DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, June 7, 1999

South Caucasus & Central Asia

Remarks by His Excellency

Eduard Shevardnadze, President of Georgia, at the dinner hosted by Frontera Resource

Houston, April 22, 1999

Mr. Senator,

Mr. White,

Distinguished representatives of the United States,

Honored members of the US-Georgian Business Development Council,

Ladies and Gentlemen,

I thank you very much for your warm welcome. Meeting with the representatives of the American business circles is always especially interesting for me. Attracting foreign, and particularly US investments has always been our major priority. The Georgian authorities greatly appreciate your part in the revitalization of our economy. I am happy that we already have examples of successful cooperation: the names (of) Chevron, Frontera, Metromedia, Bob Walsh, Northrop Grumman, the AIOC (Azerbaijan International Operation Company) member companies have already become popular in Georgia.

I want to start my remarks by a most significant fact for me and the whole of Georgia. I feel happy today by the achievement which we celebrated few days ago: the opening of the Baku-Supsa early oil export pipeline, the Supsa oil terminal and the Poti-Illichevsk-Varna ferry terminal is an event of enormous political significance in Georgian history. Georgia has advanced its international transit function in the twenty first century to a qualitatively new level. We can already state boldly that due to reviving the Great Silk Road, whose integral parts are the above mentioned routes, Georgia has become a part of the

global economic process where it has its own unique place, rights and responsibilities. Bill, I would like to especially note the part you have played in promoting the decision on the multiple export routes for the transportation of the early Caspian oil. I remember well our meetings at the Department of Energy during your service there. Many in those days were skeptical of these ideas, but the time has proven that we were right. This pipeline has already become a vital artery for the Azerbaijan International Operation Company (AIOC), Azerbaijan, Georgia and other Black Sea basin countries.

This is the first success of this proportion. It was preceded by many other important steps that have secured Georgia's reputation as a reliable partner among the international investor community. I would like to note the part Chevron has played, being practically the first to revive the Eurasian corridor for the transportation of oil by using Georgia's transport arteries. The Chevron executives will confirm that we have created special conditions to support their activities in Georgia.

Despite the drop in oil prices on world markets, the Caucasus and Central Asia still remain in the focus of investors' interest. This is evidenced by the decision taken in Turkmenistan to build a trans-Caspian gas pipeline. Georgia remains the main transit route for the Caspian oil and other resources.

I want to note also that the Eurasian Corridor does not only mean the transportation of the hydrocarbon fuel alone. Despite certain areas of tension in the Region, many different types of cargo cross the Georgian territory from all directions.

To cite an example, with the help of the American company Northrop Grumman the most advanced air control system in the region and per

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haps in all Eastern Europe is being introduced in Georgia meeting the most modern security requirements. Due to this system, the Georgian air space will gradually become one of the most important international air corridors. In addition, the airports in Georgia have a potential to carry out passenger and cargo transit functions of global significance.

I want to separately mention our economic legislation which may not be perfect, but it is perhaps the best throughout the Former Soviet space. Recently we have adopted the Law on. meeting international standards, which will facilitate your work in Georgia.

All this is our major asset and it gives our future plans more credibility. I deliberately avoid mentioning concrete statistical figures, which believe me are quite impressive. My purpose is to once again relate to you Georgia's investment potential which to a large extent is linked with our most advantageous geographic location.

First, let me mention the ongoing privatization of the large state enterprises. This year we intend to privatize the Poti port, telecommunications, and large energy facilities. All these spheres offer excellent opportunities to potential investors.

Now let me speak of the privatization of the energy facilities, as I think that unlike the Port and telecommunications, the full potential of this sphere is not yet fully appreciated by the investors. I am confident that within few short years Georgia will become one of the world's major natural gas transit arteries. Pipelines crossing the Georgian territory will carry gas from Russia, Turkmenistan, Azerbaijan and perhaps from Uzbekistan and Kazakhstan. These are realistic prospects and today we can already begin to utilize this potential. I am specifically referring to the two important state facilities earmarked for privatization: (1) the gas distribution company Tbilgazi, supplying natural gas to Tbilisi, and (2) the Gardabani thermal power station which generates electricity using natural gas. These two facilities alone require 5-6 billion cubic meters of gas annually. Investing in these enterprises is made even more attractive if we consider there is a growing demand for natural gas and electricity. There is a great demand on the latter in Georgia and in Turkey, and the transmission lines provide the opportunity for selling the electricity.

There are problems related with the utilization of gas in Azerbaijan and we think that considering the potential of the mentioned facilities, Georgia offers good opportunities for resolving them. With serious investors, these projects have the potential to become an excellent example of cooperation between the US capital and the countries of the region.

As I have already said, attracting foreign investment is our priority. Cooperation with the American companies in combination with direct investments is an important learning experience for us. I do not need to conceal that I have been through serious ideological combats in my life, most importantly with my own self. The events of the late 1980s, in the midst of which I found myself, have played a decisive role in shaping my outlook in favor of the values of freedom and democracy. Although, I to this day continue to discover the new hitherto unknown to me aspects of freedom and especially those of free enterprise. Freedom has brought America to the present highs. I closely follow the development of your economy. The dream of every president, in fact of every individual, is that their country enjoys the same well-being as your country does—low inflation and unemployment rate, growing economy, high pace of development and introduction of new technologies and most importantly, unparalleled business activity. I also watch with keen interest the process of development of an entirely new understanding philosophy of business. These principles, as well as the new that implies maximum consideration of the characteristics of the local environment fit Georgia well.

We believe that it is in the long-term interests of the American business and, more generally, American politics to help promote the creation of the environment in Georgia that will offer hospitable climate to each project and each initiative. Concern only for the profit ratio gained from an investment cannot secure success. We believe it is necessary to take into account the specific features of the environment in Georgia, to train and educate the local human resources ,and to introduce modern management practices. This is a major prerequisite of success and eventually more profit for both sides involved.

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Restoring the old system of values distorted in the course of centuries under the yoke of others, is a necessary pre-condition of achieving long-term stability in the country which every businessman is interested in.

Today, several American companies operate in Georgia, for whom relations with Georgia mean more than simply gaining profit. I want to especially note Frontera Resource, whose operations in Georgia are almost entirely carried out by a Georgian team, including management and technical support. Every employee of this company whether the Georgian, Azeri or American, is considered a member of the great Frontera family and shares with others credit, as well as responsibility.

We are aware, that the activities of foreign investors in Georgia are not very easy. Objective factors play their part in this: lack of experience and tradition of making business, and cultural differences in general. At the same time, there are many subjective factors too. Often, the decision taking process is unduly delayed. We would appreciate your suggestions on where you need our support and how you view the ways of providing such support.

In this regard, many of you would perhaps like to know how we are fighting against corruption. Let me stress here that the genesis of corruption is connected with the Soviet period in Georgia's history. You may think it is easy for me to blame the Soviet union for this malaise. This is not so, as it would be an oversimplification of this extremely complex social phenomenon.

At the same time, without understanding the realty, without understanding the roots and social basis of corruption, it would be impossible to combat it. We are fighting against the phenomenon which is so firmly rooted in the behavior of the people, that more than one generation will be required to defeat it. We sometimes forget that the majority of our citizens were brought up in the environment where

permanent deceit reigned and moral principles were contorted. It is not easy to change these people. I do not want to leave the impression of justifying the corrupt practices of public officials. Those who engage is corrupt practices, must be held accountable. I only wanted to say that the fight is not an easy one and it cannot be resolved in one night. This will be a complex process, in which I hope the United States and other friendly states will support us. Let me mention also that in the 1960s and especially 1970s, when I was the leader of the Soviet Georgia, my colleagues and I waged an uncompromising war against corruption. Many senior officials were severely punished for grave crimes, but I must also admit that the war was doomed to failure, as the malaise was inherent in the system itself.

In combating corruption I see a special role of the business community. In collaboration with you, we can establish a fair and transparent business practice.

Let me return to the event, from which I began my remarks. The successful implementation of the early oil pipeline project demonstrated that Georgia has the potential of realizing projects of global importance. I remember the skepticism and irony both within Georgia and beyond, when seven years ago we began to talk abut the Eurasian corridor. We have proven to the world and to ourselves in the first place that with due patience, diligence, and help of our friends we can cope with the most difficult challenges.

I believe that this is only the beginning of an interesting and challenging road which will lead Georgia into a bright future. God bless you, Georgia and America. I thank you.

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