Business Forum Hopes to Improve Russian-Georgian Economic Ties

Russian Economy Minister German Gref, Georgian Speaker Nino Burjanadze and President Saakashvili at the economic forum

Georgian authorities, who hosted the largest-ever Georgian-Russian economic forum in Tbilisi on May 28-29, opened doors to Russian investments but vowed that no strategic facilities will be sold to any foreign investors.

Upwards of a hundred leading Russian businessmen, including representatives from energy giants Unified Energy Systems (EES), LUKOil, TransGazOil, Rosnefteeksport and many other companies, as well as Russian officials, discussed opportunities for investment in Georgia.

“The total capital of the represented businessmen here amounts to USD 20-25 billion. Of course, this does not mean that this sum will be invested in Georgia, however it does mark that a huge capital is interested in Georgia,” Georgian Prime Minister Zurab Zhvania said on May 28th.

Energy, transport, banking systems, tourism and agriculture were the spheres of investment offered to Russian investors by the Georgian authorities.

“It is well-known that Russian markets and investments are important for Georgia. We plan to sell various facilities this year and we will be very glad to see Russian capital in Georgia,” Prime Minister Zurab Zhvania told Civil Georgia.

“But no strategic facilities will be privatized in Georgia -this includes ports [in Poti and Batumi],” President Saakashvili told reporters on May 28.

Several companies have already initiated talks over purchasing shares in Georgian firms. Russia’s airline company, Aeroflot Air, seeks controlling shares of Georgia’s Airzena airline.

“Airzena and Aeroflot are negotiating over future cooperation,” Airzena’s spokesperson, Tea Gabadadze, told Civil Georgia; but she denied that the Georgian company has already sold its controlling shares to Aeroflot.

One of Russia’s leading banks, VneshTorgBank, has reached an agreement with United Bank of Georgia in regards to the purchase of the latter’s controlling shares, the VneshTorgBank’s official web-site reported on May 28th. The delegation from Vneshtorgbank, headed up by First Deputy President Vadim Levin, held talks with the leadership from the United Bank of Georgia in Tbilisi on May 26th. Details of the deal were not disclosed.

“In the oil-refinery industry, investments in facilities like Chiaturmanganumi [manganese mining enterprise], Ferro-Alloy Plant in Zestaponi and the Rustavi Metallurgical Plant -should be successful for both Russia, as well as for Georgia,” Georgian Economy Minister Irakli Rekhviashvili told Civil Georgia on May 28th.

Georgia’s energy sector is of particular interest to Russia. Last December, Russia’s largest energy company, United Energy Systems (UES), purchased a 75% share in the Telasi electricity distribution company in the Georgian capital of Tbilisi. Telasi was formerly owned by the U.S. company AES.

Entering of the Russian electricity monopoly into the Georgia market triggered a protest of by the opposition leaders, who later took over power in the country, in fear of Russia’s “economic expansion.” But Georgia’s new authorities say they want to implement joint projects with UES.

“Joint ventures in the energy sector may be set up. Talks are underway over the construction of a power transmission line, which will connect Russia with Turkey, via Georgia. Through the new line, Turkey will receive 5 billion kW/h of electricity annually,” The Minister of Fuel and Energy, Nika Gilauri, told Civil Georgia on the 28th of May.

Georgian Prime Minister Zurab Zhvania told reporters that UES will also be involved in the project to rehabilitate the Enguri hydro power plant, which lies at the administrative border between breakaway Abkhazia and the rest of Georgia. The Enguri hydroelectric station is the largest in the country and produces 700 megawatt of electricity per day. Breakaway Abkhazia also receives its electricity from the Enguri station.

The Georgian-Russian business forum, which contained a mutual, cordial tone, was a working example of the recently warmed up relations between Tbilisi and Moscow.

Georgian Economy Minister Irakli Rekhviashvili and visiting Russian Minister for Economic Development and Trade German Gref signed an agreement on May 28th which gives Russia the formal go-ahead from Georgia in the country’s accession to the World Trade Organization (WTO).

In February, the Georgian Parliament suspended its December, 2002 resolution, which required the Georgian government to veto Russia’s WTO accession. The 2002 resolution was passed by the Georgian Parliament against the backdrop of extremely tense relations between Tbilisi and Moscow. However, Tbilisi’s stance has softened since these relations have since warmed up, following talks between the Georgian and Russian Presidents in Moscow in February.

“Today’s [May 28] meeting confirms that Georgia and Russia have launched a new phase of cooperation. Why Russia? I will answer you: we have much in common and great experience in making business together. Russian capital is more available and flexible at the same time; work with Russians is easier. I assure you that I will personally defend the interests of each investor,” President Saakashvili told Russian businessmen at the forum on May 28th.

But Saakashvili has repeated several times that “investments have no nationality,” hinting that Georgia is open for western business as well.

The President of the Union of Industrialists and Entrepreneurs in Russia, Arkady Volsky, said that fears should not prevail concerning economic relations between the two countries. “Political sovereignty is okay, but economic sovereignty is absurd,” Volsky told Civil Georgia.

Like many local businessmen, foreign investors are waiting for changes in Georgia’s taxation system, which is widely condemned as an obstacle for business development in Georgia.

“No investments will be made if Georgia does not make its tax code transparent and reduces taxes,” Russian Minister for Economic Development and Trade German Gref said at the forum on May 28.

Both President Saakashvili and Prime Minister Zhvania assured the businessmen that the government has already started to work towards the liberalization of the tax and customs systems. Finance Minister Zurab Noghaideli said that the work concerning tax amendments will be complete by June and then submitted to the Parliament for approval.