Auction-Form Privatization of State Property — the General Picture
The auction is the most transparent and competitive form of disposing of state property in Georgia. The purpose of disposing of state property by auction, or of transferring it for use, is to grant the right of ownership, use or management to the participant who offers the disposing entity the highest privatization fee or transfer-for-use fee during the bidding process.
Where an auction is announced with conditions, the winner is the participant who undertakes to satisfy the announced conditions and, during the bidding, offers the highest fee. This approach combines a price competition with a competition of substance: the state selects not only the best financial offer but also a reliable performer of the assumed obligations.
Auction-form privatization of immovable property held in state ownership is carried out by the property manager — the ministry, the State Property Agency, or a body acting within delegated authority, as well as, with a defined exception, a person using state property. Among the forms of privatizing immovable property the law distinguishes the auction, direct sale, direct sale on the basis of competitive selection, and free transfer into ownership.
Key Definitions Every Auction Participant Should Know
The law defines in detail the terms on which the entire auction procedure rests. State property means movable and immovable items in state ownership and non-material property benefits. Disposal of state property includes transfer into municipal ownership, privatization, transfer of management rights, exchange, transfer in the form of leasing, distribution and destruction, each under the procedure established by Georgian legislation.
Privatization is the acquisition of ownership rights over state property by natural or legal persons or their associations, in the manner established by law — through an electronic or public auction, direct sale, direct sale on the basis of competitive selection, and free transfer into ownership, including through a third party, through shares and stocks by public or private offer, on a recognized foreign stock exchange, or through another form of offer consistent with the practice existing at the relevant time on international capital markets.
Pricing terms are particularly important for a participant. The initial privatization amount is the minimum value of the property being sold, on which the price increases during bidding. The privatization fee is the amount payable by the acquirer, composed of the privatization amount and, where applicable, amounts payable to another subject. Privatization revenue, in turn, is the amount received into the budget.
To secure participation, the law defines the bid — an amount payable to the account specified by the entity conducting the auction, to secure performance of an obligation. Payment of the bid is equalled by the freezing of funds on the participant's bank account, which is transferred to the conducting entity immediately upon the participant's win or upon a breach of the procedure and conditions established by law. The institute of an unconditional and irrevocable bank guarantee is also used.
The law also defines an immovable item — immovable property in state ownership, agricultural land, forest and forest land, protected landscape and multi-use territory. The definition of immovable property covers a non-agricultural land parcel with or without a building on it, a building unit, a linear structure, and perennial plantings on land.
Publication of Information — Where You Will Learn About an Auction
Information on auction-form privatization of state property is placed on the website of the electronic auction system, www.eauction.ge, or on the official website of the State Property Agency, www.privatization.ge, and this counts as official publication of the information. The announcement of the auction and the bidding itself take place on www.eauction.ge.
To ensure publicity and accessibility, information on privatization by public auction must also be published in a periodical distributed over the entire territory of Georgia. The publication deadline is set by the privatization implementing body. A special rule applies to diplomatic missions and consular posts abroad: information on the auction of movable property transferred to them or carried on their balance is placed by those missions themselves, in accordance with regulations approved by the Minister of Economy and Sustainable Development.
Conditions of Participation in the Auction
The basic condition of participation is the capacity to offer a privatization fee: the right is granted to the participant who records the highest fee. In an auction announced with conditions, the participant must in parallel undertake to satisfy the announced conditions — these may be investment, social or functional requirements.
Special cases of determining the initial privatization amount are also regulated: where privatization takes place through an auction announced with conditions, the initial privatization amount may, under a procedure determined by a Government decree, be set below the market value of the property, and for unleased agricultural land — below the value established by law. An unleased agricultural land parcel is one that was not leased as of 25 January 2005.
The Role of the Third Party in the Privatization Process
A third party is a natural or legal person or an association of persons that facilitates the privatization of state property. The conditions for a third party to initiate the privatization of an immovable item in state ownership, and the remuneration procedure, are determined by an order of the Minister of Economy and Sustainable Development.
The property manager is authorized to conclude a contract with a third party that facilitates the initiation of privatization of immovable property and, where necessary, the preparation of cadastral survey and measurement drawings. In practice this means that an interested business may itself become involved in preparing an object for sale, although its remuneration procedure is established by a separate legal act.
The Irrefutability Presumption of Registered Data
When exercising powers related to the management and disposal of state property, the property manager must rely solely on registered data with respect to a private-law legal entity, including data on persons holding its directive and representative powers. This norm excludes disputes about who represented the counterparty organization at the time of contracting: only the entry in the registry is decisive.
The practical conclusion for an auction participant follows from this: before entering a relationship, obtain an extract from the relevant registering body and build cooperation only with a representative whose authority is confirmed by registration.
Direct Sale of Leased Immovable Property — the Tenant's Opportunity
Beyond the auction, the law preserves a special track for immovable property leased before 1 January 2007. The property manager is entitled to privatize such property by direct sale to the respective tenant. In such a sale the privatization amount equals five times the annual market lease price of the property.
The annual market lease price of the immovable property is determined by a certified evaluator of a body accredited by the Unified National Accreditation Body — the Accreditation Centre. An essential condition of this form of privatization is a lease contract concluded between the state and the tenant and registered in the public registry: a de facto but unregistered relationship is not sufficient.
The remaining forms — direct sale, direct sale on the basis of competitive selection, and free transfer into ownership — are implemented on the basis of a decision of the Government of Georgia, while direct sale is possible in the cases provided for by a Government decree. If you are interested in acquiring a specific object, the first step is to check the information in the electronic auction system, and timely legal advice on disputed matters will protect you from mistakes.