapes was necessary and transparent, because the procurement of the said instruments has cost the taxpayers quite a lot of money.

Each simplified procurement must be accompanied by the results of market research. It Is necessary that the contracting authority – Crop Management Company LLC – more clearly define the criteria by which it selects concrete companies or physical persons.

The Wine Agency should conduct the process transparently and provide access to funding to small wine cellars, as they are in more need of support from the state than those companies that have solid revenues and turnover. 

The Wine Agency should answer the question of why it is necessary to spend the funds in two parts – i.e. when a small amount is given by the Agency and while most of the amount is transferred to the account of Crop Management Company LLC.

corruption