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Update No: 254

The Georgian economy is picking up, GDP grew by 10% in 2000 and 4.5% last year, while inflation in 2001 came in at 3.3%, well under a 6% target for the year. But growth is from a very low base, due to the debilitating effects of two ethnic conflicts, one of which is still rumbling in Abkhazia, the north- western province.
A UN initiative, backed by Russia, might break the Abkhaz logjam It declares Abkhazia to be part of Georgia and calls for the return of 150,000 refugees. The support of Russia is the key, now opposed to the independence, which the Abkhaz declared in 1999, obviously mindful of the parallel with Chechnya.
The president since 1992 has been the wily old fox, Eduard Shevardnadze, Gorbachev's right hand man as foreign minister until he resigned, warning of a coming coup, in December 1990. Everybody in Georgia knows and respects him as a sharp operator, who has the added advantage of an international profile. He puts Georgia on the map.
For instance in January he proposed that Georgia become a pivot of a common energy system for south-east Europe. The system "should be formed with the participation of Russia, Ukraine, the Balkan countries, Azerbaijan, Turkey, Armenia, Moldova and other more distant countries," he says. "Georgia will gain a lot if it initiates the common energy system." Georgia's role would be to be the country across which energy pipelines would flow from the Caspian Sea to world markets. This bold conception is already being partly implemented, with an oil pipeline from Baku to Supsa on Georgia's Black Sea coast for the AOIC consortium in the Azeri sector of the Caspian Sea.
But it faces a rival in Russia and its desire to see Caspian Sea energy flow to Russian Black Sea ports or across the expanse of the Russian Federation to Europe. 
Shevardnadze's vision tends to the grandiose, as befits someone who bestrode a great stage at the height of his power when the USSR was still indisputably No 2 to the US. Georgia is small beer by comparison. But at least he is in power.
However, at just turned 74 he cannot be expected to remain so for very much longer. The succession issue is one that everyone is conscious of in Georgia.
The republic had a crisis in October last year when the government tried to close down an independent TV station. People took to the streets, demanding and obtaining several ministerial resignations.
Shevardnadze reacted with dispatch, removing the offending ministers and creating the office of prime minister. Another major figure, Zurab Zhvania, the parliamentary speaker, resigned in November, but not in disgrace. He has founded with the ex-justice minister, Mikhail Sashashisbi, the National Movement, which could become a political party, Zhvania is a young reformer and clearly a candidate for the presidency sooner or later.
Another big figure is Miko Lekichvili, who left the State Minister's office in 1998. He must be the favourite to succeed, being the leader of the 'red directors' and new businessmen. He is free from the besetting vice of Georgian politicians, the charge of corruption. But he is not averse to those who are so charged, giving him considerable leverage over them. Another big figure is the Ombudsman, Nena Deviarian, a leader of the Socialist Party. Elections for the presidency are not on, however, until 2004.
One bizarre development is that the security forces are alarmed that various fleeing al- Qaeda members may have infiltrated the republic from Afghanistan via Central Asia (probably Turkmenistan). They are keen to cooperate in the US campaign against terrorism and if they are captured, they will be handed over to the Americans.

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ENERGY

Georgia, Sichuan Energy Ink 9.3 mw hydroplant deal

The Georgian Ministry of Fuel and Energy and China's Sichuan Machinery and Equipment Import-Export Corporation signed a contract at the end of January for the development of a US$10m hydroelectric plant in Georgia. 
The Caucasian Energy Corporation will design and build the plant, while the Chinese will finance the 9.3 megawatt plant, to be built in Georgia's Kakheti agricultural region, on the Chelta river, Georgian Energy Minister, David Mirtskhulava, told Interfax News Agency. Work on the plant is due to commence this autumn and should begin operations in early 2004. 
A contract with the Georgian wholesale market has been signed to guarantee a buyer for the electricity the plant will generate. Sichuan Electric is currently building the Khador Hydroelectric Plant, with 24-megawatt capacity, in the same region and is due for launch at the end of this year.

IFC proposes power station privatisation

The International Finance Corporation (IFC), acting as a strategic adviser to the Georgian government for privatisation of power sector assets, has recommended the country privatise its power stations. The privatisation of regional power distribution companies should be accompanied by the privatisation of power generation facilities, IFC officials stated at a recent seminar in Tbilisi, organised by the corporation and the Georgian Property Ministry.
Officials there noted that, together with the consolidation of regional power distribution companies ahead of their privatisation, preparations are underway to privatise the state-owned Ladzhanuri, Gumati, Rion, Dzevrup and Shaor power stations. IFC experts have also recommended that the government put all 110 and 35 kilovolt power transmission lines under the management of regional power companies.
Georgia intends to merge the Adzhara, Relasi, Kakheti, Samtskhe-dzhavakheti, Racha-lechkhumi, Imereti, Shidakartli, Samrelo-zemosvaneti, Kvemokartli, Guria and Abkhazkaya companies into a single power distribution company this year, Interfax News Agency reported.

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FINANCIAL NEWS

Georgia posts 4.5 per cent growth for last year

Georgia's GDP grew 4.5 per cent in 2001, the country's statistics department told Interfax News Agency. Nominal GDP rose by 540m lari, or 9 per cent, to 6.51bn lari...
The informal, or shadow, economy accounted for 33.7 per cent of goods and services produced compared to 33.2 per cent in 2000, the statistics department said.

IMF looks to continue 3-year economic growth programme

The International Monetary Fund (IMF) Mission head has discussed with the head of the Eastern Department, David Owen, and the president of the National Bank of Georgia, Irakli Managadze, issues regarding the implementation of the three year IMF programme "On Poverty Reduction and Economic Growth."
David Owen explained that the aim of the present visit was to address the trends of the revenue part of Georgia's state budget, which should be determined in accordance with the parameters coordinated with the IMF, Prime New News Agency has reported.
The adoption of the draft of Georgia's 2002 state budget by its parliament, would become the key for the continuation of the IMF's programme in the country.
The IMF mission's head emphasised that agreement on the parameters of the revenue and expenses areas of the state budget had been agreed to by the Georgian government and the IMF in December 2001. This would not be violated.
According to Irakli Managadze, the IMF has no serious input regarding the monetary credit policy for the National Bank of Georgia.
The IMF intends to put aside US$141m for carrying out the programme "On Poverty Reduction and Economic Growth" in Georgia.
Last year, Georgia was given a portion of this amount: in January it received US$11.7m, in March US$11.45m, in November US$11.5m. These amounts were used for the purposes of renewing the National Bank of Georgia's currency reserves. 
The 2002 state budget's revenue is estimated at 1.4bn laris, the expenses at 1.3bn laris.

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TELECOMMUNICATIONS

Telenor seen as possible cooperation prospect

Georgian Minister of Transport and Communications, Merab Adeishvili, during a recent visit to Norway, looked into cooperation prospects with the Norwegian company, Telenor.
The Norwegians "actually agree" and it is now up to the Georgian side to make a decision, Adeishvili told Sarke News Agency.
The Minister noted that the questions should be resolved in several months, after which the sides will sign an agreement. 
Last year Georgia failed to privatise local communications operator, Sakelectrokavshiri, either alone or together with Sakartvelos Telekomi, the international communications operator. The question is still an agenda item, with Adeishvili not ruling out that they would again be offered to the investor together this summer. This would create a more attractive incentive for the investors, he commented.
Meanwhile, the question of an advisor in the telecommunications privatisation sphere remains unresolved. The minister is against extending an agreement with the previous advisor, Commerzhank, with which the term of the contract has expired.

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