Georgia Bi-Weekly Update June 15

UNCLAS SECTION 01 OF 02 TBILISI 001446

SIPDIS

SIPDIS

USDOC FOR 3150/ITA/USCS/EUR/DSTARKS

E.O 12958: N/A
TAGS: PREL PGOV PHUM ECON GG
SUBJECT: Georgia Bi-Weekly Update June 15


1. This cable contains current items of political, economic, and
social interest concerning Georgia during the weeks of June 2-15.

Meeting of Georgian and Russian Presidents
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2. Georgian President Saakashvili and Russian President Putin had a
50-minute meeting in St. Petersburg on June 9, which has produced
considerable public commentary -- most of it favorable -- in
Georgia. Following the meeting, Saaskashvili was quoted as saying
relations between the two countries should be not merely normal but
"most friendly." The two presidents agreed to instruct their MFAs
on joint work aimed at stabilizing bilateral relations. Georgian
Foreign Minister Bezhuashvili commented that the meeting was
"forthright, important and principled," and stressed that Georgia's
Euro-Atlantic path could not be questioned. Parliament Speaker
Burjanadze emphasized the importance of such face-to-face meetings
given the two countries' complicated relations.

Minister's Gifts Confiscated in Azerbaijan
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3. On June 9, Georgian Minister of Education Kakha Lomaia visited
the ethnic Georgian village of Aliabed in Azerbaijan, where he met
with schoolchildren, presented them with Georgian textbooks and
literature, and spoke about a program to help them enroll in
Georgian universities. According to reports covered extensively in
Georgian media, local security forces barred many students from
attending the meeting, and confiscated books from and even assaulted
those who did attend. TV cameras captured images of children crying
and Lomaia arguing with a local official. Lomaia himself has not
made any official comment so far, but a Parliamentary committee
intends to write a letter to Azerbaijani Parliament requesting an
investigation of the incident. Georgian commentators have used the
episode to criticize the government's friendly policy toward
Azerbaijan, with one newspaper declaring that "apparently for
Georgian authorities gas and other goodies from Baku are more
important that the rights of their compatriots."

Repatriation of Meskhetian Turks?
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4. On June 13, the parliamentary foreign affairs committee held a
hearing of a draft law on repatriation of the Meskhetian Turks,
deported from Georgia by Stalin in 1944. Georgia has an
outstanding commitment to the Council of Europe, made in 1999, to
complete repatriation by 2011. The Meskhetian Turks, who are now
living in Russia and Central Asia, have long pushed to return to
their homeland in Georgia, but this prospect has caused fear among
ethnic Armenians in Georgia over potential land and property
disputes, demographic shifts, and the emergence of a "Turkish"
presence in their territory. Many ethnic Georgians are also
resistant to repatriation. On June 13, parliamentary discussion of
the issue grew into a noisy clash between majority and opposition
MPs, with the latter arguing that resettlement in Georgia would
distort the country's demographic balance and exacerbate social and
ethnic problems (Note: The majority ethnic-Armenian population of
Javakheti, origin of the Meskhetian Turks, does not want them to be
repatriated here. End note).

Working Group on "Products from the Conflict Zone"
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5. In a June 4 meeting with international, NGO, and Georgian
government representatives, the Parliamentary Commission on
Territorial Integrity discussed plans for developing the "Product
from the Conflict Zone" project, designed to encourage manufacturing
in the South Ossetia conflict zone. This was the first meeting of
the economic working group for the project, which will convene on a
regular basis to hear reports of experts. The working group's
conclusions and recommendations will be submitted to the Commission
which in turn will work with the executive branch of government to
implement them.

Another Wave of Tariff and Price Increases
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6. One of Georgia's landline telephone operators -- United Telecom
(UT) -- has doubled the tariff on local calls. Telephone calls will
cost GEL 0.04 (roughly USD 0.02) instead of GEL 0.02 per minute
starting June 1. There will be no charge for calls between two
subscribers of the network, but because UT is only one part of the
landline market the increase will be felt by most telecom customers.
Separately, the Tbilisi Water Supply Company has announced a change
in the way it will calculate water consumption costs, replacing a
fixed rate with water meters, a change that analysts believe will
result in higher bills. These increases affect a population already
hit by increased gasoline prices, which have led to higher tariffs
for public transportation.

Arab Investor Buys Sheraton
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7. On June 8, the Sheraton Metechi Palace Hotel was sold at auction
for USD 67.5 million to Rakeen Development, a company based in Ras
Al Khaimah, United Arab Emirates. Rakeen beat out bidders from

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Georgia, Greece, Israel, India, and the UK. Rakeen is reportedly
planning to invest USD 1.5 billion in Georgia, including in a
potential free economic zone in Poti, and the company recently
purchased land in Tabakhmela, near Tbilisi, to build a recreational
project with a golf course. The Sheraton Metechi Palace was built
in the late 1980s as a joint venture between the Tbilisi
municipality (85 percent) and an Austrian investor (15 percent).
The Georgian government assumed control in 1996 after the joint
venture failed to repay its debt to an Austrian bank. In 2007, the
Ministry of Finance initiated a bankruptcy procedure to sell the
joint venture's property, the total debt of which had reached 103
million euros.

National Bank Diversifies Its Holdings
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8. On May 31, 2007, the National Bank of Georgia (NBG) initiated its
first-ever move toward diversification of foreign exchange assets
into longer-term holdings, and this move was into the U.S. market.
The NBG became an instrument of finance for the U.S. government and
its budget deficit, with the NBG's foreign reserves now invested in
U.S. Treasury securities. The NBG's foreign assets recently passed
the USD 1 billion mark, a significant volume for a country of
Georgia's size, and the U.S Treasury Advisor is encouraging the NBG
to improve income from these assets by expanding into the U.S. and
other markets, including Euro-denominated securities of EU states.
In the near future, the earnings from foreign exchange assets will
be the primary source of the NBG's income.

Apostille Certification in Force
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9. Starting May 14, 2007, Georgia is a party to the 1961
international convention that abolishes the requirement for
"legalization of public documents" from one country for use in
another country. Under the convention, foreign companies operating
in Georgia will be able to use the simpler "Apostille Certificate"
instead of going through the legalization procedure. This change
will make it easier for foreign companies to register in Georgia,
and will significantly shorten the time needed for U.S. exporters to
collect documents required for participation in Georgian government
procurement tenders.

USDA Trade Mission to Georgia
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10. The U.S. Department of Agriculture (USDA) sponsored a Trade and
Investment Mission (TIM) to Georgia on June 11-15. The TIM's
purpose was to promote trade and investment in various
agriculture-related fields including, but not limited to, advanced
plant genetics, processing equipment, cattle genetics, beverages and
ready-to-eat products. The Tbilisi Business Service Center (TBSC)
and the American Chamber of Commerce in Georgia organized one-on-one
meetings and site visits for 11 American companies with Georgian
companies in agribusiness sector, and presentations by top officials
in the agricultural field.

TEFFT