VZCZCXRO2522
OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHSI #1284/01 1521053
ZNY CCCCC ZZH
O 011053Z JUN 07
FM AMEMBASSY TBILISI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6509
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE IMMEDIATE

C O N F I D E N T I A L SECTION 01 OF 02 TBILISI 001284 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR DAS BRYZA AND EUR/CARC 
 
E.O. 12958: DECL: 05/31/2017 
TAGS: PREL PGOV ECON GG
SUBJECT: PM NOGHAIDELI ON ECONOMIC REFORMS, ENERGY 
SECURITY, AND RUSSIA 
 
 
Classified By: Ambassador John F. Tefft for reasons 1.4(b)&(d). 
 
Summary 
------- 
¶1. (C) In a May 28 meeting with Joseph Wood, Deputy National 
Security Advisor to the Vice President, Georgian Prime 
Minister Zurab Noghaideli said the Georgian economy was 
performing well, and the government was pushing hard to get 
major new reforms underway this year so that they would be 
well-established before the election year of 2008.  He 
expressed concern about possible Russian recognition of the 
independence of Abkhazia following the resolution of the 
Kosovo status issue, and said the key for Georgia in its 
relations with Russia would be major progress on NATO 
integration in the next twelve months.  He encouraged the USG 
and Europe to engage more actively with Turkmenistan and 
Kazakhstan, adding that it was particularly important for 
Georgia that substantial amounts of oil from Kazakhstan flow 
through the south Caucasus corridor.  End Summary. 
 
Not Resting on Economic Laurels 
------------------------------- 
¶2. (C) Wood and the Ambassador began the meeting by asking 
Noghaideli about his recovery from recent heart surgery in 
the U.S.  Noghaideli, who had clearly lost weight since the 
operation, said he had resumed a full schedule but still 
suffered pains from the large incisions in his chest.  His 
heart, however, was fine with no residual pain. 
 
¶3. (C) Noghaideli recounted statistics on Georgia's 
impressive economic growth, 9.4% in 2006 despite a direct 
loss of 1.5% of GDP due to Russian economic sanctions.  He 
noted that foreign direct investment was rising rapidly and 
that Georgia's business environment had improved dramatically 
according to a World Bank survey last fall.  For this year he 
predicted 12.5% growth, the creation of about 90,000 new jobs 
(although 25,000-30,000 would likely be filled by foreigners, 
mainly Turkish construction workers), and inflation below 
10%.  He said the government was continuing to undertake 
aggressive reforms, including simplification of the tax 
system and further improvement of the business climate.  He 
said that he knew of no precedent for the pace of Georgia's 
health care reform: three months ago all hospitals were 
state-owned, and two months from now only three would still 
be in state hands.  Noghaideli said the government's task was 
to manage reforms while maintaining political support.  He 
noted that there would be elections next year (for both 
president and parliament) and said the government wanted to 
complete as many reforms as possible this year in order not 
to start anything new next year. 
 
Need to Deter Russia 
-------------------- 
¶4. (C) Noting Russian President Putin's statements that 
Kosovo should be a precedent for other separatist conflicts, 
Noghaideli expressed concern that the Kosovo status process 
could be developing in a way that would lead to Russian 
recognition of Abkhazia.  He said such a step by Russia would 
"definitely lead to a confrontation," and it was important to 
have a "deterring policy" against it.  Noghaideli added that 
the key over the next twelve months would likely be NATO 
integration, and he stressed the need for a strong signal of 
U.S. support to help win over the older European members of 
the alliance.  He wondered whether Gordon Brown's elevation 
to Prime Minister would lead to any "surprises" in British 
foreign policy, adding that Georgia would not like to see a 
reduction of the British presence in Iraq. 
 
The Politics of Energy 
---------------------- 
¶5. (C) Noghaideli said contradictory signals on plans for 
energy supply routes had been coming out of Central Asia, and 
he stressed the importance of an active U.S. diplomatic 
effort in the region, in coordination with Europe.  He said 
that more visits by State and Energy Department officials to 
Turkmenistan and Kazakhstan would be helpful, as would visits 
by senior energy company executives from the U.S.  He said 
that while the Russian press was hailing the recent 
Russia-Kazakhstan-Turkmenistan energy agreement as a triumph 
for Putin, there was in fact nothing new or concrete in the 
agreement.  He said it was clear in discussions with 
Tukmenistan's President Berdimuhammedov that he would not 
permit any foreign company, including a Russian one, into 
on-shore gas fields, where most of Turkmenistan's gas 
resources are located.  Noghaideli said Berdimuhammedov 
wanted to pursue a balancing policy, and was looking for a 
way to reach out to the West.  He said Berdimuhammedov 
responded favorably to Georgian efforts to interest him in 
the south Caucasus transit corridor.  According to 
Noghaideli, Berdimuhammedov did not want to see Russian 
 
TBILISI 00001284  002 OF 002 
 
 
involvement in the off-shore fields, and was interested in 
getting a Georgian state company involved there, probably in 
conjunction with Western partners.  Noghaideli reiterated 
that it would be helpful if the vice-president of a major 
U.S. energy firm expressed an interest in these fields. 
 
¶6. (C) Noghaideli said Georgia was particularly interested in 
oil from Kazakhstan, a country that would be a bigger nominal 
producer of oil than Russia by 2015.  He said Georgia wanted 
to see a significant amount of this oil transiting the south 
Caucasus corridor.  He said Georgia had not been as 
successful as it hoped in negotiating market-based mechanisms 
for use of the corridor -- Azerbaijan and Turkmenistan 
insisted on governments rather than companies deciding on the 
exact division of transiting oil -- but he thought there 
would be diversity because no one route could handle all the 
volume.  He said Georgia was seeking to lower tariffs, 
especially Azerbaijan's. 
 
¶7. (U) Joseph Wood did not have the opportunity to clear this 
message. 
 
TEFFT