The messenger logo

American business in Georgia: Frontera’s case

By Natalia Kochiashvili
Thursday, May 21
US Sens. Ted Cruz member of the Senate Foreign Relations Committee, John Cornyn, along with Reps. Jodey C. Arrington and Markwayne Mullin, sent a letter, dated May 15, to Secretary of State Mike Pompeo and Treasury Secretary Steve Mnuchin requesting a briefing in response to concerns about governance issues in Georgia, specifically Georgian illicit financial ties to America's rivals and enemies, including ties with Iran, that threaten US national security and business interests.

In the letter, they asked to be briefed about: The current government of Georgia, led by the Georgian Dream, is trying to drive out the American businesses that are investing in Georgia's economy and future investment; Such actions are motivated by geopolitical considerations, including Bidzina Ivanishvili's alleged links to the Russian government; Black Sea Port Activities for a Critically Important American Interest in Threatening Georgia, including: The premeditated expulsion of American companies from the port project is connected with the protection of Russia's influence on the ongoing processes in Georgia. Deficiencies in the implementation of US sanctions, in particular, in the context of ports.

Letter said that Georgia is a strategic partner in the Caucasus and an aspiring NATO ally: “Militarily, the Georgians have provided resources to our mission in Afghanistan. Geographically, the country offers a critical route for trade and energy from the Caspian Sea to Eastern Europe. A robust US-Georgian partnership is a necessity for American interests, which in turn requires Georgia to return to and bolster good governance.”

They wrote that over the last year, foreign direct investment into Georgia decreased by nearly 50%-while taxes and bureaucratic barriers have increased for Western businesses.

According to authors, these good governance issues have directly undermined the ability of American companies to operate in, and deepen our relationship with, Georgia. In the letter, the senators point out that the Texas company Frontera has become a target of restrictions and regulations by the Georgian government, and is currently facing possible expropriation. And in 2019, Conti Group was expelled from the port construction project in Anaklia, which has been suspended at this stage. The letter also spoke about the illicit trade. Authors reiterated Georgian businesses and the Georgian financial system have for years been notorious among the US sanctions officials as vehicles for circumventing American sanctions on Iran, citing the operation of a small bank by three Iranian citizens in Georgia in 2013, which involved air travel with financial transfers and the involvement of various companies. The letter mentions the port of Batumi as a target for Iran's illegal oil activities as well.

The Ambassador of the United States of America to Georgia Kelly Degnan made the first comment on the matter yesterday during the virtual press conference with the media.

She said as a representative of the executive team, she will refrain from commenting on the actions of other branches of government in the United States, because Congress is very independent, yet she noted that the statements about Georgia in the US are made by those who want to see a successful Georgia.

“What you can be sure of is that any comments that come from the US come from people, groups who sincerely want Georgia to succeed. They want Georgia to continue on the path to Euro-Atlantic integration. They want Georgia to fulfill its dream - to have a more free, strong democratic society that is also economically developed and offers its people a variety of economic opportunities that it deserves,” Degnan commented, adding that any kind of response that Georgia receives is imbued with this spirit and the desire to promote Georgia’s success.

Asked if she had discussed the Georgian government's ties with Iran, the ambassador said she will discuss ‘our relations with the Georgian government in a wider range.’ According to her, countries have very good cooperation and communication, especially on issues related to international and regional security.

Among other things, the US Ambassador stressed the importance of the independence of the judiciary and said that its transparency and efficiency are important for both democracy and economic development. “Investors need to know that the contracts they sign will be enforced and the court decisions will be fair and timely. Therefore, if these steps are not taken, investors will invest their money in another country,” said Degnan, adding that it is essential to create an independent judiciary in order to attract foreign, including American, investment in Georgia.

The decision of the International Arbitration Tribunal on the Frontera case has been interpreted in different ways by both sides. On April 21st, the Oil and Gas Agency and the corporation, which launched the dispute in 2017, announced that the arbitral tribunal had supported their interpretation of the norms of the contract and had met the vast majority of their claims. They said the tribunal had found that Frontera had substantially violated the contract, which was reflected in the refusal to return the search area (99% of the entire licensed area) to the state.

According to them, Frontera was instructed to reimburse the amount of fee for the use of natural resources paid by the Oil and Gas Corporation, as well as the costs incurred by the plaintiffs in connection with the arbitration proceedings.

The company Frontera responded calling this information untrue and speculative, adding that the public statements made by some members of the Georgian government contained an inappropriate attempt to insult the US government and discredit both them and other supporters of American business like Frontera. Hours later State Oil and Gas Company announced about terminating the contract with Frontera, which they have the right of, based on an arbitral award. Even though Frontera says it’s possible to continue cooperation, the contract will be automatically terminated on July 27th, 2020.

According to the President of Frontera Zaza Mamulaishvili, the arbitration did not meet the main requirements of the agency and the corporation which concerned the financial part and the payment of $100 million, however, when asked, the company refused to publish the arbitration decision.