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GEORGIA

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REPUBLICAN REFERENCE

Area (sq.km)
69,700 

Population 
4,934,413 

Principal 
ethnic groups 
Georgians 68.8%
Armenians 9% 
Russians 7.4%

Capital 
Tbilisi 

Currency 
Lari

President 
Mikhail Saakashvili

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Update No: 284 - (27/08/04)

Does war impend? 
President Mikhail Saakashvili, a US-educated lawyer, has set out to reverse Georgia' s reputation as a failed state since coming to power in the peaceful "Rose Revolution" that overthrew former Georgian President Eduard Shevardnadze last November. He was elected in January, with over 90 % of the vote, on pledges to end Georgia's official corruption, rebuild the economy, and reunify the country.
The last ambition of re-unification has dominated Georgian politics since January. Saakashvili scored a major success in May by peacefully driving out the strongman, Aslan Abashkidze, of another wayward Georgian region, Adjaria, and bringing it back under central government control. This may well be encouraging him that he can bring South Ossetia back into the fold, as also Abkhazia, its north-eastern province, 
Tensions have flared between Georgia and Russia over South Ossetia in recent days. Daily gun battles are reported from South Ossetia, a mountainous region of about 100,000, which straddles the most important pass through the Caucasus Mountains and enjoys very close relations with the neighbouring Russian republic of North Ossetia. Saakashvili has replaced the usual squads of border police in the area with US-trained Georgian troops. Violent incidents between them and Russian "peacekeeping" troops appear to be multiplying. 
Russian news agencies reported that Georgian forces shelled the South Ossetian capital city of Tskhinvali with mortars on August 11th "The main purpose of these actions is to create an unbearable psychological climate and scare the population of South Ossetia," said Irina Gagloyeva, a spokesperson for the South Ossetian government. 
Both Russia and Georgia say they are ready to defend their national interests and the rhetoric -- especially from Saakashvili -- has at times been inflammatory. But everyone seems to agree that neither side wants an all-out conflict. The problem is that prospects for resolving the issues of Abkhazia and South Ossetia -- which have dogged relations between Russia and Georgia for a decade -- seem as intractable as ever. Saakashvili says bringing the two republics back under Tbilisi's control is his top priority, and he accuses Russia of deliberately thwarting him. But the Kremlin finds itself with no attractive options.

"Formally, but now really only formerly"
For a decade, the issues of Abkhazia and South Ossetia have been major obstacles to good relations between the two countries. The two territories remain unrecognized by the international community a decade after fighting wars of secession against the central Georgian government. Since then, they have enjoyed de facto independence, running their own affairs with their own self-styled local governments. It would now be true to say that they formally, but now really only formerly, count as Georgian provinces.
After all even, according to their formal title they are 'autonomous republics of Georgia.' De jure Georgian they are de facto Russian. Russia is their big market and provider, while all Georgia can offer them is the empty larder of a failed state.

Saakashvili wants them back
But Saakashvili says that situation can no longer be tolerated. Saakashvili insists his goal is to extend the democratic "Rose Revolution" and rule of law to all of Georgia. "These current tensions in South Ossetia began as a result of our successful and resolute efforts to put an end to the criminality and illegality that for too long was the norm in the South Caucasus," Saakashvili said during a visit to the US.
Saakashvili accuses Moscow of meddling in South Ossetia, with the eventual aim of annexing it. He has charged that Russian secret services have passed out 5,000 Russian passports to local people in one recent week alone. "We are facing purposeful actions of very serious people which include elements of the misappropriation of the territory of another country," Saakashvili told journalists.
Tensions are also rising in Abkhazia, a mainly Muslim republic of about 95,000, which, like South Ossetia, is ethnically and linguistically distinct from Georgia. Abkhazia also won its independence - with covert Russian aid - following a brutal civil war in the early '90s. The tiny republic is a subtropical Black Sea zone of beaches and snow-capped mountains, where about 700,000 Russians vacation each summer.
In early August Saakashvili ordered the Georgian navy to blockade the region and open fire on any "smugglers" trying to dock. Russian Defense Minister Sergei Ivanov lashed back, saying any attack on a Russian vessel would be tantamount to "piracy" and might draw a military response from Moscow.
Experts say that Putin, who cooperated with Saakashvili's drive to reincorporate Adjaria into Georgia last May, may find himself hobbled by a myriad of ties that have developed between Russia and the two secessionist Georgian republics over the past decade. Most Abkhazians and South Ossetians have taken out Russian citizenship and earn their living by trading with Russia. Abkhazia draws its main income from Russian tourism.
"Russian policy under Putin is much more responsible than it was under (former President Boris) Yeltsin," says Irina Zvigelskaya, a professor at the official Institute of Foreign Relations in Moscow. "But we cannot walk away from these people and the interdependences that have built up between them and Russia, and Saakashvili is not making Putin's position easier by launching all these provocations."
But Saakashvili is doing what he must, says Viktor Kremeniuk, deputy director of the official Institute of USA-Canada Studies in Moscow. "Any chance for Georgia's future prosperity depends on the Baku-Ceyhan pipeline," which is slated to begin pumping Caspian oil to Western markets next year. If instability reigns in Georgia potential sabotage will remain a key concern.
"Security of the pipeline is a major reason the US is backing Saakashvili's efforts to restore state sovereignty over all of Georgia," Mr. Kremeniuk says. "Saakashvili has the support, he has the energy and he needs to accomplish reunification before he can work out an economic strategy to get his country back on track."
But he may have overplayed his hand.
Russia finds itself in a difficult position, but analysts agree that if Saakashvili continues to up the ante he may soon find he has overplayed his hand. 
Fyodor Lukyanov, editor in chief of "Russia in Global Affairs" -- a leading foreign policy journal -- explains Moscow's dilemma thus. Legally, he says, Saakashvili cannot be faulted for wanting to reunite his country -- its the way he has chosen to go about it, with nationalist rhetoric and threats of violence that threaten to boil over into a major armed conflict: "In principle, one should not criticize Saakashvili for wanting to protect the borders of his country and to re-establish its territorial unity. But its one thing to talk about this as an abstract idea and quite another when [this idea] is put into action in a specific situation.
"Georgia's interior minister has accused Moscow of sending spy planes over South Ossetia and has threatened to shoot down any future violators. Saakashvili, meanwhile, raised hackles in Moscow last week with his threat to sink any Russian ships crossing into Abkhaz waters.
Faced with a Georgian leadership determined to seek a change in the status quo in Abkhazia and South Ossetia, Lukyanov says Moscow has few attractive options: "The situation is very complicated, especially for Russia, because it has very little room to manoeuvre. Moscow cannot demand independence for these two territories or to aim for their unification with Russia because this contradicts all tenets of international law. In fact, the Russian Constitutional Court confirmed this only a few days ago. And, in general, as the proverb goes, people who lives in glass houses shouldn't throw stones. If you demand independence for Abkhazia or South Ossetia, then the issue of Russia's Caucasus republics comes up, etc.
"But at the same time, he notes, Russia cannot walk away from the issue. For one thing, most of the people living in South Ossetia and Abkhazia -- including the separatist leaders of both republics -- would like to see their territories become part of the Russian Federation. And most of them, as a result of Moscow's past policy of handing out Russian passports, are now Russian citizens: "On the other hand, Russia -- for purely political as well as emotional reasons -- cannot simply leave the scene and pretend that this is the territory of another country and none of our business. First of all, Russia distributed Russian passports and is therefore obliged to defend its citizens. And secondly -- a more objective reason --- any destabilization is very dangerous for Russia. Its a very explosive region, and what happens if some kind of rebellion begins in South Ossetia, let's say, is very hard to predict.
"Lukyanov cautions that Saakashvili, if he believes he can duplicate the success he had in toppling Adjara's rebellious leadership in South Ossetia and Abkhazia, is dangerously wrong. Unlike in Adjara, the South Ossetian and Abkhaz conflicts have ethnicity at their core. Both territories fought bloody wars to rid themselves of Tbilisi's influence, and fears of what a reimposition of Georgian authority might mean are very real: From the point of view of effectiveness, Saakashvili should not force events. If South Ossetia were left alone for a year-and-a-half or two years, my impression is that it would gradually draw closer to Georgia. The main thing is not to scare the population because the internal legitimacy of these unrecognized regimes [in South Ossetia and Abkhazia] is based solely on a feeling of fear. As long as the population of these republics fears Georgia, these regimes will enjoy support. And the more Georgia pushes, the greater the internal support will be. If the fear factor vanishes, and if people understand -- in Abkhazia it will be difficult, but in South Ossetia, I think, it'll be possible -- if people understand that being a part of Georgia is an option that opens opportunities, then the problem will be resolved much more easily.
"Ultimately, of course, size matters. And the enormous imbalance in size between the two countries does play to Russia's advantage -- something Saakashvili should not forget, according to Richard Giragosian, a Washington-based expert on the Caucasus. 
Giragosian says Saakashvili should also not forget the key role Moscow played in paving the way for his rise to power last November, as well as the toppling of Adjara's former local ruler, Aslan Abashidze. 
Even though Saakashvili counts on U.S. support, which he has been receiving, Giragosian says Moscow will always remain the key outside factor in Georgian politics: "We see former [Georgian] President [Eduard] Shevardnadze, who was forced into resignation -- not by Saakashvili -- but actually by negotiations led by former Russian Foreign Minister Igor Ivanov. Ivanov later, as chairman of the National Security Council, was also the key figure who negotiated the departure of Aslan Abashidze, the Adjaran strongman. What this demonstrates to me is not so much a Saakashvili victory but more that Russia is close -- and always will be -- and the U.S. is far away -- and always will be. And it's that recognition of the Russian vested interest -- right or wrong -- that remains key in determining the outcome." 
Russia's economic leverage -- especially in the energy sector, since it recently gained control of the Georgian power distribution network -- should also be kept in mind, according to Giragosian: "That's a much more sophisticated tool of influence and interest than traditional hardcore Russian military power."
Undoubtedly, Russia finds itself in a difficult position, but analysts agree that if Saakashvili continues to up the ante he may soon find he has overplayed his hand.

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ENERGY

Georgian president confirms go-ahead to resume work on pipeline

Tbilisi "has given the go-ahead for construction work on the Baku-Tbilisi-Ceyhan oil pipeline to resume," Georgian President, Mikhail Saakashvili, has said. Work was suspended on 23 July, ITAR-TASS News Agency reported.
The decision to allow construction work to resume was taken after the British company BP had "taken the first steps to satisfy the demands of the Georgian side," Saakashvili told a news briefing for Georgian journalists in Washington. At the same time, Saakashvili underlined that the "pipeline will be brought on stream only after every single one of Georgia's legitimate demands is met."
The Georgian leadership, he went on to say, wanted the British company to comply with all contractual safety requirements, such as laying the pipeline deeper underground to provide environmental protection from natural calamities and protect the pipeline itself from possible terrorist attack, as well as for additional safeguards to be put into place above ground, namely for surface security facilities to be reinforced and additional surface-level environmental safety management technologies to be procured.

Privatisation in energy sector

The Georgian Economic Development Ministry has included five hydro-electric plants in the west of the country, with a total capacity of about 250 megawatts, in the list of companies slated for privatisation over the next year and a half, a source in the Georgian Energy Ministry said on July 20th, Interfax News Agency reported.
The five plants to be privatised are Rioni, Shaori, Lajanuri, Gumati and Dzevruli hydroelectric plants. The privatisation of these plants was considered back in 2002, but following a recommendation from the World Bank the Georgian government dropped its plans to privatise them.
This was due to the poor technical and financial condition of the plants, which meant that they would not have generated much revenue.
A representative of the energy ministry said that in 2003 USAID was ready to provide Georgia with a grant of €15m to carry out urgent repairs at the five hydro plants in the run up to their privatisation. This work was expected to increase the effectiveness of the plants and make them more attractive to future investors.
It was hoped that after the repair work, the privatisation revenue from the sale of the plants would amount to at least €50m.
However, this repair work was not carried out, energy Ministry sources said. Consequently, the Rioni plant requires urgent repairs to its water pipe, the Gumati plant needs significant mechanical repairs and the Shaori plant needs repairs to its dam.
According to energy ministry experts, the total value of the five hydroelectric plants does not currently exceed €20-25m.
The source was unable to say whether the plants would be sold separately or as one lot. According to preliminary information from the energy ministry, there are already investors interested in acquiring these plants as one lot.

Georgia interested in importing Iranian gas

Georgia is interested in the idea of importing Iranian gas via the Iran-Armenia pipeline, Georgian Foreign Minister, Salome Zurabishvili, said during a recent visit to Yerevan, Interfax News Agency reported. 
The Georgian authorities are ready to look at this idea as they aim to develop transit shipments through the Caucuses, she said. Earlier, Armenian Foreign Minister, Vardan Oskanian, stated that in talks held in Tehran at the start of July with Georgian President, Mikhail Saakashvili, and Iranian authorities on cooperation in Iranian gas transportation to Europe, two transit options were discussed. One envisages transportation through Armenia and the other through Azerbaijan. Iranian and Georgian media have reported that Georgia's Energy Ministry prefers the Azerbaijan option. 
A government delegation from Armenia, headed by Prime Minister, Andranik Margarian, is due to visit Tbilisi, the Armenian government told Interfax. The delegation will include Energy Minister, Armen Movsisian. During the visit, there will be a meeting of the intergovernmental economic cooperation committee and discussions on cooperation in the energy sector, including gas. Earlier, Georgian Energy Minister, Niki Gilauri, said Saakashvili had reached an agreement on natural gas supplies via Azerbaijan while he was in Iran. The minister said deliveries could begin in January-February 2005.

Georgian, Armenian power systems to work in parallel

The energy system of Georgia is to start to work in parallel with the system in Armenia in the near future, which will allow it to join in an energy exchange between Armenia and Iran, Interfax News Agency reported.
Georgian Energy Minister, Nika Gilauri, said that this agreement was reached at a recent meeting of an intergovernmental Armenian-Georgian commission for energy cooperation. He said that as part of this project Georgia will export excess electricity to Iran in the summer period through the Armenian system, and will import power from Iran through Armenia in winter. Gilauri said that a group of Georgian energy workers would travel to Yerevan soon to sort out the technical details of the project. Georgia imports 120-130 megawatts of electricity per day from Armenia in the winter period. Gilauri also said that during the commission meeting, the Georgian side proposed to look into the possibility of reducing tariffs for electricity supplied from Armenia. Tariffs currently amount to 2.54 cents per kilowatt hours, which is 0.9 cents higher than the tariff for electricity imported from Russia. However, "at this stage the Armenian side is refraining from considering this issue," Gilauri said.

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FOREIGN ECONOMIC RELATIONS

Georgia, Russia resume talks

Representatives of the Georgian and Russian Foreign Ministries on July 16th launched talks in Tbilisi over the framework agreement between Russia and Georgia, Civil Georgia reported. 
Special Ambassador of the Russian Foreign Ministry Igor Salovsky lead the Russian delegation, while Georgian Deputy Foreign Minister, Merab Antadze, represented the Georgian side. Both Georgian and Russian sides admit that the security and defence aspects of the agreement remain in dispute. According to the Georgian side, Moscow wants to include in the agreement a provision that would ban Georgia from deploying any foreign country's military bases on its soil. According to the handshake agreement between Russian President, Vladimir Putin, and his Georgian counterpart, Mikhail Saakashvili, during the meeting in Moscow on February 11th, the new framework agreement is due to be signed during Vladimir Putin's visit to Georgia, scheduled for sometime this autumn.

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