WE ARE LAYING A SERIOUS BASIS FOR STABLE DEVELOPMENT OF GEORGIAN ECONOMY

 

Caspian Energy Investor (CE): Mr. Nogaideli, how would you evaluate the process of reforms in Georgia? Could you provide details on Government's plans for the current year?

Zurab Noghaideli, Prime-Minister of Georgia: First of all, I would like to say it has been a second year already that Georgia was recognized by international financial institutions as one of the top reformers regarding business liberalization. Two years ago we were No.2 and in 2006 we became No.1. The speed Georgia has gained will be kept this year, first of all concerning maximum liberalization of economy. We will be going on with reforms aimed at simplification of customs, bankruptcy and other procedures related to launch, continuation or closure of business. We also have quite ambitious plans for reformation of various social and economic sectors. In this respect I want to mention the serious reforms in health field for the following three years, such as hospital sector, followed by primary health care, health financing and so on.

Last year Georgia's economy grew in average by 10%. We believe this year it will outpace last year's indicators and reach 12%. This is a diversified growth based on virtually all fields of Georgia's economy. The agriculture is also developing at a high rate. Unfortunately, this sector still depends on specific weather conditions, but we are about to eliminate this interrelation. In general, I hope we will get a good result this year. Alongside, we are laying a serious basis for sustainable development of Georgian economy over the next few years.

CE: How is the situation in power industry? How free is this market in Georgia?

Zurab Noghaideli: One may say the reforms in power industry are almost complete. Over the last two years virtually everything planned for privatization in this sector was passed to private entities, and high-voltage power networks are the only item remaining in government's possession. With time all distribution and generation facilities, except for Inguri hydroelectric power plant, will be passed to the private sector. Furthermore, the government still controls several small HPSs to be privatized in a few months. Thus, this year the reforms and restructuring of power industry are to be completed.

Amount of investments in this sector is incomparable to the funds invested three years ago. Alongside the attraction of private investments, the government itself is investing in the industry. The country that used to heavily depend on electricity import is virtually turning into exporter this year. As you know, according to the energy swap contracts, we receive electric energy from Azerbaijan and Turkey in winter time and return it in summer time. This year we have already got a chance to export more than what was imported in winter.

The results achieved enable us to suppose we are following the right path. However, at the same time the reforms will continue in this sector. Georgia will be developing the hydroelectric industry to handle its neighbors' peak loads and, consequently, Azerbaijan will have no need to build additional facilities for heat power plant. I think it is the very strategy that will certainly prove as a correct one.

This year we have also launched the construction of new power plants. The first contract on construction of relatively small 24MW wind power plant is going to be signed next week. Through the next month we are signing the contract for construction of a new HPS in South Georgia; we are also work with investors on construction of more powerful hydroelectric power stations in the northern regions. And I suggest one of them will be contracted this year, and we will sign contracts on the rest of them through the next few years. This matches the plan we are working out together with Azerbaijan in the power industry sector.

As for the gas sector, this year in cooperation with Azerbaijan we have started diversification of gas supplies to Georgia, which came true through successful development of Azerbaijan's energy sector. We still cannot afford to refuse from Russian gas like Azerbaijan, but I think no later than next year Georgia will be receiving all its gas from Azerbaijan. Getting launched shortly Shah Deniz project brings even more optimism, thus, serving quite an important factor of strategic development of the entire South Caucasus region.

I think this year gas will be mainly supplied under Shah Deniz contract, by the end of the year Azerbaijan shall almost double its gas production and from spring 2008 the gas produced will supply the whole demand of Georgia and Azerbaijan. By that time Azerbaijan will have started selling gas from both this field and other fields. I consider implementation of all these regional projects is a very important event. As it is well known, last year the South Caucasian corridor was launched as the oil route, this year - as a gas corridor. These projects are very important, mainly for the development of Azerbaijan. But to no less extent, this is important for the security and strategic development of our countries. I mean security in its all forms. This project is important for the whole European continent as well.

 

CE: What are the direct threats to the security of Azerbaijan and Georgia?

Zurab Noghaideli: These are the threats of social and energy nature. However, first of all, the problem both our countries have been faced for the last 15 years is the problem of territorial integrity. Even if economic and energy securities are important maters, restoration of territorial integrity is a paramount problem for Georgia and Azerbaijan and all others are just insignificant compared to this problem. Both Georgia and Azerbaijan are focusing their entire policy on resolving this issue and it is a correct way.

 

CE: Is GUAM Organization able to help restore the territorial integrity of Azerbaijan and Georgia? How efficient, you suggest, is its activity?

Zurab Noghaideli: The association of four countries - Georgia, Ukraine, Azerbaijan, and Moldova - is a very important and capable organization. GUAM member-countries repeatedly stated that the organization was not directed against anyone, it just aims at solving social, economic and political problems in these four countries. Our interaction within GUAM is very important and I think we have already started benefiting from this cooperation.

 

CE: Are you discussing any economic projects within this organization?

Zurab Noghaideli: At present we are working on securing the free economic zone among our countries. The countries within GUAM are anyway bound by the free trade convention within the CIS, in respect to the last events, namely the economic embargo imposed on Georgia that could be applied to other countries as well, the creation of real-time free trade regime among thee countries is especially important. However, I think the project, we are currently working on, will not be the only and perhaps not even primary task for us. I am sure the projects in these fours countries, especially those related to power industry, will keep on developing.

 

CE: What do you think about the possibility of Trans-Caspian gas pipeline? Does Georgia have any opinion on this project?

Zurab Noghaideli: For the beginning I will give the following example. When we were launching construction operations under Heydar Aliyev Baku-Tbilisi-Ceyhan pipeline project, and we were thinking about other littoral countries joining the project, anyone could hardly believe in the project itself, not mentioning of joining the project. The situation today has changed, and along with the oil being pumped through this corridor Kazakhstan has already joined it. I said all this to suppose that as soon as the South Caucasus corridor is launched as a gas route and gas will be pumped to Europe through NABUCCO or any other system these countries will be seriously considering joining the existing pipeline and obtain alternative routes to deliver their oil to consumers in Eastern and Central Europe. I am absolutely sure the Trans-Caspian gas pipeline is just the question of time. As soon as we succeed in Baku-Tbilisi-Erzurum, the Central Asian countries will start considering this project as a much more serious one than today. Today we have interest, tomorrow concrete offers, a day later designed project and then an actual gas pipeline.

 

CE: And what is the future of installing gas pipeline along the bed of the Black Sea to Ukraine and further to Europe?

Zurab Noghaideli: It is still early to speak about this project. I believe that in terms of sequence, we shall make the primary stress on the development of South Caucasian pipeline and work on joining Central Asian countries to the pipeline. And only later we can think of a pipeline to be installed along the Black Sea bed.

 

CE: What is your personal attitude towards the delay of gas production process under Shah Deniz Project?

Zurab Noghaideli: Certainly, we were interested in gas being supplied within the specified terms. Whereas we had to restructure our system and consume less gas. Last winter Georgia shifted to a strict economy regime, when three out of four heat power plants were shutdown. If the events would have turned more favorable early this year we had declined Russian gas supplies. But we understand the technical issues arisen and wait for their soonest resolution. I think by late summer gas will have already been supplied to the Turkey's system and we will be sounding more convincing to our friends-producers of gas from Central Asian countries. And we ensure full cooperation.

 

CE: Could you give the reasons why Baku-Supsa pipeline was shutdown?

Zurab Noghaideli: I would not put it this way. This pipeline is under repair and its outdated system is being upgraded. I should admit that strategically this pipeline has served Azerbaijani-Georgian oil corridor and done much in development of our countries. This year the demand for pipeline is still high and it will soon be restarted and operate in full. This pipeline is quite important for the Black Sea countries and states of Eastern Europe as it will transfer a serious quantity of oil to the coast of Georgia and further to Ukraine both from Azerbaijan and other Asian countries.

 

CE: How would you evaluate Georgia's integration with the EU? Do you consider the EU as a priority for Georgia's external policy? 

Zurab Noghaideli: We are working with the EU under the European Neighborhood Program scheduled for the next three years. At the moment we are not aiming at joining this structure, it is absolutely inexpedient in this phase. Therefore we are implementing this given plan. We are doing our best to involve the EU as much as possible in negotiations concerning the restoration of the country's territorial integrity; we are working intensively on other issues with the ultimate goal to maintain trade and economic relations with the EU, and attract investments from the EU countries.

 

CE: Which countries are dominating in Georgia's economy regarding amount of investments?

Zurab Noghaideli: By the results of last year, regarding amount of investments in Georgia's economy Kazakhstan and UK shared the first places, each with 17% of direct investments. British investments were allotted mainly in two fields: a very powerful consortium - Georgian manganese plants, ferroalloy plant, a well as the construction and upgrade of existing hydroelectric power plants. The Kazakhstan's investments are directed to gas distribution and tourism sector.

 

CE: How important are the relations with Turkey for Georgia?

Zurab Noghaideli: Our relations with Turkey are at quite a high level and now they are experiencing a period of active development. Turkish investments are intensively flowing into Georgia's economy. One of major projects is the completion of new passenger terminal in Tbilisi airport; a new airport is under construction in Batumi. Turkish investments are mainly directed to the small and medium business, which is very important. The mutual trade and economic relations are developing very intensively. Last year Turkey was No.1 among Georgia's trade partners.

 

CE: What are the core aspects of free trade agreement between the US and Georgia? How will the agreement influence Georgia's economy?

Zurab Noghaideli: The talks on free trade with the USA, as well as the EU and other countries are in completion phase. This should become the main direction for our external economic activity. These agreements provide tariff-free exports and imports. They will create more export opportunities both for us and our partners. Georgia is building free economy and has no fears about trade without barriers.        

 

CE: How did entering the WTO influence Georgia's economic situation, and what are the advantages?

Zurab Noghaideli: We have much less trade barriers with most countries, and with many countries we have none. I think it is the primary achievement that enabled us to maximum diversify our export, although at the time of our joining the WTO in late 1990s we could not use fully all advantages of this organization. As before, export was mainly oriented to the north. But further Russia with its blockage helped us to diversify our export branches. Therefore, the last year's process was running most intensively and Georgia diversified its export at full.

 

CE: Do you think Georgia should have no economic relations with today's Russia?

Zurab Noghaideli: Unfortunately, that is Russia's position. We are not thinking of any response measures, this would be most unwise from our side. Repeated calls for Russia's revising its economic policy towards Georgia remained unanswered. By accepting the decision of Russian ambassador's return to Georgia, we clearly stated we were waiting for more specific steps to improve mutual relations, in particular withdrawal of trade and transport embargo.

CE: How did Georgia manage to compensate for losses caused by the restriction of goods export to Russia?

Zurab Noghaideli: At the macroeconomic level we fully compensated for incurred losses; we are still working on this issue in specific fields. The Russian embargo resulted in Georgia's economy losing some 17% of its export constituent, which is a heavy loss for every country. We managed to compensate for all losses except for mineral water and wine. We are scheduling to complete compensation within the next 2 or 3 years. It is a complicated situation as 90% of wines and 75% of mineral water used to be delivered namely to Russian market. Working in unfamiliar markets calls for good marketing and advertising strategy. However, even in current state of affairs we managed to raise our share in other markets from 10 to 25-27%. Next years the wine produced in Georgia will be redirected to other markets.

 

CE: What is Azerbaijan for Georgia today?

Zurab Noghaideli: For Georgia Azerbaijan is one of primary political, strategic and economic partners. This year it is likely Azerbaijan will turn into one of primary investment partners of Georgia. As you already know, last year the State Oil Company of Azerbaijan purchased an onshore oil terminal on the Black Sea coast of Georgia. At the moment it performs big operations, laying a railway and building the terminal that is to be completed by the end of the year, maybe even by summer. In the long run it will be one more route for Azerbaijani oil transportation to world markets, exactly as it was anticipated. As to the construction of oil refinery plant stipulated in the project, it will enable Azerbaijan to deliver crude oil and create additional value through oil products delivery. This project will enable SOCAR to directly access Georgia's oil product market.

Another major project is, in my opinion, the opening of the representative office of the International Bank of Azerbaijan in Tbilisi. I think this will be followed by other investments in Georgia's economy that is fully open to Azerbaijani investors.

We are also working to attract Georgian investments to Azerbaijan. Many of our investors are interested in Azerbaijan and they are working with their Azeri counterparts. Georgian entrepreneurs are interested in banking sector and processing industry of Azerbaijan.

 

Thank you for the interview