Update No: 260 - (29/08/02)

The Russians are accusing the Georgian government of connivance with terrorism. In early August Tbilisi refused to hand over 13 Chechen rebels to Moscow that were apprehended along the border. The Georgians do not want a rift with Moscow, but are prepared to risk one to maintain an even-handed policy towards the Chehens, with whose aspirations to secession they can well sympathise.
The president of Georgia, Eduard Shevardnadze, is well versed in Russia's ways, having been the Soviet foreign minister until he resigned in December 1990, warning of a coup, which was duly attempted. He is aware of the intentions of Russian planners towards the Caucasus, which they regard as their backyard.

US to the rescue
But Georgia sees things differently. Tbilisi invited in US advisers to assist them in tackling terrorism in the Pankisi Gorge in the north-east of the country, concerned that a spill-over of al-Qaeda elements from Afghanistan might have occurred via Turkmenistan and the Caspian Sea. The US sent 200 defence experts to train Georgian forces, along with 10 airships and military hardware of various kinds.

IMF stands by
The economy on official figures is performing only moderately. GDP growth was 2% in 2000 and 4.5% in 2001 and is projected at around 3% for 2002. This compares with 10% or more for not just oil-rich Azerbaijan, but Armenia as well.
The IMF is being supportive, coughing up an extra US$30m in July. This should cover the budget deficit.
The World Bank and the European Union have not been so supportive, however. In the first half of this year Georgia received 1.6m laris in grants from them in place of a promised 37.3m laris. The budget also suffered from another shortfall of 17m laris in customs receipts and another 10m in tax and non-tax revenue.
The Georgian finance ministry has not ruled out the option of sequestering the state budget for 2002 if the World Bank and EU are not more forthcoming over the next few months. 

FDI needed
Georgia really needs a shot in the arm from foreign direct investment (FDI). But this too has been moderate, US$152bn in 2000, 100m in 2001 and a prospective 150m in 2002.
This last figure may not materialise. For a distinctly unpleasant development has occurred. A series of kidnappings of foreign businessmen continues. In December there was the release of two Spanish businessmen after one year in captivity. Now a UK businessman, Peter Shaw, director of the advisory board at Agrobusinessbank, has been seized, presumably for a ransom. The head of the US Chamber of Trade expressed concern at the lack of professionalism among security forces in such cases. A suspicion that they might even have been rogue elements in the security forces complicit with the affair is an obvious reaction. Georgia is notoriously unruly and corrupt.
The incident could hardly be more damaging to Georgia's chances of attracting more FDI. A difficult enough place to do business at the best of times, it creates a very bad impression as Christopher Patten, EU External Relations Commissioner, pointed out. He noted that it is not the first such incident in Georgia and has aroused "deep concern" in the international community.
The pity is that Mr Shaw was performing just such a vital job that Georgia desperately needs. With a long tradition of fine horticulture and viniculture as well as agriculture its producers have been hamstrung for lack of investment loans. They are urgently needed to give new producers created under land reform the chance to improve equipment. Foreign experience of agrarian banking is just what is required. The fall-out from the Shaw incident could be dire, with foreign experts shunning the republic as well as foreign investors.

Beefing up security
An overhaul of security is clearly required. If the US can help with external security, the UK might be able to help with internal security. Bringing in Scotland Yard and Interpol would be an excellent move.
The Greeks had a breakthrough against terrorists recently by calling in Scotland Yard after the British military attaché, Brigadier Stephen Saunders, was shot in Athens in 2000 by November 17th. If the kidnapping of a British businessman triggers a similar progress in Georgia, it will not be before time. 

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AVIATION

BA ups Yerevan operations

British Airways, which operates three London-Yerevan-London flights a week, has decided to carry out two of its three flights to Armenia by Airbus-321 new planes. The change was prompted by a sizeable growth in the number of passengers. The new planes take aboard 20- passengers more than the older Airbus-311.
Speaking at a recent news conference, Doug Douglas, who was recently appointed British Airways regional director for Central Asia, said the September 11th attacks on the US did not have any significant impact on the company's business in this region. He also said that British Airways may in future use the Yerevan Zvartnots airport, which is undergoing a major renovation, as a transit airport.

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ENERGY

Georgia to go for Itera after Israel's Tahal pulls out of gas privatisation deal 

President Eduard Shevardnadze on 23rd July held a meeting with government ministers in charge of the economy to discuss the privatisation of Tbilgazi [gas distribution company for Tbilisi], Prime-News News Agency has reported .
Prime-News was told at the presidential press service that, in order to prevent problems next winter, Tbilgazi should be sold off as quickly as possible. The meeting heard that talks were under way with the Itera International energy company about joint ownership of Tbilgazi. Minister of State, Avtandil Jorbenadze, told the meeting that a joint venture would be set up, in which the state would have a stake.
Eduard Shevardnadze said that the establishment of a joint venture would be acceptable and urged participants in the meeting to think through all the details of the future agreement.
Earlier, Deputy Minister of State Property Management, Geno Malazonia, told the parliamentary committee for sectors of the economy that the Israeli company, Tahal, had refused to buy Tbilgazi, citing its own financial problems.
Under a draft agreement between Tahal and the Georgian State Property Ministry, Tahal was to take control of an 85-per-cent stake in Tbilgazi, invest US$75m in the rehabilitation of Tbilgazi and increase the retail price of natural gas from 0.27 to 0.50 lari per cubic metre.
Tbilgazi chief, Vakhtang Tsaava, told the parliamentary committee that, if no investor was found for Tbilgazi, Tbilisi would face "severe" problems with gas supply in winter because the gas distribution network in the capital was technically obsolete. He said that 2m lari was needed by next winter for the rehabilitation of Tbilgazi.

Ukraine invites Georgia to join Odessa-Brody-Gdansk pipeline

Ukraine Prime Minister Anatoly Kinakh has invited Georgia to join an international consortium that would finalise the building of the second stage of the Odessa-Brody-Gdansk oil pipeline and later operate it. Kinakh put forward this proposal to Georgian Minister of State, Avtandil Jorbenadze, at a session of the joint inter-governmental commission for economic cooperation in Tbilisi on July 16th, New Europe reported.
Interfax quoted Kinakh as saying that a Ukraine-Poland-US working group is currently drawing up proposals on setting up such a consortium in the near future, adding that once the oil pipeline's second stage goes on stream, oil deliveries will total 40m tonnes a year.
Kiev does not consider the Baku-Tbilisi-Ceyhan pipeline stretch, currently under construction, as a rival project. Ukraine supports diversified routes for supplies of energy resources to Europe, and is ready to participate in this project, the news agency quoted Kinakh as saying. In 2001 Ukraine completed construction of the 674-kilometre Odessa-Brody oil pipeline (with 1,020mm diameter pipes) as well as the south oil terminal in Odessa. The first stage of the Ukrainian segment of the Eurasian oil-transportation corridor has a capacity of nine million to 14.5 million tonnes of oil a year. Further plans include gradually increasing the transportation corridor's capacity to 40m tonnes of oil annually. 

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FOREIGN LOANS

Tbilisi gains IMF tranche

Following a review of Georgia's economic performance, the International Monetary Fund, (IMF) has approved "in principle" the release of a further tranche, worth approximately US$30m, under the current three-year Poverty Reduction and Growth Facility loan, according to an IMF news brief. 
The brief quoted IMF Deputy Managing Director and Acting Chairman, Shigemitsu Sugisak,i as noting that the fund's decision to release a further tranche was taken in spite of Georgia's failure to fulfil some of the required criteria. Sugisaki said Georgia must push ahead with much needed reforms and increase tax collection in order to facilitate repayment of debts, especially in the energy sector, and priority spending aimed at reducing poverty. 

World Bank decides to allocate US$52m to Georgia

The World Bank has allocated three credits totalling US$52m for Georgia. The decision has already been made by the Board of Directors, Kavkasia Press was told at the World Bank Country Office in Georgia, Kavkasia-Press News Agency has reported.
A US$30m loan was recently made to Georgia by the International Monetary Fund, which decided that the Georgian government was complying with the requirements of international financial institutions. IMF mission head David Owen mentioned during his visit to Tbilisi that Georgia will get another US$36m in the autumn.
The World Bank credit will be spent on health care, forestry and transportation.

USA to give Georgia US$10m to equip border with Chechnya

The United States will give Georgia US$10m to equip its state border, the Georgian border troops commander, Lt-Gen Valeriy Chkheidze, who recently returned from Washington, told Interfax News Agency on 1st August.
This money will be used to build an infrastructure for the border with Chechnya, which is the most difficult stretch of the border, Chkheidze said.

USA to give Georgia US$14m to help needy pay electricity bills

A memorandum on the programme for providing heating in the winter was signed on 25th July at the State Chancellery. Under the programme, the US government will provide via USAID US$14m in assistance for 100,000 socially deprived people. The programme is to be launched in December 2002, and it will provide relief from the charges for electricity to orphanages, schools, hospitals and areas of densely populated by refugees, Tustavi-2 TV has reported.
Kent Hill, Assistant Administrator of the USAID Bureau for Europe and Eurasia said: "As you know we work on a lot of different kinds of reform and economic reform is one the major ones and energy is one of the major ones. And this money will be used particularly to help those who are most in need this winter."

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