Monopolies on the Georgian Market

The FINANCIAL — “The oil and pharmacy sectors are the least competitive markets in Georgia because of the several large companies that are controlling the situation on the market and all acting similarly to each other, experts say. Telasi, Energo Pro, Georgian Lottery Company, Tbilisi Minibus and Georgian Gas Company are examples of other large monopolies on the Georgian market,” Paata Sheshelidze, economic expert and President at New Economic School – Georgia, told The FINANCIAL.

The FINANCIAL — “The oil and pharmacy sectors are the least competitive markets in Georgia because of the several large companies that are controlling the situation on the market and all acting similarly to each other, experts say. Telasi, Energo Pro, Georgian Lottery Company, Tbilisi Minibus and Georgian Gas Company are examples of other large monopolies on the Georgian market,” Paata Sheshelidze, economic expert and President at New Economic School – Georgia, told The FINANCIAL.

“Despite the few formal barriers in place, an oligopoly structure has formed in today’s oil market,” said Natia Kutivadze, Ph.D. in Economics and Analyst at Transparency International Georgia. “Trends of sector consolidation as well as increasing price have been noted. Price dynamics are quite anomalous as prices grow in accordance with Platts prices, but then do not then decrease along with Platts prices. The dynamics at five different oil companies are clearly similar. Whereas there were tens of oil companies operating before the Rose Revolution, now there are only five big companies dominating the market.”

“In short, there is an oligopoly in the oil market, which is characterized with less elasticity of demand resulting from the nonexistence of changeable products,” she added.

It is remarkable that the share of small oil companies in the total market has been decreasing since 2006, while the big companies’ share is growing. These five companies which dominate the market are Lukoil Georgia, Sun Petroleum Georgia, Socar Georgia Petroleum, Wissol Petroleum Georgia and Rompetrol Georgia.

LTD Unigroup is operating marketing and exclusive distribution activities for Lukoil Georgia. The partners of Unigroup are David Kezerashvili, former Minister of Defence, and Giorgi Pirveli.

Sun Petroleum Georgia is operating Gulf filling stations. One of the owners of Gulf is David Kezerashvili. The Director of the company is Ianiv Adam, Israeli citizen, while the Vice-President is Otar Katamadze, son of Zaza Katamadze, the Director of Lukoil Georgia.

Samson and Levan Phkhakadze from Wissol Group are among the long list of businessmen who were financing the United National Movement, political party of President Saakashvili.

Another big sector which is oligopolized is the pharmacy market, experts say.

“Aversi, GPC and PSP dominate the pharmacy market, and control the import, distribution, retail sales and production of medicines in the country,” Gerard De Boer, analyst at Transparency International said in his survey which was published in June 2012.

“Despite their big role in developing the pharmacy market in Georgia, by being dominant in the market they have caused medicine prices to be quite high. The markup on medicines is much higher than the average rate in European countries. Frequently doctors prescribe medicines because of financial deals between them and the big pharmacy companies. There are also cases of pharmacy networks urging independent pharmacies to sell medicines produced by them,” he said.

“Cases where one company owns a pharmacy network, pharmacy production, insurance company and clinics have to be investigated,” said Irakli Lekvinadze, Managing Partner at Georgian Business and Political Insight.

“The fact that prices of medicines and oil products are almost the same at different companies and change similarly to each other could be reasonable if the markup was too low and competition too tough, but the reality in Georgia is totally different. The markup is very high and the competition quite low. So this gives us proof to make the assertion that oligopolies exist in the oil and pharmacy markets,” said Shota Murghulia, Research and Reforms Facilitation Programme Coordinator at the Centre for Strategic Research and Development of Georgia.

“At the same time there is a clear monopoly in the minibus market, where four independent companies won a tender, but were later united under one company,” Lekvinidze added.

“Tbilisi Minibus was founded in 2011. It is a management company at the head of four companies that won a tender held by Tbilisi City Hall: Tbil-Line LTD, Capital Group LTD, Tbil-Car LTD and Public-Car LTD. The above-mentioned companies, by winning the competition announced by Tbilisi City Hall, gained a permit for the transport of passengers in certain districts of Tbilisi for a 20 year period,” reads the official webpage of Tbilisi Minibus.

According to Natia Kutivadze, there is an oligopoly in the dairy products market. Dominant companies Georgian Eco and Sante GMT products control the market. Of late Wimm-Bill-Dann sales have been growing as well.

“Distributor companies of salt, sugar, matches, wheat and other primary products could be studied as well, because in many cases only one company is present on the market,” Lekvinadze said. “Additionally, a monopoly was detected in the market of TV ads, state purchases and auctions.” It is known that Irakli Chikovani, Chairman of the National Communication Commission, is also the owner of the company Magi Style which controls media sales. A joint report by the Levan Mikeladze Fund and Young Lawyers Association indicates the existence of a conflict of interest. The same is reported by Transparency International.

“Before Irakli Chikovani became Head of the GNCC in summer 2009, he was the Director and co-owner of the Rustavi 2 television channel. After he had taken over leadership of the regulator, Chikovani remained for one year co-owner of MediaHouse, one of the country’s two major media sales houses, selling advertising time on Rustavi 2, Mze and several other channels, which generated income of almost one million GEL for Chikovani, in a sector that he himself was overseeing as Chairman of the GNCC. In 2010, Chikovani sold MediaHouse, its clients were taken over by General Media, the new advertising sales house monopoly.

According to David Zilphimian, Founder of First Stereo TV and Stereo Plus, the Pay TV Market is also dominated by the company GMG, co-owned by Irakli Chikovani.

Almost all the experts agree that the state of competition in the market is in quite a bad condition, but their opinions differ on whether an antimonopoly service is necessary or not. Some say that the situation has to be regularized by the market itself, without any interference from the Government.

“The sort of state regulations and demands make competition tough and therefore entering the market becomes quite difficult for new players. But an antimonopoly service also means the state is interfering in business. It’s better to forbid giving privileges to certain companies instead,” Sheshelidze explained.

Contrary to this, Lekvinadze considers the creation of an antimonopoly service to be essential. “An antimonopoly service will regulate equal terms for healthy competition in the market and will make entering the market easier for new players.”