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 -------------- ¶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 -------------- ¶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 -------------- ¶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 -------------- ¶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 TBILISI 00002797 002 OF 002 purchased assets in Georgia. Railroad Buyer Quits Mysterious Deal -------------- ¶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