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GEORGIA



 

In-depth Business Intelligence

Key Economic Data
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 3,937 3,324 3,100 126
         
GNI per capita
 US $ 830 650 590 145
Ranking is given out of 208 nations - (data from the World Bank)

Books on Georgia

REPUBLICAN REFERENCE

Area (sq.km)
69,700 

Population 
4,693,892 

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

Capital 
Tbilisi 

Currency 
Lari

President 
Mikhail Saakashvili



Update No: 301 - (30/01/06)

The Russian bully-boy tactics back-fire
Putin has a genius for alienating former republics of the Soviet Union. He has certainly done it with Ukraine. And he has certainly done it by proxy and directly with Georgia.
The gas crisis unleashed by Gazprom on New Year's Day is of course the issue. It has had an arresting sequel.

Saakashvili Says 'Blackmailer' Russia Sabotages Georgia
President Mikhail Saakashvili said on January 22nd that the explosion of two gas pipelines on the same day was a "heavy sabotage" against Georgia "by the Russian Federation" and described Moscow as "an unprincipled blackmailer."
Gas supply to Georgia was halted as a result of blasts which occurred on two pipelines in North Ossetia on January 22nd, a Sunday as it happened, making it particularly inconvenient. 
Two simultaneous explosions at 3am cut through both tubes of a gas pipeline just on the Russian side of the border with Georgia. Another blast struck an important electricity pylon nearby nine hours later. The three blasts left Georgia with limited supplies of Russian gas for heating. It also meant Georgia could only supply about 40% of the electricity demanded by its 3 million inhabitants in temperatures of -5C (23F). 
"Three major energy arteries have been cut off: high-voltage power line Kavkasioni [delivering electricity from Russia] has been exploded. Sabotage has damaged two gas pipelines in Russia… Georgia is experiencing a heavy sabotage by the Russian Federation," Saakashvili said on his televised address to the nation.
He said that Russian officials' response and explanations to the current situation are "absolutely unsatisfactory and contradictory. Russia has doubled its gas price for Georgia - a decision which lacks any market logic. We have to deal with an unprincipled blackmailer, I can not call it [Russia] otherwise," Saakashvili said.
"Georgia is constantly experiencing pressure from Russia," he said. "Threats like these were heard from the Russian politicians: you will be left without heat, without electricity… And this happened when there is the coldest winter in Georgia," Saakashvili added. 
He said that against the background of persisting blackmail Russia has demanded from Georgia that it sell its trunk gas pipeline. "We are ready to consider any kind of commercial proposal, but we will not do anything in case of blackmail," Saakashvili said. "Those in the Kremlin should understand that they will fail to achieve something with blackmail," he added.
Saakashvili also said that he has ordered to halt courses in the schools and high education centres before restoration of gas supply.

Saakashvili may be wrong but…
It is understandable that Saakashvili immediately blames Russia for the sabotage. But it may have been the work of Chechen or other Caucasus terrorists, Islamic or otherwise. There is nothing that they would like better than to put a spanner in the works between Moscow and Tbilisi. 
Sergei Prokopov, a spokesman for Russian prosecutors, said the blasts might be the work of "extremists bent on worsening Russian and Georgian relations". He could not rule out the involvement of Chechen-linked militants who are active in Russia's North Caucasus.
The tone of the president's criticism was intemperate to say the least. But then he may well have information he cannot disclose. The following reflections by Saakashvili put the crisis in context.

Saakashvili on the gas crisis
Manipulation of energy prices and supplies is a critical tool of those in Russia who believe that gas is the best means of political influence, President Mikhail Saakashvili of Georgia said in his article published by the Washington Post on January 9th. His words are worth reporting in full, both because of what he says and because of whom he is.
Saakashvili said that a momentary crisis involving halting of gas supply to Ukraine (on January 1st-2nd) "should have wide-ranging ramifications for the economic security of Europe and raise questions about any notion of a role for Russia as a reliable energy supplier." He said that this crisis was a clear message for the EU that "there can be no energy security when an undependable neighbour is willing and able to use its energy resources as a weapon in political influence."
"The fig leaf of "market rates" that Russia traditionally uses as cover to jack up prices or to cut off energy supplies is disingenuous at best. There is nothing "free market" or "market rate" behind Russian energy prices. Manipulation of energy prices and supplies is a critical tool of those in Russia who believe that hydrocarbons are the best means of political influence. In Georgia, both Abkhazia and South Ossetia, two areas that are outside of our control and whose separatist authorities are directly controlled by Russia, receive natural gas free -- hardly a practice free-marketeers would applaud," Saakashvili said.
The Georgian President also criticized Russia for "scuttling the deal" between Georgia and Kazakstan wherein the latter agreed to deliver gas to Georgia, but the Russian energy giant Gazprom refused to transit it via Russia.
Saakashvili said that Georgia is "moving aggressively" to diversify its energy sources and transportation networks.
"The recently completed Baku-Tbilisi-Ceyhan pipeline, which brings natural gas from Azerbaijan to Turkey and crosses Georgia, is a critical piece of this effort. For Europe, the Black Sea states hold the key for new routes to bring in energy supplies from the Middle East and Central Asia. We are willing to work closely both with our European partners and with Russia to make the whole system transparent, predictable and immune to -- or insulated from -- political shocks," Saakashvili said.
Saakashvili also spoke about creation of the Community of Democratic Choice and Russia's position with the newly created union. 'We believe it is critical to our future safety and economic security that we integrate ourselves with Euro-Atlantic structures, which is why we are working to gain membership in NATO and the European Union. We are constantly striving for good relations with our giant neighbour, but the Russian government's recent actions are yet another example of that country's attempts to influence nearby countries,' Saakashvili stated.
As we have just quoted him, the key statement, bitterly expressed in this article, is this: 'Manipulation of energy prices and supplies is a critical tool of those in Russia who believe that hydrocarbons are the best means of political influence. In Georgia, both Abkhazia and South Ossetia, two areas that are outside of our control and whose separatist authorities are directly controlled by Russia, receive natural gas free...'

The geopolitical spin-off for the Kremlin
That is the rub. It looks as if Russia is wanting to suborn Georgian independence. It will not succeed. It is rather surprising that an intelligent man like Putin thinks he has a chance of success by bully-boy tactics.
Of course his aim may be more modest, simply to solidify the adhesion of the Abkhazians and the South Ossetians to Russia by demonstrating their good luck in having such a munificent patron.
The Russians don't just want as much of their previous empire back as they can get. They want to be loved by them for coming back!

The route to the West lies via the East - Kazakstan 
Georgia's economy is still a basket case, as Saakashvili well knows. The EU will not want it as a member until it is clearly on the mend. Energy supplies are vital here. He sees the solution in the East.
This is where energy-rich Kazakstan comes into the picture. The Georgian President, accompanied by Foreign Minister Gela Bezhuashvili and other officials, arrived in Astana on January 10th to participate in the inauguration of President Nursultan Nazarbayev.
Kazakstan is a reliable economic partner, which depends less on "political caprices," President Saakashvili said after talks with his Kazak counterpart in Astana on the same day.
"Unfortunately we, as well as many other countries of the region, failed to finally agree on several issues with Russia [in the energy sector]; but we have a very good cooperation in this regard with Azerbaijan and Kazakstan… Kazakstan is an investor, which has economic goals and is less dependent on political fluctuations and political caprices, that is very important," Saakashvili told reporters after the talks with Nazarbayev.

Kazak state-owned company to buy TbilGazi
He must have had in mind a path-breaking deal done just before the crisis broke. The Georgian Economy Minister and top executive of the Kazak KazTransGaz company had already signed a memorandum in Tbilisi on December 26th, which stipulated that the Kazak state-owned company will buy 100% of shares of the capital city Tbilisi's gas distribution company TbilGazi.
The amount of the deal is not yet agreed, but according to the memorandum the Kazak company will take over TbilGazi after the bankruptcy procedures of the latter are over, expected to be by February 15th. "This is a very important [deal] for us. It means that the state budget will no longer subsidize TbilGazi," Zurab Nogaideli, the Prime Minister, told reporters.
Economy Minister Irakli Chogovadze did not specify the amount of the Kazak company's planned investments in the TbilGazi, but said that "hundreds of millions" of US dollars will be invested. 

Kazakstan Eyes Georgia's Transit Routes
This takes one back to the most important diplomatic initiative of 2005 for Georgia, the visit of the Kazak president in the autumn. Nazarbayev said on October 3rd in Tbilisi that Kazakstan's major interests in their relationship with Georgia is the latter's transit capabilities to transport Kazak oil and other freight to Europe. Saakashvili hailed relations with Kazakstan as "free from any problems" and supported the Kazak bid for OSCE Chairmanship. Saakashvili hosted Nazarbayev in Batumi, Adjara Autonomous Republic, where the Kazak leader toured the local port. 
"Economic cooperation [with Georgia] is of major interest for Kazakstan. On the shores of the Caspian Sea we have built the largest port in the Caspian Sea - Aktau - which is currently capable of handling 15 million tons of oil [per year]… Another port of this kind is being constructed, designed to obtain access from Kazakstan via the Caucasus and Black Sea to Europe. To become acquainted with the [Black Sea port's] capacity was very important in this regard and I want to thank Mikhail Saakashvili and the Adjarian leadership for giving us the opportunity to see the capabilities [of the Batumi port]," Nazarbayev said at a joint news conference with Saakashvili after talks in Tbilisi.
"Secondly, the railway link between Baku [Azerbaijan] and the Black Sea [in Batumi] is also very important and interesting for us in respect to transportation of ferrous and non-ferrous metals and other freight," the Kazak President added.
While visiting Batumi, Nazarbayev noted that Kazakstan also plans to transport its oil through the Baku-Tbilisi-Ceyhan (BTC) oil pipeline. 
According to the Georgian Economy Ministry, Kazakstan exported a total of 3,300 tons of freight through the Georgian railway to the west in 2004. The total amount of cargo transported through the Georgian railway, including those imported to Kazakstan via Georgia, totalled 38,000 tons in 2004. 
Kazakstan transported a total of 332,800 tons of oil through the Georgian railway in 2004. Saakashvili said that this figure will double in 2005. The Georgian port in Poti handled a total of 15,800 tons of Kazak freight in 2004.
President Saakashvili said at the joint news conference in Tbilisi that a new terminal and port in Kulevi, which is currently under construction, will make it possible to increase these figures. 
But bilateral trade between the two countries is low. According to the Georgian Economy Ministry, bilateral trade decreased in the first half of 2005. Total trade volume was up to US$30 million in 2004, against US$8.7 million in the first half of 2005.
But officials say that recent investment projects being implemented by the Kazak side in Georgia can help increase these figures as well.
Kazak BankTuranAlem (BTA), which holds assets of US$5.5 billion, has recently opened a branch office in Tbilisi and launched, in cooperation with its local partner the Silk Road Group, the implementation of a US$100 million investment project, involving reconstruction of the hotel Iveria, in downtown Tbilisi, into a five-star hotel, as well as renovating all of Republic Square, where the hotel is located. The two Presidents visited Republic Square on October 3rd and attended a presentation of this project.
Nazarbayev said at a news conference that Kazakstan is also interested in investing in Adjara's tourism industry. 
The two Presidents also discussed a possible supply of Kazak gas to Georgia, which desperately seeks an alternative gas supply source to decrease its dependency on Russia in this regard. But in the event that Georgia begins importing gas from Kazakstan, Russia would still play the role of transit country. Nazarbayev said that he thinks Russia will not oppose this project. 
Saakashvili said that all three states - Georgia, Russia and Kazakstan - will benefit from the gas supply from Kazakstan. "I think Russian and Georgian interests coincide here, as Russian enterprises also operating in Georgia consume gas," Saakashvili said, which may prove the key point.

The blessing of the Kazak patriarch for the Georgian path
Both, Saakashvili and Nazarbayev spared no words to praise the reforms going on in each others' countries. The Georgian President said that the Kazak experience of economic reforms is an example for Georgia.
"We have the most pleasant experience of relations with Kazakstan and this has been observed through the past decade. Kazakstan never creates any problems for anyone… And Kazakstan's participation in international processes is welcomed and we count on them [the Kazak side]," Georgian President Saakashvili said at the joint news conference, adding that Georgia supports Kazakstan's OSCE Chairmanship bid in 2009. 
Nazarbayev, who has led Kazakstan since 1989 and who is accused by opponents of suppressing any dissent, has, on several occasions, expressed scepticism towards the regime changes which took place in Georgia and Ukraine through peaceful revolutions. Autocrats are not fond of revolutions anywhere; they put dangerous ideas in people's heads.
But in Tbilisi he said: "Now I am convinced that there is a stable situation in Georgia… I am now convinced that the Georgian authorities are on the right path of [economic] reforms. I was pleasantly surprised."
During this visit, Georgian and Kazak officials signed a number of bilateral agreements, including one outlining economic cooperation targets for 2006-2010. Georgian-Kazak relations are alive and well.

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ENERGY

Georgia to consider US interests in gas pipeline sale 

Georgian Economy Minister Irakli Chogovadze said on January 9th that Georgia will consider the US interests in respect of possible privatisation of the country's gas pipeline system.
"We follow the principle: never say "never." But no decision has been taken yet. This issue is related to the interests of our strategic ally and Georgia should take into account the interests of its strategic partner - the United States," Chogovadze said at a meeting, Interfax News Agency reported.
Georgia will take into account the advantages and disadvantages before the gas pipeline system which is a political-economic issue. 
The US urged the Georgian authorities to exercise caution while taking decisions on selling gas pipelines.
Commenting on whether Russian oil giant Gazprom would pay US$200 million for the gas pipelines, Chogovadze remained silent. Georgia and the United States signed a US$295.3 million, five-year aid deal in frames of the Millennium Challenge Account in September. US$49.5 million is envisaged for rehabilitating the gas pipeline system in frames of this aid.

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FOREIGN INVESTMENT

Georgia hopes for major Kazak investment 

Kazakstan's investment in the Georgian economy may reach one billion Euro, Georgian foreign minister, Gela Bezhuashvili, said after a meeting with his Kazak counterpart, Kasymzhomart Tokayev, in Astana, Interfax News Agency reported.
"Kazakstan has invested nearly 300 million Euro in Georgia. If all of our planned projects are put into practice, the amount of investment in the Georgian economy will be up to one billion Euro," he said. Kazakstan is currently the biggest investor in Georgia, Bezhuashbili said. Mukhtar Ablyazov, chairman of the Kazak commercial bank TuranAlem's board of directors, said that a group of Kazak investors is ready to fund the construction of a new plant in Georgia capable of refining five million tonnes of crude oil annually. "The government of Georgia is considering a 350-million Euro project to build a facility on the territory of the country capable of refining five million tonnes of crude oil a year. A group of Kazak investors is ready to provide financing for the project. A decision on the project will be taken within a month and made public in two months," said Ablyazov, who attended talks with Georgian President, Mikhail Saakashvili, in Astana on January 11th, "The construction of such a refinery may begin this year" if Georgian authorities approve the project, he said. 

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FOREIGN RELATIONS

Georgian economy minister visits Hong Kong

Georgian Economy Minister, Irakli Chogovadze, visited Hong Kong recently to participate in the Sixth World Trade Organisation (WTO) ministerial conference, Interfax News Agency reported.
Chogovadze decided to discuss the issue of deploying Georgian customs officers at the Roki tunnel, which links breakaway South Ossetia with the Russian Federation, as well as at the Adleri-Leselidze border checkpoint in breakaway Abkhazia. Recently, Chogovadze said that Russia will have to meet a number of Georgia's demands if Moscow wants to secure Tbilisi's consent on Russia's membership into the World Trade Organisation (WTO). 
However, all decisions regarding a country's WTO membership require approval by consensus among all member states. A session of the Georgian-Chinese Governmental Commission for Economic Cooperation will also be held in Hong Kong to discuss deepening of economic ties between China and Georgia. The government officials of both the countries will discuss prospects for closer cooperation in transit, investment and tourism branches, Natia Turnave, deputy minister of economic development of Georgia said.

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MINERALS & METALS

New owner to pump US$150m into Georgian steel mill 

The locally registered Energy Industry Complex, which is controlled by Asian Global Opportunity Fund (AGOF), intends to invest more than US$150 million in Georgia's Rustavi Iron and Steel Works, Malkhaz Alborashvili, the Rustavi plant's receiver, said, Interfax News Agency reported.
Energy Industry Complex bought the assets of a company called Tudzhi-XXI, to which the Rustavi plant's pig iron and sintering plants have been spun off, for US$2.5 million, Alborashvili said.
The new owners have been working on plans to revive Tudzhi-XXI since 2004 and have already invested more than US$15 million in it. They have set aside two million laris in wages for employees and paid more than 2.5 million laris in taxes. Alborashvili said Energy Industry Complex planned to make the plant fully integrated by using iron ore mined at the Dashkesan field in Azerbaijan. "Talks with the Azerbaijani side are nearing completion," he said. Energy Industry Complex bought most of the Rustavi plant's assets at an auction in the fall for US$22 million. It plans to create up to 8,000 jobs in the years to come.

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