GEORGIA BI-WEEKLY UPDATE NOVEMBER 9

UNCLAS SECTION 01 OF 02 TBILISI 002797

SIPDIS

SIPDIS

E.O 12958: N/A
TAGS: PREL PGOV PHUM ECON GG
SUBJECT: GEORGIA BI-WEEKLY UPDATE NOVEMBER 9



1. This cable contains current items of political,
economic, and social interest concerning Georgia during the
weeks of October 27-November 9.

Georgia Claims Violation of Airspace
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2. Zaza Gogava, Head of Georgia's Joint Forces Command, was quoted
November 4 saying that Russian aircraft had violated Georgia's
airspace on November 2. Reportedly three SU-24 aircraft flew 3
kilometers into Georgia's territory for one minute in the vicinity
of Stepantsminda. Russian military officials denied the accusation.
According to Interfax news, Russian Air Force spokesman Alexander
Drobyshevsky stated that two aircraft and two helicopters were
flying as a military convoy operating in the region, but they were
100 kilometers away from the Georgian border. "All flights by
Russian aircraft within the framework of the Caucasian Frontier 2007
exercise are controlled, given the situation in Georgia and given
the fact that Georgia could make such statements," Drobyshvesky
said. No further information was available from the Georgian
Ministry of Defense.

NATO Week in Georgia
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3. From October 29 to November 3, Georgia hosted its first NATO
Week, a series of informational events on Georgia's relationship
with NATO. State Minister for European and Euro-Atlantic
Integration Giorgi Baramidze and Deputy Defense Minister Batu
Kutelia launched the events, and afterwards Ambassador David Smith,
Diplomatic Advisor to the Center, said the week had achieved its aim
of generating public attention. In addition to Tbilisi, NATO Week
was also celebrated in Upper Abkhazia and Ajara. The week was
concluded by a gala concert at the Tbilisi stadium, attended by
students from Tbilisi and the regions, as well as army reservists
brought to Tbilisi for the event. Though planned much earlier, the
concert coincided with a large opposition demonstration in Tbilisi,
and the concert took on the character of a pro-government rally,
counterbalancing the protest.

International VIPs Visit Georgia
--------------

4. The Georgian government and the German Marshall Fund hosted the
"Tbilisi Summit: Building Europe's East," starting on November 1.
Representatives of 25 countries attended the event, which included a
visit to the newly reconstructed town of Sighnaghi in Kakheti
region. The forum focused on energy security, the EU Neighborhood
Policy, and conflict resolution issues. Some of the high-ranking
participants were Swedish Foreign Minister Carl Bildt, U.S.
Assistant Secretary of State Daniel Fried, Lithuanian Deputy Foreign
Minister Yaroslav Neverovich, Council of Europe Secretary General
Terry Davis, and OSCE Secretary General Marc de Brichambaut. Guests
visited Ajara and the South Ossetian village of Kheiti, where they
met with Dmitry Sanakoyev, Head of the Temporary Administrative Unit
of South Ossetia.

Protest against Patarkatsishvili in Ureki
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5. On October 30, a protest took place in the Black Sea resort town
of Ureki, initiated by the local office of the ruling National
Movement and members of the local municipal council. The protest
was aimed against opposition financier Badri Patarkatsishvili, who
is the owner of properties in the town that include a health and
recreation complex, hotels, children's playgrounds, and various
stores. Protesters targeted Patarkatsishvili's private residence in
the town, which includes a restricted area on the beach. Ruling
party MP K. Beridze attempted to energize the crowd by declaring
that Patarkatsishsvili wishes to buy all of Georgia and put a fence
around it, but nobody is going to let him do so. According to an
Embassy source, however, when local residents recruited for the
protest realized it was targeted against Patarkatsishvili, many
switched sides and began protesting against the protest. These
residents said that Ureki, largely ignored for years, had improved
and become a center for tourism due to Patarkatsishvili's efforts.

Swiss Bidder Wins Tender for Water Systems
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6. On October 27 the Ministry of Economic Development of Georgia
(MoED) announced that Multiplex Solutions AG had won the
privatization tender for a package of assets including the water
supply and distribution company for Tbilisi - "Tbilisi Water," the
Mtskheta water supply system, Gardabani sewage system, and Zhinvali
hydro power plant and water reservoir. Multiplex is registered in
Switzerland, but its ownership is not publicly available
information, nor has the GOG released any information on its
background. Multiplex will pay about USD 85.7 million, invest USD
350 million in rehabilitation of the water distribution network, and
maintain the current fixed tariff of GEL 2.4 (about USD 1.5) per
capita per month for residential customers through 2009. The tariff
in 2010-2014 for residential customers will be fixed at GEL 2.95
(about 1.8). Commercial and other customers pay GEL 4.4 (about USD
2.7) per cubic meter. Reportedly, the company has already started
metering some of the districts in Tbilisi. According to Georgian
press, Multiplex Solutions has no experience managing water supply
networks and plans to contract an operator to run its newly

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purchased assets in Georgia.

Railroad Buyer Quits Mysterious Deal
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7. On October 24 the Georgian government confirmed that the
announced plan to sell management rights for the Georgian Rail
Company to the U.K.-based firm Parkfield had fallen through. The
decision to award Parkfield a 99-year management contract had been
announced in August. The firm, which like Multiplex in water
systems, is largely unknown and inexperienced in the rail business.
Parkfield had pledged to invest USD 1 billion in rehabilitation and
development of the railway infrastructure for the next 10 years, and
to hire a management company to run the business on its behalf. The
deal had immediately generated rumors that Russian capital was
behind the bid, and some sources alleged the plan was to swap Imedi
TV, a company owned by Badri Patarkatsishvili and the News
Corporation, for the railroad. On October 28, the government
announced another tender to privatize the railroad, and State
Minister Bendukidze publicly admitted that some mistakes had been
made with the previous tender.

Georgia's FDI and Foreign Trade Boost
--------------

8. Prime Minister Noghaideli announced at a Georgian investment
roundtable in Vienna that, according to the latest statistics,
direct foreign investments will contribute 25 percent of Georgia's
GDP for 2007. Saying "we are now starting another stage of
investment attraction in Georgia," Noghaideli noted that the 2007
figure was a sharp increase from 15 percent of GDP in 2006 and 7
percent in 2005. Foreign trade turnover has also increased
markedly. For the first nine months of 2007, the figure was GEL 4.4
billion (USD 2.7 billion),34.5 percent higher than in 2006. Much
of this increase in total trade is attributable to higher costs of
energy imports, but exports have increased 25 percent in the first
nine months of 2007 compared to the same period in 2006. Georgia
has a negative trade balance with 97 countries, and positive with

23.

TEFFT