07TBILISI2076, GEORGIA BI-WEEKLY UPDATE AUGUST 17

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Reference ID Created Released Classification Origin
07TBILISI2076 2007-08-17 13:41 2011-08-30 01:44 UNCLASSIFIED Embassy Tbilisi

VZCZCXRO3285
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHSI #2076/01 2291341
ZNR UUUUU ZZH
R 171341Z AUG 07
FM AMEMBASSY TBILISI
TO RUEHC/SECSTATE WASHDC 7351
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 TBILISI 002076 
 
SIPDIS 
 
SIPDIS 
 
E.O 12958: N/A 
TAGS: PREL PGOV PHUM ECON ENRG GG
SUBJECT: GEORGIA BI-WEEKLY UPDATE AUGUST 17 
 
 
1. This cable contains current items of political, 
economic, and social interest concerning Georgia during the 
weeks of August 4-17. 
 
Saakashvili Visits Upper Abkhazia 
--------------------------------- 
2. On August 11, President Saakashvili visited the 
Upper Kodori Gorge (or Upper Abkhazia) for what he 
described as several days vacation.  He toured a new 
Patriot youth camp and gave an interview to CNN while 
there.  Addressing the campers, Saakashvili stressed 
that restoration of GeorgiaQs jurisdiction in Kodori and 
nearby areas was carried out not through violence and 
confrontation, but through construction of hospitals, 
roads, movie theaters and disco clubs.  He said "Our peace 
policy is, yes, you may call it, a policy of discos. 
This is a policy of youth camps, this is a policy of 
theaters, this is a policy of civilization, education and 
enlightenment which denounces the logic of violence and 
weapons...If they bomb us here, we will respond by 
building new discos, news hospitals and schools." 
Saakashvili told CNN that there can be no purely military 
solution to Georgia's separatist conflicts, adding that 
"We have just sent our best brigade to Iraq.  That is not 
done by countries that are looking forward to a military 
confrontation." 
 
Georgia Complains about Russian Medals for South Ossetians 
--------------------------------------------- ------------- 
3. Georgian officials have responded angrily to a decree 
by Russian President Putin, posted on the Kremlin website 
August 14, to award Russian state medals to 12 residents of 
breakaway South Ossetia for a meritorious service in the education 
sphere. "One recipient of the "Honored Teacher of the Russian 
Federation" award was de facto education minister Ella Jioeva, 
identified in the decree as "Minister of Education of the 
Republic of South Ossetia."  Georgian State Minister for Conflict 
Resolution David Bakradze described the award, given without 
Georgia's consent, and the use of the phrase "Republic of 
South Ossetia" for the unrecognized regime as violations of 
international legal principles.  Georgia demanded an 
explanation in a protest note delivered to the Russian 
Ambassador. 
 
Negotiations Underway for Iranian Gas 
------------------------------------- 
4. KazTransGaz-Tbilisi, a Tbilisi gas distribution company 
owned by the Kazakh state-owned company KazTransGaz, has 
announced it is negotiating with Iran, as well as with Russia 
and Azerbaijan, about gas supplies for the coming winter. 
The company's director told a news conference that the high 
price of Russian gas had prompted the search for alternative 
suppliers, although he added that this did not rule out 
Russian gas.  Russia increased the price from USD 110 to 
USD 235 per 1,000 cubic meters of gas at the beginning of 
2007.  In 2006, the main gas supplier to Georgia was 
Gazexport, a subsidiary of Gazprom.  It supplied 1.2 billion 
cubic meters, of which almost half was used by the Tbilisi gas 
distributing company.  Reportedly, Russia has negotiated 
gas prices for the coming year with all of its partners 
except Georgian consumers.  Georgia allows gas consumers to 
negotiate their own deals with Gazprom and other suppliers. 
 
Growing Interest in GeorgiaQs Banking Sector 
-------------------------------------------- 
5. The National Bank of Georgia (NBG) has issued HSBC, one 
of the world's largest banks, a license to start banking 
operations in the country.  HSBC's Tbilisi branch is slated 
to start serving its first customers in November.  HSBC is 
the second major Western bank to enter the Georgian market 
after Societe Generale, which bought Bank Republic in 2006. 
NBG president Roman Gotsiridze said after meeting with HSBC 
officials on July 30 that the London-based banking group's 
entry into Georgia is evidence of growing interest from 
investors around the world in the country.  HSBC Bank's Georgia 
director, Steven Bennett, publicly praised GeorgiaQs structural 
reforms as well as the improvement of the business environment 
in Georgia.  Tbilisi expects that the domestic banking sector 
will attract USD 700 million in foreign investment by 
the end of the year, predicting that even more foreign banks 
will step into the market before long. 
 
Bank of Georgia Acquires Cascade Bank 
------------------------------------- 
6. The Bank of Georgia (BOG), Georgia's largest commercial 
bank, has announced it will acquire the American-owned 
Cascade Bank of Georgia. BOG intends to change its name to Galt & 
Taggart Bank by October. Cascade Capital Holdings, owned by the 
U.S.-based Cafesjian Family Foundation, purchased Cascade Bank in 
January 2006, when it was known as Emporiki Bank.  Separately, 
a wholly owned subsidiary of the BOG, Georgian Leasing Company 
(GLC), recently received a loan of USD 7.5 million from an 
OPIC-backed company, Worldwidebusiness Capital.  The loan i
s 
 
TBILISI 00002076  002 OF 002 
 
 
designed to finance small and medium leasing operations. 
Presently GLC has 35 percent of the leasing market in Georgia. 
About 23 percent in BOG is owned by U.S. shareholders, 
including the New York-based Firebird Fund.  BOG is the first, 
and so far, the only Georgian bank to issue stock on the 
London Stock Exchange. 
PERRY

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