GEORGIA BI-WEEKLY UPDATE JULY 13

UNCLAS SECTION 01 OF 02 TBILISI 001675

SIPDIS

SIPDIS

E.O 12958: N/A
TAGS: PREL PGOV PHUM ECON ENRG GG
SUBJECT: GEORGIA BI-WEEKLY UPDATE JULY 13


1. This cable contains current items of political,
economic, and social interest concerning Georgia during the
weeks of June 30-July 13.

Education Minister Disputes Corruption Charges
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2. A corruption controversy surrounding Education Minister Alexander
Lomaia reached a crescendo on June 29 when the embattled Minister
testified before Parliament. Repudiating a report issued in May by
the Chamber of Control which implicated Lomaia's Ministry in the
embezzlement of funds up to 40 million Georgian lari (USD 25
million) from projects in 2006, Lomaia dismissed the claims as
"absurd and groundless." An influential member of the government
and rumored future contender for higher office, Lomaia struck a
combative tone at the hearing, accusing opposition MPs of settling
political scores and the Chamber of Control of being a corrupt
bureau in need of reform. A number of MPs, including Parliament
Speaker Burjanadze, expressed dissatisfaction with Lomaia's
aggressive comments. Following the heated parliamentary session,
President Saakashvili publicly expressed support for Lomaia on July

6.

More Speculation on Government Reshuffle
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3. In the latest round in the popular media pastime of reporting on
expected changes in the Georgian government, the newspaper Versia
predicted that in September Prime Minister Zurab Noghaideli will be
appointed Head of the National Bank and his current position will be
offered to Tbilisi Mayor Gigi Ugulava. The article notes that
recent scandals have taken some luster off two other perceived
candidates for Prime Minister, former Defense Minister Irakli
Okruashvili and Education Minister Alexander Lomaia. The article
has current National Bank Head Roman Gotsiridze, the target of
recent criticism in Parliament, becoming Ambassador to the Czech
Republic.

Corruption Arrests in Kutaisi
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4. On July 2, the Constitutional Security Department arrested 24
officials of the municipal government of Kutaisi, Georgia's
second-largest city, during a meeting in municipal headquarters.
Charges brought against them include embezzlement of 600,000
Georgian lari (USD 375,000) of government funds.

Georgia Reacts to Sochi Olympics
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5. The International Olympic Committee awarded the 2014 Winter
Olympics to Sochi, on Russia's Black Sea coast near Georgia's
separatist region of Abkhazia, on July 4. President Saakashvili
publicly welcomed the decision, saying it would draw international
attention to the Caucasus region and to "peaceful settlement of
frozen conflicts." Georgian Foreign Minister Bezhuashvili
congratulated the Russian Ambassador in a meeting July 5, expressing
confidence that the Games would be an opportunity for improved
cooperation between Georgia and Russia. Some Georgian commentators
expressed concern about the decision, however, arguing that Russia
will try to use Abkahzia's infrastructure for the Games, and that
this may help keep the conflict frozen for another seven years.
Abkhaz leader Sergei Bagapsh congratulated Russian President Putin
saying "we view this victory as our own victory."

Constitutional Court Re-Locates to Batumi
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6. On July 5, Georgia's Constitutional Court moved to Batumi, in the
autonomous region of Adjara. The decision on the transfer was made
by President Saakashvili last year, when he initiated amendments to
the Law on the Constitutional Court. The major motivation for the
transfer, as it was explained at the time, was to help increase the
role of territorial units outside Tbilisi in state decision making.
It has also been implied (though not stated explicitly) that
physical distancing the Court from the capital would increase its
independence. Opposition figures and the Georgian Young Lawyers
Association (GYLA) have questioned the need for the move, arguing
that it will increase costs and make access more difficult for many
people, without significantly changing the court's role or
independence.

UN Secretary General Makes Unexpected Visit
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7. UN Secretary General Ban Ki-Moon arrived in Georgia on June 29
for a short, unannounced visit. He was met by Georgian President
Mikheil Saakashvili, Parliament Speaker Nino Burjanadze and Foreign
Minister Gela Bezhuashvili. The Secretary General requested that
journalists not be allowed to film his visit. Media reports
suggested that the discussions dealt with Georgia's separatist
conflicts. Ban's predecessor, Kofi Annan, made a similar
unannounced visit to Georgia early in his tenure as Secretary
General.

EnergoPro's Contract Enters into Force
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8. On July 6, the Czech company EnergoPro officially assumed
ownership over the assets of the United Energy Distribution Company

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of Georgia (UEDC),the Energy Distribution Company of Adjara and six
hydropower plants. EnergoPro now owns 70 percent of Georgia's
electricity distribution assets. EnergoPro signed the privatization
agreement with the Georgian government in February 2007, with
EnergoPro assuming a total cost of USD 417 million. EnergoPro has
already paid USD 132 million to the state budget. According to the
contract, EnergoPro will spend USD 85 million to rehabilitate the
hydropower plants, USD 100 million to rehabilitate the electricity
distribution infrastructure, and USD 100 million to construct new
hydropower generation facilities. EnergoPro owns 11 hydropower
plants in the Czech Republic and 8 hydropower plants in Bulgaria.

Georgia Plans New Hydropower Projects
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9. The Georgian Government has announced a 10-year energy program,
which envisages the construction of a number of new hydropower
generation facilities in Georgia. Recent steps in this direction
include the Ministry of Energy's memorandum with the British company
Continental Energy for a feasibility study on construction of the
Khudoni hydropower plant on the Enguri River, 30 kilometers from
Georgia's largest Enguri hydropower plant. The World Bank will
provide USD 3.3 million for the study, which will envisage the
construction of a 700 Megawatt plant and a 500 kV electricity
transmission line. Eventual construction is estimated to cost USD
500-600 million. The GoG has also signed a memorandum with a
Turkish Company, Urban, to build the 78 MW Paravani hydro plant in
the Samtskhe-Javakheti region in southern Georgia. Total cost of
investment in this project is estimated at USD 100-120 million. The
government has signed another memorandum with the Russian state
company Inter RAO UES to build one or more plants with a total
capacity of around 100 MW, and to transit electricity between
Georgia and Russia.

Baker Center Interested in Energy Strategy
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10. On July 9 Marian K. Thompson the U.S. Department of Energy
visited Georgia to discuss the Howard H. Baker Center's interest in
establishing a dialogue with Georgian public and private energy
sector officials to help Georgia strengthen its ability to develop
energy policy. The Department of Energy provided USD 15,000 in seed
money for the project. The Baker Center envisions providing initial
support in creating a central database on energy sector statistics,
sponsoring symposia, and hosting exchange programs for energy sector
representatives. Energy company representatives stressed Georgia's
need for more stable and reliable energy distribution. The Georgian
Foundation for Strategic and International Studies (GFSIS) expressed
interest in working with the Baker Center to develop training
modules for officials in the Ministries of Economic Development and
Energy. Post will work closely with the Baker Center and GFSIS to
ensure these efforts align with our current assistance strategies.

TEFFT