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  GEORGIA



REPUBLICAN REFERENCE

Area (sq.km)
69,700

Population
4,989,285

Principal 
ethnic groups

Georgians 68.8%
Armenians 9%
Russians 7.4%

Capital
Tbilisi

Currency
Lari

President
Eduard Shevardnadze

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Background:
Georgia was absorbed into the Russian Empire in the 19th century. Independent for three years (1918-1921) following the Russian revolution, it was forcibly incorporated into the USSR until the Soviet Union dissolved in 1991. Russian troops remain garrisoned at four military bases and as peacekeepers in the separatist regions of Abkhazia and South Ossetia (but are scheduled to withdraw from two of the bases by July 2001). Despite a badly degraded transportation network - brought on by ethnic conflict, criminal activities, and fuel shortages - the country continues to move toward a market economy and greater integration with Western institutions. 

Update No: 261 - (26/09/02)

The Georgian republic continues to be in the forefront of the news. The Russians are now saying that they will attack the Pankisi Gorge and flush out terrorists there, some of whom they claim may be al-Qaeda, unless the Georgians do so promptly. The Pankisi Gorge is just below Chechnya and the ragged mountains across the borders would be impossible to police. Chechens can cross it at will.
The Kremlin is complaining about this and about the failure of Tbilisi to act. This is not quite fair. The Georgians have been augmented by 200 or so US forces to train their troops in anti-insurgency and counter-terrorist activities.

Shevardnadze's calm reaction
Eduard Shevardnadze, the President of Georgia, is reacting calmly to the Russian accusations. As former Soviet foreign minister, he understands the Kremlin mind very well. Putin is clearly seeking a scapegoat for the failure of his Chechen campaign, for which he feels a very special responsibility. He started it in September 1999 on the pretext that the Chechens were behind a series of atrocities in Moscow and elsewhere which blew up 300 or more in their beds. Since Chechnya under a 1991 peace agreement was facing a referendum on whether to go independent or not, which would surely have been won, in mid-2001, two years later, this is hardly plausible and has satisfied no serious analyst since. The complicity of rogue elements in the security services has always been suspected.
For Putin to have caused a war prior to any serious investigation of the matter could be viewed as a war crime, as it is by many Chechens, something he well knows. There is no subject on which he is more sensitive. Since the war changed him from being on 2% in opinion polls to succeed Yeltsin to being on 60% in a matter of months it is clear why.
The warnings given by the Kremlin mention al-Qaeda for a obvious reason; they were given on the anniversary of 9:11. Indeed, the statement was distributed to world leaders on the crucial day, with the evident implication: 'if al-Qaeda are your terrorists, the Chechens are ours.'
The Bush Administration to its credit has never accepted this simple claim of equivalence between the two. The one are international terrorists; the other are nationalist rebels, some of whom may have used terrorist methods. Washington has told Moscow that it would strongly oppose any infringement of Georgian territory in the Pankisi Gorge.
Shevardnadze is not really afraid that the Russians would attempt to invade Georgia proper. The US would not countenance it. Putin is, anyway, not that mad. His Chechen adventure, however brutal and reprehensible, was perfectly rational.
If the operations are just confined to the Gorge, then the US are not likely to object overlong. The whole affair has distracted the Georgians from developments at home. It is not every day that Moscow and Washington are at loggerheads over your territorial integrity.

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ENERGY

Georgian president urges quick deal with Russian energy company

At a government meeting on 4th September, President Eduard Shevardnadze demanded that talks on a contract establishing a joint venture with the Itera international group of companies at the Tbilgazi joint-stock society [Tbilisi gas distribution company] be speeded up. He told the meeting that he did not understand the uproar that had started in Georgia over Itera, Prime-News News Agency has reported .
Georgia has no other option to ensure that the country is supplied with gas, he said, adding that if someone found an alternative solution, he would admit that he was wrong and apologize. He said that he would be the first to sign the contract on a joint venture with Itera. "They can say whatever you like," he added.
Talks with Itera on establishing a joint venture at Tbilgazi, at which the Georgian side is led by Deputy Minister of State Giorgi Isakadze, started in August. Several political parties and NGO have been protesting about the plans to allow Itera into Georgia. 
Speaking at the government meeting, Minister of State, Avtandil Jorbenadze, said that Itera's opponents were guided by political motives. "The worse the situation in the country, the better for them," Jorbenadze said. He added that there was a second category of opponents, who were afraid of losing the proceeds from "deals" they were involved in if a joint venture was established.

Georgian president seeks tax breaks for power stations

At a government meeting on 4th September, Georgian President Eduard Shevardnadze instructed Finance Minister Mirian Gogiashvili to start talks with the IMF on suspending the taxation of electricity generation facilities, Prime-News News Agency has reported. Shevardnadze said that Georgia was extremely rich in water resources and that there would be a noticeable increase in investments in the energy sector if it was exempted from tax.
Gogiashvili said that it would be difficult to implement Shevardnadze's proposal because it would mean that alternative ways of raising budget revenue would have to be found. He also said that it would be difficult to get the IMF to agree to the proposal.
Under existing legislation, energy sector facilities do not enjoy tax breaks.
According to Fuel and Energy Minister Davit Mirtskhulava, Georgia currently produces 7.0-7.5bn kilowatts of electricity per year and has to import a further 4bn kilowatts.

Khador plant to be in full operation next year

The Khador hydropower plant, which is being built at the centre of Georgia's Pankisi Gorge with Chinese investments, will be commissioned in December 2003, Georgian Security Minister, Valery Khaburdzania told the press, Interfax News Agency reported. "The security services and the interior troops are keeping an eye on the strategic project," he said.
"The plant was one of the first to be given higher protection several months ago when the situation in the Pankisi Gorge was exacerbated," the minister said. Khaburdzania added that a group of security officers was sent to the construction site at the request of the Georgian Fuel and Energy Ministry, and an interior unit joined them later to prevent interruptions to the project.
Representatives of eight Georgian companies are taking part in the project together with specialists from China's Sichuan Electric, Georgian Fuel and Energy Minister, David Mirtskhulava, was quoted as saying. He added that the construction would be completed on time. The hydropower plant will minimise the energy shortage in the large agricultural region of Kakheti, Mirtskhulava said.
The total cost of the Khador project is US$27m. China's Sichuan Electric is covering the expenses in full. The power plant will have a capacity of 24 megawatts.

Ukraine to link with Georgia

In the light of its increasing oil transit capacity, Georgia is attaching greater importance to the role of Ukraine as a strategic partner, Giorgi Lomsadze reported for Caspian Business News. 
Prospects for increasing the capacity of oil transit from Georgia to Ukraine were discussed at the intergovernmental meeting in Tbilisi on July 16th. The Ukrainian Prime Minister Anatoli Kinakh noted that Ukraine and Georgia have been stepping up their trade and economic relations recently. 
The Ukrainian premier stressed that even though the turnover of oil between Ukraine and Georgia has grown significantly recently, this neither meets the real potential of the economies of the two countries, nor gives an opportunity to use the unique geographical position of Ukraine and Georgia in general. 
Georgian President Eduard Shevardnadze on behalf of the Georgian government, pledged to provide full support to their Ukrainian counterparts in order to harness opportunities for the transporting Caspian oil to Europe and beyond. 
The Ukrainian and Georgian officials agreed to maximize their joint efforts to advance development of the Odessa-Brody-Gdansk oil pipeline. The Ukrainian premier suggested that the Georgian party get actively involved in creation of the Eurasian oil transportation corridor, whose elements are the Uzhny terminal and the Odessa-Brody-Gdansk oil pipeline. Georgia has been invited to participate in building the second stage of the Odessa-Brody-Gdansk pipeline and in operating the pipeline afterwards. 
The Odessa-Brody Pipeline and associated Pivdenny Marine Terminal are both 100% complete and ready to transport Caspian oil to Europe and beyond. Odessa-Brody stretches 674 km. The current Ukrainian routes' capacity is 290,000 bpd. Ultimate capacity is estimated at 900,000 bpd. 
The Odessa-Brody Pipeline solves the capacity problem of the Bosphorus and can transport high-quality light crude oil from the Caspian region to refineries in Central and Eastern Europe. In addition, since Ukraine possesses the refining potential of more than 50 million tons per year, it is an important potential market as well. 
In addition to bypassing the Bosphorus, as the Odessa-Brody Pipeline is further extended and integrated with the European oil pipeline transportation system, it can provide increasing volumes of light Caspian oils at a time when North Sea oil supplies are expected to decline. Odessa-Brody can supplement these volumes with Caspian oil that has similar characteristics to that of the North Sea. 
During his visit to Tbilisi, the Ukrainian premier noted that Ukraine is ready to participate in upgrading Georgian oil pipelines. Ukraine intends to intensify work on using transport opportunities of the two countries, starting with transportation of energy resources and ending with raising the performance of Georgia's sea ports. 
With a view to implementing the interstate agreements Ukrainian state oil company Ukrtansnafta and it's Georgian counterpart Georgian International Oil Corporation, GIOC, signed at the end of August a bilateral agreement on setting up a joint fleet for transshipment of oil from Georgia to Ukraine. 
As GIOC spokesman Merab Jankurashvili told CBN that the agreement involves cooperation in all aspects concerning development of the northern oil transit route. According to him the parties haven't agreed precise terms for beginning the development of the fleet, however, both sides wish to do this in the shortest time possible. Most likely Ukrainian companies will receive orders to build tankers for the fleet. 
The Ukrainian side went further and expressed interest and readiness in participation of the construction of the Baku-Tbilisi-Ceyhan oil pipeline. At the fourth meeting of the Mixed Ukrainian-Georgian Intergovernmental Commission for Economic Cooperation Mr. Kinakh came up with a statement that Ukraine does not consider the Baku-Tbilisi-Ceyhan oil pipeline a route competitive with the Odessa-Brody-Gdansk oil pipeline. Ukraine welcomes the creation of a system of diversification of supplies of energy resources and conditions for effective competition on the energy resources market, which will bring benefits to all consumers. 

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