09TBILISI241, Georgia: Poti Seaport Management Positive About the

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Reference ID Created Released Classification Origin
09TBILISI241 2009-02-06 08:01 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Tbilisi

VZCZCXRO4512
RR RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHSI #0241/01 0370801
ZNR UUUUU ZZH
R 060801Z FEB 09
FM AMEMBASSY TBILISI
TO RUEHC/SECSTATE WASHDC 0904
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 TBILISI 000241 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EUR/CARC, EEB 
 
E.O. 12958: N/A 
TAGS: ECON PGOV GG
SUBJECT:  Georgia: Poti Seaport Management Positive About the 
Future 
 
1. (SBU)  Summary:  UAE-based Rakeen Group Managing Director of Poti 
Seaport Rony Saab briefed the DCM January 28 about the Group's 
vision for the port's development and received an update on the free 
industrial zone project.  Saab sees huge potential in the seaport's 
development, particularly as a gateway port for exports from Caspian 
Sea nations to Europe.   He also argued that a U.S.-Georgia Free 
Trade Agreement (FTA) would be a huge plus for Poti port and 
Georgia's economic growth.  End summary. 
 
Poti - Rakeen's Seventh Free Industrial Zone 
 
2. (U)  RAK Investment Authority, headquartered in Ras Al-Khaimah, 
UAE, took over the controlling stake of Georgia's main port in Poti 
in April, 2008.  In December 2008, Rakeen acquired the remaining 49 
percent share from the Government of Georgia.  Rakeen pledged to 
reconstruct the old port facilities and develop a free economic zone 
on 300 hectares of land adjacent to the port, and also a new port 
terminal on an adjacent 100 hectare site.  Although the agreement 
has been signed, Rakeen still needs to finalize its financial 
arrangements.  Rakeen plans to apply a multi-model development 
concept to the port, which implies a combination of port facilities, 
airport, depot, railroad and free industrial zone.  Rakeen operates 
six other free economic zones around the world.  3. (SBU) Rakeen's 
immediate goal for Poti is to optimize the port's existing 
facilities in order to reach their full productive capacity.  Within 
four years, Rakeen plans to further increase the capacity of Poti 
port by developing new terminals and berths together with 
infrastructure to accommodate growing cargo shipment turnover. 
Currently the port is handling 200,000 tons daily, which Rakeen 
intends to increase to 1.2 million tons within four years.  Out of 
twelve existing berths, Rakeen owns five.  The remaining seven are 
operated by other private companies which secured their contracts 
with the government prior to Rakeen's entry into the deal, although 
a senior Rakeen executive hinted that Rakeen would like to control 
them all eventually. 
 
4. (SBU)  Saab told the DCM that despite the Georgia-Russia 
conflict, which discouraged many foreign investors, Rakeen never 
questioned its decision to invest in Georgia.  Moreover, he said 
that despite Poti Seaport's importance, Pot is not Rakeen's major 
or priority project in Georgia.  Rakeen is primarily focused on 
business and residential development projects in and around Tbilisi, 
including a huge mall/office building project "Uptown Tbilisi," 
located in the Digomi section of Tbilisi, near the Embassy. 
 
Comparative Advantages of Poti 
 
 
5.  (SBU)  Saab suggested that Poti had some natural advantages with 
regard to future development.  He explained that there are four 
major port operations on the Black Sea handling passenger and cargo 
and which connect with rail links: Istanbul, Odesa, Illichevsk and 
Constantia.  However, the eastern side of the Black Sea is lacking 
such a significant port.  According to Saab, some investors suggest 
that Odesa (Ukraine), which is relatively close to Poti, is a less 
attractive option for shippers due to the inefficiency of Ukrainian 
customs service in comparison with Georgian customs authorities. 
Georgia's fast-paced business and economic reforms over the last 
five years, give Poti a comparative advantage over other possible 
options, especially when coupled with the adjacent free zone 
capacity.  Novorosiisk, a potentially competitive Russian port, is 
not operational for 90 days a year due to icy water. 
 
6.  (SBU)  Poti also serves as the gateway to Georgia and the 
Q6.  (SBU)  Poti also serves as the gateway to Georgia and the 
Caucasus and an important link between Central Asia and Europe. 
Potential export of raw materials from Central Asia opens great 
opportunities for Georgian railway and the Port of Poti.  Already 
today, there are huge piles of aluminum ingots, produced in 
Tajikistan, on the dock in Poti awaiting further transport to 
Europe.  Saab underscored the role of Iran as a potential 
destination for or initiator of cargo.  He said that only a small 
segment of railroad needs to be constructed in the Northern part of 
Iran to connect the Iranian rail system to the Azeri one. If the 
link is made, rail transportation through the Caucasus to Poti could 
be Iran's natural preference, boosting Poti's importance.  In this 
regard he mentioned that Iranian businesses were interested in 
investing in Poti Port.  Saab assured the DCM that Rakeen, though 
looking for investors, does not plan to invite Iranian investment in 
actual port ownership, preferring to transit Iranian cargo. 
 
 
7. (SBU)  Rakeen is actively looking for other companies to 
participate in the port development project.  According to Saab, it 
has secured EBRD support for the rehabilitation and construction of 
new berths.  Rakeen assured the DCM that it did not face cash flow 
problem, but the EBRD investment was a needed political signal to 
encourage the participation of European i
nvestors.  Rakeen would 
prefer American investors to European, as the company thinks the 
latter would try to adjust the Port's operations to Europe's export 
 
TBILISI 00000241  002.2 OF 002 
 
 
needs rather than regional development needs, or the export needs of 
Asia.  However, Rakeen would be pragmatic in seeking out investors. 
 
 
US-Georgia FTA's to Boost Economic Growth 
 
8. (SBU)  Rakeen told us that an FTA between Georgia and the United 
States would be much more than just a political signal of support. 
An FTA would significantly boost Poti Seaport's operations, as well 
as Rakeen's business.  While an FTA may not have a major impact on 
the U.S. economy, it could significantly benefit that of Georgia. 
 
War's Effect on Port Operations 
 
9. (SBU)  According to Saab, the August invasion disrupted the 
port's operations for only a brief time, and on-going business was 
not significantly affected.  During the conflict, Russian military 
jets bombed the port territory (the area is adjacent to a military 
base) and destroyed an electrical distribution station, destroying 
the facility and killing six workers. The bombing also damaged four 
nearby oil terminals.  Fortunately, they had been depressurized 
prior to the bombing for annual cleaning, so damage was minimal. 
Fortunately, the bombs missed the fourth terminal which was full of 
jet fuel.  Saab said that a hit on a pessurized oil terminal would 
have resulted in a huge explosion that would have destroyed the port 
and much of the surrounding area. 
 
10.  (SBU)  Saab mentioned that the Spanish dredging vessel Boscals, 
which had been conducting operations prior to the war, abandoned the 
port because of bombing.  Dredging operations remain necessary, but 
the Port authorities fear that there could still be unexploded 
ordnance in the port's waters which pose a serious threat to 
dredging vessels.  In total, the port sustained up to 2 million 
Euros in damage (physical damage and loss of potential cargoes); 
Rakeen covered the costs of clean-up and will seek the repayment of 
1.2 million Euros from the Government of Georgia since, at the time 
of the conflict, the Government owned 49% of the port.  Saab noted 
that the Georgians planned to present this claim to Russia through 
an international court, but he was uncertain as to whether the suit 
would be successful. 
 
11. (SBU)  Both the General Director and Marketing Manager of the 
Seaport told the DCM that port operations have decreased since fall 
2008; however, they attributed the reduction to the world economic 
crisis, rather than the Georgia-Russia war.  Nevertheless, the port 
still expects four percent annual growth in its operations in 2009, 
an optimistic target given the slowdown in Georgia's economy as 
well.

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