GEORGIA BI-WEEKLY UPDATE OCTOBER 26

UNCLAS SECTION 01 OF 02 TBILISI 002664

SIPDIS

SIPDIS

E.O 12958: N/A
TAGS: PREL PGOV PHUM ECON GG
SUBJECT: GEORGIA BI-WEEKLY UPDATE OCTOBER 26


1. This cable contains current items of political,
economic, and social interest concerning Georgia during the
weeks of October 13-26.

Deputy Governor Resigns, Levels Charges
--------------

2. Deputy Governor of the Mtskheta-Mtianeti region Beso Sabashvili
announced his resignation October 25 in a press conference at the
headquarters of the opposition Labor Party. Sabashvili blasted the
government for corruption, charging specifically that two posh
villas under construction in the village of Choportia belong to
President Saakashvili's uncle Temur Alasania and to Saakashvili's
in-laws, the parents of First Lady Sandra Roelofs. Sabashvili
displayed photos of the villas and claimed that the construction was
taking place illegally within the preserved territory from where the
Tbilisi population gets its potable water supply. Sabashvili also
alleged that the construction is financed from the state budget and
is carried out by a government agency. Members of the Labor Party
supported Sabashvili and declared that if any "any damage was
inflicted" upon Sabashvili or his family members after his
statement, the entire responsibility would be placed personally on
Saakashvili.

Farmers Complain about Grape Prices
--------------

3. Georgian agriculture authorities have reported a record harvest
of grapes this year. However, winegrowers all over Georgia were
frustrated with the falling price of grapes offered to them by wine
producers. The abundant supply of grapes, coupled with the
continued loss of the Russian export market, prompted buyers to cut
grape prices in half. In the Racha region in western Georgia, which
is famous for an expensive variety of grapes used for producing
semi-sweet and dry red wine, the number of wine producers accepting
grapes went down from seventeen to three and the price offered per
kilogram from GEL 2 to 1.5 (around 92 cents). In the Kakheti region
of wastern Georgia, which is the main winegrowing area, farmers
could collect as little as 40 tetri (25 cents) per kilogram, if they
could find a buyer at all. Some of them made a public demonstration
of chopping down grape vines, to replace them with other more
profitable agricultural plants. The grape harvest has become part
of a larger political standoff between the authorities and the
opposition, with the latter accusing the government of failing to
provide adequate measures to help winegrowers suffering from the
Russian embargo.

Inflation Raises Concern
--------------

4. According to the Statistics Department, consumer prices for food
have risen by 6.23 percent within a month (September 20 - October
18). The price increase was particularly notable, in some cases up
to 50 percent, for essential food products, such as oil, salt,
sugar, and wheat flour. The media is speculating that an increase
in bread prices may be in the offing, and emphasizing the negative
impact it would have on vulnerable social groups. Twelve-month
inflation was officially 9 percent at the end of September 2007.
President Saakashvili publicly pinned blame for price increases on
importers of consumer goods, who he thinks have monopolized the
market and boosted prices artificially. He tasked the Interior
Ministry to probe into such monopolies.

Cooperation with IMF Wrapping Up
--------------

5. The Georgian government is not going to continue cooperation with
IMF, Kakha Bendukidze, State Minister in Economic Reforms, said
after a government meeting on October 25. Bendukidze noted that IMF
will stay in Georgia for one year after completing the Poverty
Reduction and Growth Facility (PRGF) program. He added that the
Fund's mission will visit Georgia next week. The National Bank of
Georgia received a total of USD 149.4 million under terms of the
PRGF, which was approved in June 2004. The IMF offered the Georgian
government three options for cooperation after ending of this
program -- continuing PRGF, the so-called annual stand-by program,
and supporting policy instrument.

Bidders for Port and Free Economic Zone in Poti
-------------- --

6. On October 17, Minister of Economic Development Giorgi Arveladze
announced that eleven companies will compete in the tender for
concession for 49 years of the Black Sea port of Poti and a new Free
Economic Zone adjacent to the port. The following companies are
participating in the tender: RAK Investment Authority (UAE),ZIM
PORTS (Israel),International Container Terminal Services
(Philippines),D P and Jafza (UAE),a consortium established with
coordination of the Turkish Exporters' Union (Turkey),ASHTROM
International Silk Road Group (Israel),CMA CGM (France),Mark
Worldwide (Korea),Hamburger Hafen - Und Logistic Aktiengesellschaft
(Germany),Hutchison Westports (Great Britain),and ZER
International Holding (Turkey). The deadline for submission of
proposals was October 15. According to Arveladze, priority will be
given to the company that presents the best proposal for development
and operation of the port and the economic zone. The winner will be
announced two weeks after the deadline.


TBILISI 00002664 002 OF 002


Mayor of Tbilisi Shares Plans with AmCham
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7. Mayor of Tbilisi Gigi Ugulava, the key-note speaker at an
American Chamber of Commerce Roundtable on October 24, outlined the
city's draft development plan for the next 20 years, and identified
the key priorities of the municipality as: tourism, education, and
the financial sector. Also, Ugulava said his office was working to
develop city utilities and infrastructure, including water, sewage,
electricity and gas, for multiple new buildings and districts that
are under construction. To improve traffic in the city, the Mayor's
Office plans to privatize public transportation, including buses and
the subway, and to announce a tender for a long-term concession for
parking and electronic ticketing. The Mayor's office is also
looking to attract a private investor for waste management and water
supplies. Ugulava noted the ongoing construction of a new rail link
between the airport and the city center, a USD 100-150 million
project designed by the Turkish company Nurol, that he said would
ease traffic congestion.

TEFFT