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DE RUEHSI #1933/01 2151336
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R 031336Z AUG 07
FM AMEMBASSY TBILISI
TO RUEHC/SECSTATE WASHDC 7179
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 03 TBILISI 001933 
 
SIPDIS 
 
SIPDIS 
 
E.O 12958: N/A 
TAGS: PREL PGOV PHUM ECON ENRG GG
SUBJECT: GEORGIA BI-WEEKLY UPDATE AUGUST 3 
 
REF: TBILISI 1702 
 
¶1. This cable contains current items of political, 
economic, and social interest concerning Georgia during the 
weeks of July 14-August 3. 
 
Commission on Ossetian Status Starts Work 
----------------------------------------- 
¶2. The state commission defining the status of the temporary 
autonomous unit of South Ossetia (reftel) held its first meeting in 
Tbilisi July 24 and its second meeting in Kurta July 28.  As 
announced by Prime Minister Noghaideli, the commission's chairman, 
the commission consists of 40 members assigned to five groups 
working on legal, financial, economic, educational and cultural 
issues.  The commission includes government officials from Tbilisi, 
representatives of the Georgian-backed temporary administration for 
South Ossetia, several ruling party MPs and one opposition MP from 
the Republican Party.  Prime Minister Noghaideli instructed Georgian 
Foreign Minister Bezhuashvili to ask the Russian and EU authorities 
to cooperate with the commission.   Georgian officials have invited 
officials of the de facto government in Tskhinvali to take part as 
well, but they have thus far refused.  Further the meetings of the 
full commission and the working groups are planned for August. 
 
Authorities Criticized over Property Rights 
------------------------------------------- 
¶3. Controversy has erupted over recent decisions by local government 
bodies to begin proceedings to seize or demolish properties.   A 
decree signed by Tbilisi Mayor Gigi Ugulava on July 20 alleges that 
about 50 plots of land were privatized illegally in 1994-1999 in 
Tbilisi and might be subject to confiscation.  The sales were 
illegal, the decree alleges, because the process was authorized by 
the Tbilisi executive government and not by the mayor, as it should 
have been according to the law.  The decree launching the probe was 
signed just six days before a new law went into force providing an 
amnesty for privatizations that were not already under question. 
Media reports have also focused on the demolition of a high-rise 
apartment building in downtown Tbilisi -- which the government says 
was unsafely constructed -- leaving over 20 families homeless and 
drawing criticism from Georgia's Public Defender, as well as the 
decision of the Kobuleti Municipality (on the Black Sea) to destroy 
173 buildings and thus leave over a hundred family homeless, because 
the owners did not have proper registration paperwork. 
 
Six Months Less for Girgvliani Defendants 
----------------------------------------- 
¶4. On July 31, the Supreme Court reduced by six months the jail 
terms of four former Interior Ministry officers who were jailed for 
the beating death of Sandro Girgvliani in February 2006.  Last year, 
the Tbilisi City Court sentenced the defendants to prison terms of 
up to eight years.  An opposition politician who is a frequent 
critic of the government told post that the reduction was in fact a 
proper interpretation of a recent reform in the Criminal Code. 
During the trial, the Interior Ministry officers were convicted of 
destroying private property consisting of clothes and a cell phone. 
The value of the property was not determined at trial, and the 
revised code has now lowered the penalty for this crime based on the 
low value of the destroyed property.  The Girgvliani family attorney 
criticized the decision, and the family seeks to reopen the case to 
further investigation as it believes torture, which carries a 
stiffer penalty, was involved in the killing. 
 
Dispute over Internet Freedom 
----------------------------- 
¶5. On July 26, OSCE published a worldwide report entitled "Governing 
the Internet" which highlighted Georgia's laws on Internet 
regulation.  In the report, a case study on Georgia focused in part 
on proposed new legislation for a code of conduct for journalists 
and broadcasters.  The author of the study, government critic Ana 
Dolidze, noted that the draft contained some ambiguities that 
"might" impinge on Internet freedom.  Otherwise, the OSCE report 
stipulated that the constitutional and legislative guarantees of 
freedom of expression make the overall situation in Georgia quite 
liberal.  Inexplicably, international press accounts claimed the 
report accused Georgia of censoring the Web, lumping Georgia in with 
China and other serious violators of Internet freedom.  Georgian 
officials demanded a retraction. 
 
More Competition in Internet Service Market? 
-------------------------------------------- 
¶6. United Telecom of Georgia (UTG), a local company owned by the 
Kazakh firm Black Sea Telecom, has reached an agreement with 
Georgia's largest Internet provides, Caucasus Online (CO), a company 
associated with Badri Patarkatsishvili, after a contentious debate 
over the service tariff for CO's ADSL access via UTG-owned 
infrastructure.  CO has agreed to pay an increased tariff, while UTG 
has promised to improve its services.  The conflict started on July 
1, when UTG announced about increase of its service tariff from 3.5 
Lari (about USD 2) to 13.5 Lari (about USD 8) excluding VAT.  CO, 
which holds 90-95 percent of the Internet market, initially refused 
to pay the tariff, accusing UTG of attempted to force CO's customers 
to switch to UTG's new Internet service.  In a recent interview, 
Minister of Economic Development Giorgi Arveladze criticized the 
 
TBILISI 00001933  002 OF 003 
 
 
poor quality of Internet services in Georgia and warned the 
companies in this sector to improve their services and charge 
reasonable prices.  According to Arveladze, three new companies have 
recently obtained Internet licenses and will soon enter the market. 
He said he believes that increased competition would help to resolve 
the problem. 
 
Patarkatsishvili Firm to Buy Metromedia 
--------------------------------------- 
¶7. On July 20, Metromedia International Group announced that Salford 
Georgia and Compound Capital Limited will make a cash tender offer 
for Metromedia's issued and outstanding shares of common stock. 
Metromedia's assets in Georgia are: Telecom, a local and 
international telephone operator, Telenet, an Internet provider, and 
Magticom, Georgia's leading cellular phone company, of which 
Metromedia owns 51 percent.  Salford Georgia and Compound are 
private equity and investment management firms.  Salford is 
associated with the name of expatriate oligarch Badri 
Patarkatsishvili, who owns a number of assets in Georgia's 
telecommunications, TV, real estate and entertainment sectors. 
Irakli Rukhadze, CEO of Salford, stressed that the proposed change 
in ownership will not affect the management and services of the 
companies.  Metromedia has been one of the largest U.S. investors in 
Georgia since independence.  Its initial investment of USD 40 
million into five American-Georgian joint ventures (Telecom, 
Magticom, Ayety TV, Radio 105 and Paging 1) had turned into a USD 
150 million dollar businesses by the end of 2006. 
 
New Fitch Rating Reflects Economic Progress 
------------------------------------------- 
¶8. On July 18 2007, the international rating agency Fitch gave 
Georgia an improved rating of "BB-" with a "Stable Outlook." 
Minister of Finance Lexo Alexishvili stressed that this rating is a 
result of Georgia's achievements with structural reforms, decreased 
public debt, GDP growth, increased foreign direct investment and 
international financial support.  According to Alexishvili, the 
current Fitch rating will decrease interest rates on international 
borrowing by Georgian banks, attract more FDI, and create new jobs. 
 
 
Government Urging Exporters to Consider U.S. Market 
--------------------------------------------- ------ 
¶9. On July 27, Minister of Economic Development Giorgi Arveladze met 
Georgian exporters to explain how they could take advantage of the 
General System of Preferences (GSP) granted to Georgia by the U.S. 
Arveladze stressed the importance of the recently signed TIFA 
agreement and called on Georgian businesses to explore the U.S. 
market for goods that qualify for 0% customs tariff under the GSP, 
including wine, mineral water, spirits, ferroalloy, canned 
vegetables, juices, seasonings, ceramics, crafts, and glassware. 
Speaking about favorable U.S.-Georgian trade relations, as compared 
to the protectionist policy of neighboring Turkey, Arveladze joked 
"Why can't we be neighbors of the U.S.?"  In 2006 Georgian goods 
worth USD 34.5 million (three times as much as in 2005) were 
imported to the U.S. under GSP status and a total of USD 1.3 million 
was saved on customs tariffs.  Arveladze mentioned the GoG's new 
worldwide campaign to promote Georgia's business climate, and 
stressed that Georgian culture could be a source of millions of 
dollars of profit.  The Ministry is holding three back-to-back 
conferences starting in late October in Vienna (organized by the 
Economist), London, and then New York (organized by Dow Jones). 
 
Borjomi Finds New Markets 
------------------------- 
¶10. The producer of the well-known Borjomi mineral and spring water, 
Georgian Glass & Mineral Water Company (GG&MW), reported a 50% 
increase in exports, signaling that the company has found new 
markets following Russia's ban on Georgian agricultural products and 
drinks in early 2006.  Presently GG&MW produces 5 million bottles a 
year.  The annual growth of production is 20-25% annually.  The 
company exports to Ukraine, Kazakhstan, and Azerbaijan, and has 
recently entered Uzbekistan, Kyrgyzstan, and Tajikistan. 
Negotiations are on to enter the Turkish market.  GG&MW has also 
successfully resolved the problem with barium-level controls that 
temporarily blocked its access to EU markets.  The company invested 
USD 30 million in the last three years in upgrading technologies and 
equipment.  Georgian Minister of Economic Development Arveladze 
predicted that when the Russian market reopens, there may not be 
enough Borjomi water to meet the demand. 
 
Bread Prices Go Up 
------------------ 
¶11. In the last week, the price of bread in Georgia went up 5.2 
percent, according to Statistics Department data.  The Ministry of 
Agriculture, which controls the Georgian wheat reserve, explained 
that the price increase was caused by a shortage of wheat on the 
world market.  Georgia is expecting a better than average wheat 
harvest this year but domestic production can meet at most 25 
percent of local demand in the best harvest years.  Flour costs 
began climbing upwards months ago, but bakeries made lighter breads 
to keep retail prices stable.  Bread is a key product in Georgia's 
consumption basket, and its price increase always triggers price 
jump for other products. 
 
TBILISI 00001933  003 OF 003 
 
 
 
PERRY