VZCZCXRO2164
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHSI #1675/01 1941334
ZNR UUUUU ZZH
R 131334Z JUL 07
FM AMEMBASSY TBILISI
TO RUEHC/SECSTATE WASHDC 7006
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 TBILISI 001675 
 
SIPDIS 
 
SIPDIS 
 
E.O 12958: N/A 
TAGS: PREL PGOV PHUM ECON ENRG GG
SUBJECT: GEORGIA BI-WEEKLY UPDATE JULY 13 
 
¶1. This cable contains current items of political, 
economic, and social interest concerning Georgia during the 
weeks of June 30-July 13. 
 
Education Minister Disputes Corruption Charges 
--------------------------------------------- - 
¶2. A corruption controversy surrounding Education Minister Alexander 
Lomaia reached a crescendo on June 29 when the embattled Minister 
testified before Parliament.  Repudiating a report issued in May by 
the Chamber of Control which implicated Lomaia's Ministry in the 
embezzlement of funds up to 40 million Georgian lari (USD 25 
million) from projects in 2006, Lomaia dismissed the claims as 
"absurd and groundless."  An influential member of the government 
and rumored future contender for higher office, Lomaia struck a 
combative tone at the hearing, accusing opposition MPs of settling 
political scores and the Chamber of Control of being a corrupt 
bureau in need of reform.  A number of MPs, including Parliament 
Speaker Burjanadze, expressed dissatisfaction with Lomaia's 
aggressive comments.  Following the heated parliamentary session, 
President Saakashvili publicly expressed support for Lomaia on July 
¶6. 
 
More Speculation on Government Reshuffle 
---------------------------------------- 
¶3. In the latest round in the popular media pastime of reporting on 
expected changes in the Georgian government, the newspaper Versia 
predicted that in September Prime Minister Zurab Noghaideli will be 
appointed Head of the National Bank and his current position will be 
offered to Tbilisi Mayor Gigi Ugulava.  The article notes that 
recent scandals have taken some luster off two other perceived 
candidates for Prime Minister, former Defense Minister Irakli 
Okruashvili and Education Minister Alexander Lomaia.  The article 
has current National Bank Head Roman Gotsiridze, the target of 
recent criticism in Parliament, becoming Ambassador to the Czech 
Republic. 
 
Corruption Arrests in Kutaisi 
----------------------------- 
¶4. On July 2, the Constitutional Security Department arrested 24 
officials of the municipal government of Kutaisi, Georgia's 
second-largest city, during a meeting in municipal headquarters. 
Charges brought against them include embezzlement of 600,000 
Georgian lari (USD 375,000) of government funds. 
 
Georgia Reacts to Sochi Olympics 
-------------------------------- 
¶5. The International Olympic Committee awarded the 2014 Winter 
Olympics to Sochi, on Russia's Black Sea coast near Georgia's 
separatist region of Abkhazia, on July 4.  President Saakashvili 
publicly welcomed the decision, saying it would draw international 
attention to the Caucasus region and to "peaceful settlement of 
frozen conflicts."  Georgian Foreign Minister Bezhuashvili 
congratulated the Russian Ambassador in a meeting July 5, expressing 
confidence that the Games would be an opportunity for improved 
cooperation between Georgia and Russia.  Some Georgian commentators 
expressed concern about the decision, however, arguing that Russia 
will try to use Abkahzia's infrastructure for the Games, and that 
this may help keep the conflict frozen for another seven years. 
Abkhaz leader Sergei Bagapsh congratulated Russian President Putin 
saying "we view this victory as our own victory." 
 
Constitutional Court Re-Locates to Batumi 
----------------------------------------- 
¶6. On July 5, Georgia's Constitutional Court moved to Batumi, in the 
autonomous region of Adjara.  The decision on the transfer was made 
by President Saakashvili last year, when he initiated amendments to 
the Law on the Constitutional Court.  The major motivation for the 
transfer, as it was explained at the time, was to help increase the 
role of territorial units outside Tbilisi in state decision making. 
It has also been implied (though not stated explicitly) that 
physical distancing the Court from the capital would increase its 
independence.  Opposition figures and the Georgian Young Lawyers 
Association (GYLA) have questioned the need for the move, arguing 
that it will increase costs and make access more difficult for many 
people, without significantly changing the court's role or 
independence. 
 
UN Secretary General Makes Unexpected Visit 
------------------------------------------- 
¶7. UN Secretary General Ban Ki-Moon arrived in Georgia on June 29 
for a short, unannounced visit.  He was met by Georgian President 
Mikheil Saakashvili, Parliament Speaker Nino Burjanadze and Foreign 
Minister Gela Bezhuashvili.  The Secretary General requested that 
journalists not be allowed to film his visit.  Media reports 
suggested that the discussions dealt with Georgia's separatist 
conflicts.  Ban's predecessor, Kofi Annan, made a similar 
unannounced visit to Georgia early in his tenure as Secretary 
General. 
 
EnergoPro's Contract Enters into Force 
-------------------------------------- 
¶8. On July 6, the Czech company EnergoPro officially assumed 
ownership over the assets of the United Energy Distribution Company 
 
TBILISI 00001675  002 OF 002 
 
 
of Georgia (UEDC), the Energy Distribution Company of Adjara and six 
hydropower plants.  EnergoPro now owns 70 percent of Georgia's 
electricity distribution assets.  EnergoPro signed the privatization 
agreement with the Georgian government in February 2007, with 
EnergoPro assuming a total cost of USD 417 million.  EnergoPro has 
already paid USD 132 million to the state budget.  According to the 
contract, EnergoPro will spend USD 85 million to rehabilitate the 
hydropower plants, USD 100 million to rehabilitate the electricity 
distribution infrastructure, and USD 100 million to construct new 
hydropower generation facilities.  EnergoPro owns 11 hydropower 
plants in the Czech Republic and 8 hydropower plants in Bulgaria. 
 
Georgia Plans New Hydropower Projects 
------------------------------------- 
¶9. The Georgian Government has announced a 10-year energy program, 
which envisages the construction of a number of new hydropower 
generation facilities in Georgia.  Recent steps in this direction 
include the Ministry of Energy's memorandum with the British company 
Continental Energy for a feasibility study on construction of the 
Khudoni hydropower plant on the Enguri River, 30 kilometers from 
Georgia's largest Enguri hydropower plant.  The World Bank will 
provide USD 3.3 million for the study, which will envisage the 
construction of a 700 Megawatt plant and a 500 kV electricity 
transmission line.  Eventual construction is estimated to cost USD 
500-600 million.  The GoG has also signed a memorandum with a 
Turkish Company, Urban, to build the 78 MW Paravani hydro plant in 
the Samtskhe-Javakheti region in southern Georgia.  Total cost of 
investment in this project is estimated at USD 100-120 million.  The 
government has signed another memorandum with the Russian state 
company Inter RAO UES to build one or more plants with a total 
capacity of around 100 MW, and to transit electricity between 
Georgia and Russia. 
 
Baker Center Interested in Energy Strategy 
------------------------------------------ 
¶10. On July 9 Marian K. Thompson the U.S. Department of Energy 
visited Georgia to discuss the Howard H. Baker Center's interest in 
establishing a dialogue with Georgian public and private energy 
sector officials to help Georgia strengthen its ability to develop 
energy policy.  The Department of Energy provided USD 15,000 in seed 
money for the project.  The Baker Center envisions providing initial 
support in creating a central database on energy sector statistics, 
sponsoring symposia, and hosting exchange programs for energy sector 
representatives.  Energy company representatives stressed Georgia's 
need for more stable and reliable energy distribution.  The Georgian 
Foundation for Strategic and International Studies (GFSIS) expressed 
interest in working with the Baker Center to develop training 
modules for officials in the Ministries of Economic Development and 
Energy.  Post will work closely with the Baker Center and GFSIS to 
ensure these efforts align with our current assistance strategies. 
 
TEFFT