Stopped Chiatura: Who Buys Georgian Manganese Assets for 100 GEL?

Statement on Production Stoppage

"Due to the financial crisis that arose from the radical protests by the people of Shukruti village, the production process in Chiatura has been completely halted. Under these circumstances, we are offering employees 60% of their salary while maintaining the existing family insurance package.

Our management, along with the heads of enterprises, has evaluated the results of the eight-month crisis. It was noted at the meeting that since March of this year, the company has had to stop 70% of production due to the protests from the Shukruti population. This situation was compounded by a decline in ore prices in the world market and the exhaustion of additional financing resources.

It is important to highlight that, despite these challenging conditions, when most enterprises were halted, the company continued to pay 100% of employees' salaries.

Internal and external factors have created a severe financial crisis for Chiatura enterprises, prompting the company to implement a special regime.

Over the next 4 months, the company will strive to develop and negotiate a crisis management plan with all parties as required by law. It is essential to create this plan and subsequently implement it to improve the financial situation of the enterprises, make ore mining profitable, and eliminate the possibility of permanent, illegal work stoppages," states the announcement from Chiatura Management Company, LLC.

License Holder

Since 2007, Georgian Manganese LLC has held a license for manganese mining on 16 430 hectares in Chiatura and Sachkhere for a period of 40 years. The company is wholly owned (100%) by Georgian American Eloise. The controlling stake in this company belongs to Ukrainian billionaire Igor Kolomoisky, while approximately 4% is held by a Georgian group of shareholders, including Giorgi Kapanadze (also known as Rizha), who is close to the ruling Georgian Dream. The members of the Supervisory Board of Georgian Manganese are Giorgi Kapanadze (Chairman), Aleksandre Meladze, and Mariam Lashkhi.

Since 2017, the state has appointed a special administrator for Georgian Manganese due to the company's activities in Chiatura creating a situation equivalent to an ecological disaster, which needed to be addressed to prevent irreparable damage. However, the situation has worsened; open-pit mining has alarmingly increased, and Chiatura has become a disaster zone.

The court last appointed Besik Kirtadze as a special administrator on May 16, 2023, and his term is set for two years, until May 9, 2025.

According to the public register, a special management regime is still in effect in Georgian Manganese. However, for the past few months, it has not been Georgian Manganese making announcements about licensed activities in Chiatura, but rather another company, Chiatura Management Company LLC. This company has been involved in announcing activities, including Shukruti residents’ protests. It was this company that disseminated false and discrediting information in an attempt to undermine Shukruti's protest.

At the initiative of Rati Ionatamishvili, the chairman of the Human Rights Protection Committee of the Parliament, and with his active participation, 3 meetings were held in October with the declared goal of reaching an agreement with the participants of the Shukruti protests. Negotiations on behalf of the enterprise were led by Teimuraz Khonelia, a member of the Supervisory Board of Chiatura Management Company.

During the so-called mediation, Khonelia explained that all mining activities in Chiatura are entirely managed by Chiatura Management Company. When asked on what basis the new company had such authority, he assured the meeting participants that everything was legal.

For Chiatura Management Company to have the rights stipulated by the license, a lease or purchase agreement for the transfer of the license (or its part) must be signed with Georgian Manganese LLC. Based on legislation, it is mandatory for the Mineral Resources Agency to reflect such a change in the license register within 10 days and issue a proper license certificate. However, this change has not been recorded in the register, and officially, the sole owner of the license remains Georgian Manganese LLC.

What connects Chiatura Management Company LLC with Georgian Manganese?

Chiatura Management Company

Chiatura Management Company LLC was founded on February 6, 2024, by JSC New Group. The director of Chiatura Management Company is Maxim Mazurenko, a citizen of Ukraine. It is known for Mtis Ambebi that Mazurenko is a confidant of Igor Kalomoisky, the owner of the controlling stake in the company Georgian Manganese, and is also related to him. Employees of Georgian Manganese report that Kalomoisky won a dispute against Georgia in international arbitration and brought Mazurenko back to manage the company.

Despite numerous attempts, Mtis Ambebi was unable to obtain information from the Ministry of Justice, Environment Protection, and Agriculture of Georgia regarding whether the dispute between Kalomoisky and Georgia has been initiated in international arbitration and, if so, what the basis of the request is.

On August 19, 2024, the director of JSC New Group, Vakhtang Bantsadze, established a three-person supervisory board for Chiatura Management Company LLC and appointed Teimuraz Khonelia, Bakar Devdariani, and Zurab Kanchaveli as members of the board.

- Teimuraz Khonelia has been working at Georgian Manganese LLC since 2021 and is currently the administrative director.

- Bakar Devdariani is also an employee of Georgian Manganese LLC, where he has been advising the company on tax matters since the state appointed a special administrator. From 2014 to 2015, Devdariani headed the Audit Department of the Revenue Service, during which time a fine of 200 million GEL was imposed on Georgian Manganese LLC under his leadership.

- Zurab Kanchaveli is a former employee of the State Security Service of Georgia. According to businessman Giorgi Chikvaidze, speaking on TV Pirveli, Kanchaveli supervised matters related to Bidzina Ivanishvili's family from 2022 to 2023. He is originally from Chiatura.

On September 11, 2021, JSC New Group, the owner of Chiatura Management Company LLC, was founded by Georgian Minerals Mining LLC (67%) and B&Co LLC (33%).

On the other hand, Georgian Minerals Mining LLC was registered three days before the establishment of New Group, and 100% of its shares are owned by Mckeil Limited LLC, based in Cyprus.

As for B&Co, it was founded on August 12, 2021, by Nino Berishvili. On May 13, 2022, Berishvili resigned from the position of director for personal reasons and appointed Kostiantyn Kutsevol, a citizen of Ukraine, as the new director. On the same day, Berishvili sold the company to Salvaggio Holding Ltd., which was registered in Cyprus on December 2, 2021, and whose director is Maxim Mazurenko.

Georgian Manganese Companies for 100 GEL Each

Besik Kirtadze, special manager of Georgian Manganese LLC, sold 7 companies owned by Georgian Manganese on October 1, 2024.

Chiatura Management Company purchased all seven for 100 GEL each. As per the documents submitted to the Georgian Competition and Consumer Protection Agency, the primary field of activity of Chiatura Management Company LLC is company management.

1. LLC JM-EMS is engaged in the production of non-ferrous and ferrous metal products.
2. LLC JM-Construction specializes in construction and repair works.
3. Magaroeli LLC is involved in the underground mining of manganese ore.
4. Samtoeli LLC focuses on the surface mining of manganese ore; its property is encumbered with a pledge, and the creditor is Bank Cartu, which belongs to Bidzina Ivanishvili.
5. LLC JM-Technikaservice operates in the transportation of mined ore and other materials.
6. MN Factor LLC is engaged in washing and enriching manganese ore.
7. Chiatura Water Company LLC is responsible for technical water supply and repair works in water supply.

These companies had a multifaceted workload, with some LLCs reportedly used to finance local government officials. For example, Giorgi Vashadze, the deputy chairman of the Georgian Dream - Democratic Georgia faction of the Chiatura Municipality Council, received 15 395 GEL in 2023 for allegedly serving as a reserve driver for JM-Technikaservice LLC and JM-Construction LLC. During the same period, he received 18 585 GEL as compensation for his position as deputy chairman of the Georgian Dream - Democratic Georgia faction. Vashadze told Mtis Ambebi that he worked as a driver in private companies after hours and that he had the right to do so.

Based on Article 13, Clause 2 of the Law of Georgia on Combating Corruption, a civil servant, except for the President of Georgia, a member of the Parliament of Georgia, and a member of the Government of Georgia, is not allowed to perform any paid work (except for scientific, pedagogical, creative activities, or work in the reserve of the Georgian Defense Forces). As the deputy chairman of the faction, Vashadze is considered an official and is prohibited from working in a private company altogether.

In 2023, Emzar Mikatsadze, another deputy chairman of the Georgian Dream - Democratic Georgia faction of the Chiatura Municipality Council, received 30 837 GEL from Georgian Manganese and its subsidiary company, JM-Technikaservice LLC. As per his property declaration, Mikatsadze provided consulting services to Georgian Manganese. In the same period, he received 18 585 GEL as a salary for his position as deputy chairman of the faction.

Debts

Georgian Manganese LLC borrowed 17 million GEL in 2022 and 27.5 million GEL in 2023 from Steel International Trading Company LLC. According to the company's 2023 financial report, the loans are secured by Georgian Manganese's credit line, which is in turn secured by all of Georgian Manganese's current and future reserves. The same report states that during the reporting period of 2024, Steel International Trading Company granted loans totaling 25 703 512 dollars and 3 291 092 GEL to Georgian Manganese LLC in several tranches.

From the same company, Bidzina Ivanishvili's AIP international fund Cartu borrowed almost 286 million GEL during 2022-2023, along with 3.3 million GEL lent to Giorgi Kapanadze, Chairman of the Supervisory Board of Georgian Manganese.

Steel International Trading Company LLC was founded in 2018. Until 2021, 100% of the company's shares were owned by Giorgi Chelidze. Since 2022, 30% of the shares have been sold to Alexander Chochia. The main activity of the company is the trading of ferro silicon manganese, coke, coal, and other metals. The company also owns Saknakashiri LLC, which mines coal in the Tkibuli region.

Silicon-Manganese Crisis and Shukruti Residents Protest as Scapegoats

Steel International Trading Company LLC sold manganese extracted by Georgian Manganese primarily in Russia and Ukraine. After the onset of the Russia-Ukraine war, sanctions were imposed on Russian companies, and iron production in Ukraine halted, leading to an oversupply of silicon manganese, which caused its price to drop by half. Steel International Trading Company imported Georgian manganese to Russia at prices below market value, prompting Russian ferro silicon manganese producers - Chelyabinsk and West Siberian electrometallurgical factories - to file lawsuits against the company. The Eurasian Economic Commission, the permanent regulatory body of the Eurasian Economic Union (EAEU), which includes Russia, Belarus, Armenia, Kazakhstan, and Kyrgyzstan, initiated an anti-dumping investigation.

As of January 25, 2023, the anti-dumping tax imposed by the Eurasian Economic Commission on silicon manganese imported from Georgia came into effect. The introduction of a new customs duty (ranging from 21.5% to 24.5%) completely halted the export of ferrosilicon manganese from Georgia to the Russian market after this date.

The auditor noted in the financial report that this situation raises significant doubts about the company's ability to continue as a going concern. According to the financial report, the company's income in 2022 was 668 million GEL, while in 2023, it nearly halved to 359 million GEL.

Due to these challenges, all mines in Chiatura were closed for 6 months in 2023.

However, the financial report indicates that in 2024, Steel International Trading Company managed to penetrate target markets and achieve significant sales. Specifically, in the first 8 months of 2024, it sold over 200 million GEL worth of stocks in the markets of the USA, Great Britain, and Turkey. The sales volume for this period is as follows: USA - 34%, Great Britain - 27%, and Turkey - 3%.

"Revenues for the first eight months of 2024 are satisfactory (380 545 413 million GEL), reflecting almost a 100% increase compared to the same period in 2023. Furthermore, the group has repaid long-term loans exceeding 26 million GEL, confirming that the group does not have liquidity issues," the report states.

Earlier, Giorgi Tatishvili, the financial director of Georgian Manganese, mentioned that the US market is far from Georgia, and when transportation costs are factored in, sales are gradually becoming unprofitable.

Nino Gujaraidze, coordinator of the environmental justice program at Green Alternative, believes that the situation at Georgian Manganese warrants an investigation.

"The company claims that it is effectively ceasing to use the licenses and environmental decisions that were issued to it. In 2017, a special management regime was implemented precisely because the company was struggling to meet the conditions set by its licenses and permits. At that time, the Ministry of Environment Protection and Agriculture, as well as the National Minerals Agency, stated that there was sufficient grounds for revoking the licenses and permits. However, due to the company's significant social impact on the local population, a special manager was appointed.

Today, we are faced with the reality that these obligations still exist. Even worse, the company has not stated that it should stop operating; instead, it is halting its operations on its own.

We have not heard anything from the special manager. There is no individual in sight who has been officially appointed by the court to address these issues. Instead, we are dealing with a company whose origins are unclear. The Ministry of Environment Protection and the National Agency of Mineral Resources, whose representative is part of this special management company, have not provided any explanations. Such an attitude from public agencies is highly inadequate.

Chiatura Combine and Zestafoni Ferro have gone through similar bankruptcy processes before, but this was in the post-Soviet period, prior to 2003. It is a familiar pattern.

The same issues arose during the directorship of Nikoloz Chikovani, the CEO of Zestafoni Ferroalloy,” Gujaraidze explains, noting that the special manager lacks the authority to alienate assets.

"The alienation of assets is not within his competence. His sole duty, the only function of a special manager, is to enforce the terms of the licenses and permits. The alienation of the enterprise cannot be included in his responsibilities. The special manager faced similar issues when a new factory was put up for auction; they wanted to sell it, and we had extensive correspondence with the National Environment Agency regarding this matter. However, in the end, the enterprise was sold, and public authorities did nothing to prevent it. The current situation is likely to be the same. All of this seems to be in agreement with someone who has authority above the law."