GEORGIA BI-WEEKLY UPDATE February 8

UNCLAS SECTION 01 OF 02 TBILISI 000227 SIPDIS SIPDIS E.O. 12958: N/A TAGS: PREL PGOV PHUM ECON KDEM GG SUBJECT: GEORGIA BI-WEEKLY UPDATE February 8 ¶1. This cable contains current items of political, economic, and social interest concerning Georgia during the weeks of January 26-February 8. New Governors Appointed -------------- ¶2. On February 4, President Saakashvili replaced three regional governors. Ramaz Nikoleishvili, the former chief of the investigative department at the Tbilisi Financial Police, replaced Mikheil Svimonishvili as governor of Guria; Tsezar Chocheli, MP and founder of the Natakhtari brewery and soft drinks company, replaced Vasil Maghlaperidze as governor of Mtskheta-Mtianeti, and Lado Vardzelashvili, former deputy culture minister, replaced Lado Gegelashvili as governor of Shida Kartli. Chocheli's nomination has already come under fire from the opposition, who claim that Natakhtari provided significant financial support to Saakashvili's campaign in the recent election. Chocheli insisted that Natakhtari has never financed any political parties. All the new governors were presented to their new offices on February 5. Bezhuashvili to Head Intelligence Unit -------------- ¶3. In a surprise move shortly after his departure as Georgia's Foreign Minister, Gela Bezhuashvili accepted the post of Head of the Foreign Intelligence Unit. The unit, which previously was a part of Ministry of Internal Affairs, will be turned into a separate agency reporting to the President. Softening Georgian Statements toward Russia? -------------- ¶4. Recent statements by Georgian officials have led many to predict an improvement in relations with Russia. In his inaugural speech on January 20, Saakashvili said "we should reach out the hand of cooperation to Russia. We should be friends, we should be closer." Following what he called a constructive meeting the same day with Russian Foreign Minister Lavrov, Saakashvili said he would soon send the Georgian Foreign Minister to Russia. On January 22 then-Foreign Minister Gela Bezhuashvili said Tbilisi would develop a "road map" in the next few weeks to improve Georgian-Russian relations. Prime Minister Gurgenidze said on February 6 that Russian construction of a road in Dagestan could create a new tie with Georgia and was a sign of improving relations. Gurgenidze could have spun this news much more negatively, because in announcing the road Russian President Putin reportedly cited the need to be able to move tanks in the region as a key reason for the road. Gia Karalashvili, head of the Georgian MFA's Russian Section, told us his office was currently focusing on resolving the Russian ban on Georgian wines and agricultural products, renewing issuance of Russian visas and transportation, and other practical issues. New Commission on Property Rights Protection -------------- ¶5. Responding to criticism about the government's handling of property rights, President Saakashvili has set up a special commission that will deal with property-related disputes. Saakashvili announced that the commission would be presided over by Georgia's Public Defender Sozar Subari -- widely seen as an independent, if not anti-government, figure -- and would be composed of prominent public figures and politicians, including members of the opposition. The commission will be authorized to hear all cases on private property confiscation and will make binding decisions. Despite the President's statement about including the opposition, indications are the opposition is not interested. The opposition New Rightist Party stated that Subari would serve merely as a "facade" for Saakashvili, who wants to "create the illusion" that the commission will be objective. The New Rightists will boycott the commission, which they described as a "comedy." Railway Privatization Creates Controversy -------------- ¶6. Privatization of Georgia's railway has been a subject of controversy since it was struck off the list of strategic state assets last July, making it legally eligible for privatization. Last year a quickly concluded privatization deal with UK-based Parkfield Investment, Ltd failed for unpublicized reasons. Parkfield was controlled by anonymous backers whose identity was never made clear. In October 2007 the government once again invited companies to express interest towards Georgian Railway. According to the Economic Development Ministry, five companies submitted bids. Bidders include a U.S. company, Stratton Holdings, the parent company of U.S. investment management firm Stratton Management Company; East Capital, a Swedish investment firm (identified as American by the GOG); Center Invest Capital Partners (a Russian firm which seems to have been created specially for the purpose) and Capital Investment AG, a Swiss-registered firm. The only Georgian company to place a bid is the Silk Road Group, whose business interests include rail transport, shipping and pipelines. The opposition has been quick to denounce the tender, objecting to the privatization of strategic state assets. The New Rightist Party warned potential investors not to enter into any agreement with what it considers to be an "illegitimate government", thereby risking having their deal annulled if the opposition comes to power. TBILISI 00000227 002 OF 002 Georgia's Banking Sector to See New Players -------------- ¶7. In an annual report, the National Bank of Georgia (NBG) announced that the net profit of 19 banks operating in Georgia had grown by 17.5 percent during 2007. As of January 1, 2008, the total assets of country's banking sector had grown to 7.2 billion Georgian lari (about 4.5 billion USD),marking a 70.5 percent increase raise compared with the previous year. According to official sources a number of new players are expected to enter Georgia banking sector, including Dabi Group of the United Arab Emirates and People's Bank of Kazakhstan. HSBC is preparing to open its Georgian headquarters in Tbilisi later this year. In addition, Georgian soccer star Kakhi Kaladze has already purchased a license from the NBG to set up a new bank that is reportedly to be headed by former Prime Minister Noghaideli. Noise around Gas and Electricity Bills -------------- ¶8. Gas and electricity bills issued to the residential consumers at the end of January had the effect of a cold shower due to unusually high charges. Opposition parties were quick to accuse the electrical companies and the government of ripping off consumers by unexpectedly increasing the tariffs. Distribution companies flatly denied the accusations and explained that unusually cold weather in January substantially increased consumption levels. The director of the Kazakh-owned gas distribution network also admitted that a one-time change in the billing process had made the charges look higher than they were: January bills covered a 45-day period instead of regular 30. While he argued that this was because meter readers did not want to bother people during the New Year holidays, another plausible explanation is that the delay was so that people would not receive high bills during the election campaign. Human Rights Watch Criticizes Government -------------- ¶9. On January 31, Human Rights Watch released its annual report which claimed that the Georgian government's approach to human rights is "leading Georgia away from international standards and represents a gamble with freedom." The report focuses on November 7 events, stressing that the police crackdown on demonstrators caused a "serious human rights crisis," and claims that a dominant view is emerging within the government that "short-term, minor sacrifices in human rights are justifiable to build a stronger state, which can better protect human rights in the long term." The report stresses that the state of emergency and subsequent media restrictions had a negative impact on the pre-election campaign. The report also cites poor prison conditions, restriction of fair trial, infringement on private property rights, and lowering the age of criminal responsibility from 14 to 12. Commenting on the report, ruling party MP Davit Kirkitadze said in an interview that a commission to investigate the November 7 crisis will be established after the new parliament is elected in the spring. TEFFT