Trade Facilitation Conference , June 18-20, 2001

APPENDIX 2

STRATEGIES FOR DEVELOPING PRIVATE INVESTMENTS IN TRANSPORT AND TELECOMMUNICATIONS INFRASTRUCTURE

BACKGROUND, STRATEGIES AND CONFERENCE DISCUSSIONS

A. Telecommunications: Privatization of State Assets & Internet Infrastructure B. Trade Facilitation through Transport and Telecommunications Development C. Trade Facilitation in the Caucasus D. Transport Issues: Background and Strategies E. Traceca: Success and Difficulties

A. Telecommunications: Privatization of State Assets & Internet Infrastructure 1. Privatization of State Assets

Privatization Process: According to the Minister of Sate Property Management of , one of the main pillars of poverty reduction is institutional reform without which sustained growth will not happen. Therefore Georgia embarked in a series of privatizations staring from the small and medium companies, and now moving large state enterprises, to attract both local and foreign private capital. In addition, business environment has been improved to facilitate private capital inflows. The current legislation allows non-Georgian citizens and legal persons to undertake business in Georgia. There are no restrictions on capital inflow or repatriation in Georgia. Corporate tax is also set quite low at 20%. Energy, telecom and transport are sectors where foreign capital investment exceeds local capita participation.

The telecom policy adopted by President envisages the to sale of 51% of Telecom Georgia’s (TG) and 75% of Georgia Local Line Company’s (GLLC) assets. The sector has already been liberalized liquidating all monopolies and market control in order to attract private capital and new technologies. A modern law was adopted and an independent regulator established. The tariff rebalancing process has also been launched. He thinks these institutional measures are crucial for attracting private investment into the sector. The Government has also freed the companies to be privatized from any obligations which are state functions such as policy and regulation, and via versa, freed Government agencies from the operation functions. This separation, coupled with strategic investment, will impose financial discipline on the companies, which will increase investments, improve service and extend their networks in underserved areas.

A privatization advisor has already been recruited and a first round of expression of interest published. The Information Memorandum is currently being drafted based on thorough market analysis and valuation of the assets. However, so far only one company showed concrete interest by the original April 30 deadline. Therefore a second expression of interest notice will be

1 Caucasus Trade Facilitation Conference Tbilisi, June 18-20, 2001 published and the tender process somewhat extended to assure that several serious investors are attracted.

The current investment climate is not very favorable with limited interest in telecom deals in emerging markets. The Government is examining several value enhancement possibilities such as offering a UMTS license. The Government has also hold two investment conferences: one in the USA and another Germany. The Oversees Private Investment Cooperation also expressed interest in financing American companies who may win tender. These meetings were of political nature aiming to demonstrate that the government is serious about holding an open tender, establishing a favorable regulatory framework and protecting private investors.

Positive marketing and investment promotion is crucial at this stage. It is important to emphasize the country’s favorable characteristics such as its transit geographical location, linkages to the World by its 4 airports and 2 ports, low taxes on corporation, import of material used for export products is tax free, the regional market is open free repatriation of capital, WTO membership, good education and human resources at low prices, etc. Georgia also needs to be clear about its expectations, and namely that we are looking for a stable and experienced investor who can bring new technologies, efficient management and considerable investment allowing for extension of network to underserved cities and rural areas while running a profitable company so that the country can benefit from sizable fiscal revenues as well.

Timing is important. However if the tender shows that there is no sufficient interest, the Government will wait until the telecom market turns more favorable. The market may go up an down, but on our side we need to make everything possible to make this deal attractive and show our readiness and determination to sell these assets. We need to work very hard to be able to clearly define for the investor what we are selling, on what conditions and how he can develop his business.

Privatization proceeds are important. However the investor also need to be given opportunity to develop its business and invest. Telecom is essential for development, and as such long term investment and network build out are as important as immediate proceeds.

When we first published an expression of interest notice, the law on telecom was not ready, the regulator was not set up and we were still in a learning stage. The companies themselves were not actively involved , and proper promotion campaigns not organized. Now we can demonstrate an up and running regulator. We have also organized a group within the Ministry of Privatization to start organize series of meetings involving the operators themselves to prove our countries and companies are attractive. The two companies will open data rooms in due courses where all information about their technical and financial situation is gathered. A special privatization advisor to the Minister of State Property Management may be recruited to assist him in the process. This new, more aggressive privatization strategy will only be successful if we have exact data, clearly formulate our goals, strategies, and actions.

According to the Ministry of Communications of Azerbaijan, the privatization process in this country has experienced some delays as parliament discussed the issue of privatization for long. Azerbaijan has neither determined what will they sell, when and how from the 51% government

2 Caucasus Trade Facilitation Conference Tbilisi, June 18-20, 2001 stakes in companies. They welcome World Bank help similar to the assistance accorded to Georgia in organizing an open tender for privatization of Aztelecom. The Government is also working on determining an investment program according to which the share of the strategic investor would gradually increase from the initial 51% to up to 100% within a certain time period.

Azerbaijan recommended to study the opportunity to offer Georgia Telecom, GLLC, Aztelecom and other Azeri assets for sale at the same time, as such time coordination could increase the attractiveness of these deals especially if the same buyer is attracted to more than one deal.

According to the Ministry of Trade representative of Armenia, if some countries think they are late with privatization, Armenia may have rushed into privatization a bit prematurely. 90%of Armentel was sold in 1997 to OTE for 0.5 billion dollars. This deal undoubtedly resulted in increased quality with 50% digitalization and quite substantial investment. Armenia hopes that this improved network will attract more private investment in other sectors, and possibly in the telecom sector if the 15 years monopoly up to 2013 is reconsidered, at least on some segments. For instance there are negotiations to reduce it in the mobile sector. For the future, the most important aim should be not ownership change but liberalization.

Problem of non-paying customers: Among one of the main issues to be solved prior to privatization, GLLC of Georgia stressed the huge accounts receivables amounting to about 10 million Lari for GLLC and even more in GT due to the high number of non-paying customers, especially the government agencies. Unless this issue is reflected in the next budget it may be hard to sell these entities. The Minister gave its assurance that just as in the case of the privatization of the energy sector, the Government will find a social policy solution to help the poor.

In Armenia, there is a non-paying customer problem with about 4 million USD outstanding even after privatization, as Armentel is not allowed to disconnect government agencies as opposed to Georgia where at least in principle this is possible.

2. Private investment in Internet Infrastructure

Infrastructure: The only operating fiber optic backbone in the region is the Trans Asia Europe cable along the Baku--Tbilisi- highway and connected to Novorosisk in . The construction of TAE connecting Frankfurt and Sanghai is almost completed (Uzbekistan left the organization and connection may be made via Iran instead). The Caucasus region’s link is of secondary nature in case connection via Turkey is interrupted. The Georgian portion of TAE was built by OTE, the Greek operator, supplier credit and is operated by FOPNET. However, no Georgian ISP leases capacity on it due to prohibitive prices resulting from this quasi monopoly: monthly charge for 2Mbps on 1 kilometer is 300 Belgian francs (6 USD). Most ISPs use satellite connection via Gorizont. Inteslat,etc. Armenia is linked via a branch from Rustavi. There are plans to build Poti-Rize submarine cable further connection to Istanbul. Azerbaijan is also connected to Iran and is planning to build a submarine cable from Baku to Turkmenistan or Kazahstan.

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An alternative fiber optics rout is being built along the railway lines from Tbilisi to Baku and to Yerevan as part of the TRACECA project. The Caucasus portion is financed by Siemens supplier credit. 16 switches are planned for the Georgian portion. While the railway lines in the region do not go to the heart of economic areas they do connect many small cities and rural areas.

There is also a fiber optic overlay network around Tbilsi belonging to a consortium led by New Net. Georgia Online has built its own fiber optic circle around the city as well to connect its points of presence and Wanex is building a new fiber optic network based on ATM.

On the infrastructure side, another major impediment of Internet development is the underdeveloped local network

End-user side: The ISPs think the biggest impediment to Internet development is at the end user side. In Georgia end user prices are within a reasonable range and the quality is quite high. However, computerization is very low estimated at about 12-15,000 PCs in Georgia and of similar magnitude in the other two countries. There are no computers used in classrooms and yet another computer and Internet illiterate generation is growing up. Non-stable supply of electricity in Georgia further limits computer use. In Georgia mobile operators and ISPs are already thinking of introducing WAP services as mobile phone are much more widespread then computers.

ISPs and licensing: There are several ISPs in Georgia such as Global One, Georgia Online, WANEX, Sanet, etc. In Georgia the GNCC is the entity entitled by the Law on Communications to determine whether licensing is required for a certain type of service or registration is sufficient depending on its assessment of the market situation and in particular the existence of monopoly or dominant operator(s). Currently ISPs need to be licensed as the GNNC considers that the market is not sufficiently competitive. This provision also allows GNCC to raise revenues for the Agency as there is a regulatory tax of 1% on revenues of all licensed operators including ISPs. A revision of this provision is envisaged for end 2001. Despite this practice, all ISPs welcome the creation of the regulator and see it as a very positive development and would like to see further strengthening of its executive role and capacity.

In Azerbaijan ISPs also require licensing. Up to date the Ministry of Communications has licensed 6 ISPs, however there are additional ones like Azeurotel who according to the Ministry still operates without a license (Azeurotel won a court case against the Ministry on this issue) Some fixed line and cellular operators have entered the internet market like Azeronline, but none of the Cable TV operators.

In Armenia, ISPs do not need a license. The principle ISP is Arminco with 2 Mbps connection, while there are also smaller ISPs with about 2Mbps connection all together. Arminco has point of presence in all regions. International access is offered only by Armentel through satellite and fiber optic connection through Georgia to Russia with prospects to also connect eventually to Bulgaria. Armentel itself is an ISP offering bandwidth “on wholesale” services to other ISPs.

4 Caucasus Trade Facilitation Conference Tbilisi, June 18-20, 2001 Monthly fee for an Internet account allowing 2-3 hours of use per a day is about $50. Arminco is also offering an innovative service offering pre-paid cards. However, leased lines cost $30,000 for 2Mbps leased line, “justified” with the need for Armentel to recover its capital expenditures. These extremely high prices of leased lines squeeze ISP’s margin and ability to grow.

Internet telephony: ITU defines telephony a “telecom service which is voice and in real time.” (ITU Conference March 7, 2001). Most Caucasus countries regard IP telephony as telephony/voice if the connection is done through a phone. If the end user equipment is a microphone installed on a PC by a consumer it is regarded as Internet/data service. In Armenia for instance IP telephony using a telephone set is considered a violation of Armentel’s monopoly. Regarding termination of IP calls, it is very hard to regulate. Armentel saw a considerable fall in its revenues as some companies were terminating Internet telephony calls. Armentel disconnected two such providers and they are now in court. Interconnection/Peering could solve the problem, but there is no regulator at this point to establish interconnection rules.

B. TRADE FACILITATION THROUGH TRANSPORT AND TELECOMMUNICATION DEVELOPMENT - An international Perspective by Eva Molnar, World Bank

Throughout history, trade has formed an important part of the social and cultural fabric of the South Caucasus region, which, by virtue of its geographical position, comprised a section of the original silk route. This route acted as a key artery for trade, and also conveyed both knowledge and skills, bringing both benefits, and ultimately, wealth to the local residents.

The physical location of a country is still highly important, as revealed by recent research, undertaken at the London School of Economics, “Economic geography and international inequality”. This study estimated a structural model of economic geography, using cross-country data on per capita income, bilateral trade, and the relative price of manufacturing goods, and found that more than 70 % of the variation in per capita income can be explained by the proximity of a country to key markets, and to sources of supply of intermediate inputs. Those countries, which are remote from sources of supply of manufacturing goods, incur greater transport costs, their price indices are higher, and wage rates are generally lower.

Based on shipping company data on the costs of transporting a standardized 40 feet container around the world, they find that the median land-locked country’s shipping costs are more than 50% higher than those of the median coastal country. Access to the coast and openness yield predicted increases in per capita income of over 60% and 70% respectively. If the country’s distance to the coast is halved, all of its trade partners yield an increase of over 70%.

The importance of geographic proximity to developing countries can be illustrated by the examples of the US and Mexico, and the Czech Republic and Germany. The hypothetical removal of the common border reduces predicted income per capita by 49% in the Czech Republic, and by 52% in Mexico. By contrast, the elimination of common borders between low- income developing countries who enjoy little bilateral trade, is negligible, suggesting that the gains from closer regional integration between low-income developing countries may be relatively small.

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Furthermore, the demands of the global trading system have led to the development of holistic supply routes, which require the very best physical, institutional and electronic infrastructure, further disadvantaging those countries on the periphery. Logistics has become an industry in itself and is undergoing an unprecedented boom, with the larger companies growing at 10-30 percent annually, ‘fuelled by the growth in e-commerce and internet-based trade. Three years ago, the revenues of the sector, accounted for over 10% of GNP in the United States.

The ultimate objective of a supply chain is the optimal location of stock, in geographical and temporal terms, at the lowest possible cost. This process, which has just-in-time management at its apogee, requires physical and institutional processes that are fast and reliable, and further disadvantages those countries on the periphery.

It is much more than delivery from A to B, as it can encapsulate all the intermediary services, except for manufacturing and selling. (procurement, storage, debt collection, customer service etc.). “Production to order”: relaying the customer’s order directly to the manufacturer, which then begins production of the desired goods (e.g. Wal Mart and Procter and Gamble).

Supply chain management benefits retailers and manufacturers alike, moreover in case of more complex manufacturing processes, a single order can generate a whole cascade of auxiliary orders. The whole business of goods distribution is becoming atomized. (e.g. Siemens)

Sophisticated data processing is the key to achieving the needed speed. The barcode on shipments allows automatic sorting and loading, and also acts as a source of information on the exact location of the cargo at any time during delivery, allowing improved fleet management, as the flexibility to reroute vehicles is increasing, and bringing benefits for the environment.

The conclusion is clear; countries with unfavorable geographical locations, and/or with poorly developed physical, institutional and electronic infrastructure, need to make extra efforts to become part of global logistic systems, and benefit from increasing world trade. A failure to address the issues and they risk being left in a ‘lay-by’ on the modern ‘silk road’.

C. TRADE FACILITATION IN THE CAUCASUS by Martin Humphreys COWI The countries of the South Caucasus faced significant economic problems in the early 1990s, tarnishing the early years of independence, and hindering the transition to a market economy. The atomisation of the former Soviet Union, together with the associated breakdown in the command economy, had a deleterious impact on the economic performance of all three countries in the region. The level of real GDP in Azerbaijan and Armenia fell to, approximately, half the level at the end of the Soviet era, whilst the comparative fall in Georgia was even greater, falling to one third of the former level.

Approximately one year ago, in the context of growing optimism about the prospects for a peace settlement, the World Bank commissioned a series of six discrete, but integrated, studies under the banner of Conflict Resolution in the South Caucasus. These studies, together, were intended to provide a comprehensive overview of the current issues in trade, tourism and

6 Caucasus Trade Facilitation Conference Tbilisi, June 18-20, 2001 telecommunications in the region, with the broad objective of optimising the potential benefits of any settlement.

The scale of the potential benefits was investigated in one of the studies, “Changing Trade Patterns after Conflict Resolution in the South Caucasus”, which focused on export creation, transport cost savings and savings in energy costs. This study concluded that trade normalisation was likely to generate cumulative benefits, in the short term, of between $320 million and $420 million, across the three countries.

However, one common theme, in the studies, was that closed borders, economic blockades and war-damaged infrastructure provided only a partial explanation for the current economic problems in the region. The overarching conclusion was that there were significant physical and institutional obstacles, which were entirely independent of the prior conflict. Another of the studies, “Trade Facilitation in the Caucasus,” offered this succinct conclusion, “…In the long run, a peace settlement will only generate widespread and sustainable benefits, if the institutional and physical milieu is sufficiently supportive. The realization of those benefits appears highly unlikely, at present, as the current institutional and physical milieu is anything but supportive and offers few incentives for new development.”

The following represent, inter alia, a number of the key findings of that study:

· The public sector services in the region is regarded as very bureaucratic, where the rules are perceived to be changed in an arbitrary rule, and where interpretation and application is rigid, and, occasionally, pernicious;

· There appears to be limited effective dialogue between the public and private sectors in the area of trade facilitation, either within, or across, the three countries. However, this general statement obscures significant national differences;

· The documentary and procedural requirements for international trade in the region, reflect national priorities, rather than commercial needs, or international norms, with widespread use of non-standard, and uni-lingual, documentation and cumbersome and time-consuming procedures;

· There are significant lacunae in the resources, and capabilities of many actors in the public sector in the region, inhibiting both their effectiveness and efficiency;

· Corruption, or ‘rent-seeking’ behaviour, on the part of public officials is an endemic problem across the three countries, varying only in nature and intensity in the three countries;

· The principal border crossing stations varied markedly in terms of both the number of staff and the available facilities, but even the better furnished appear to have little additional latent physical capacity to deal with any future increases in traffic volume;

· There are a number of instances where the domestic privatization processes have, paradoxically, either created, or contributed to, the establishment of a local monopoly. In some cases, the resulting position is being utilized to reduce competition and increase costs;

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· The condition of the road infrastructure, comprising the TRACECA corridor, is, at present, generally in a poor condition, with extensive potholing, cracking, and surface failure in a number of places; and The condition of the rail services in the region is also generally poor, with widespread speed restrictions on the network, and antiquated and unreliable rolling stock.

The Caucasian countries, in partnership with the European Commission (TRACECA program), the World Bank and other donors, are implementing a number of projects to improve the current situation and make the region more appealing to users and private investors. The regional cooperation framework on trade facilitation has been established under the TRACECA Multilateral Transport Agreement (Baku, September 1998). Regional and national committees have been established notably in Armenia, Azerbaijan and Georgia to improve the overall trade environment.

The realization of a peace settlement in the region, and the concomitant removal of the economic blockade, will, undoubtedly, alleviate the current distortions in trade flows. However, without substantive physical and institutional reform, the potential benefits will remain a chimera.

D. Transport Issues: Background and Strategies

Goal: Identification and removal of institutional and regulatory barriers, and introducing regional joint initiatives through a systematic dialogue between public and private bodies in order to simultaneously explore and maximize both national and regional attractiveness vis-à-vis international and local investor community.

Background: While representatives of different public and private infrastructure related industries gradually recognize the importance of regional co-operation and harmonized regulation, deficient long-term vision and commitment of a political will hinder development of local industrial and capital markets. The barriers that institutional industrial and financial investor alongside with local private investor face have resulted in limited and costly access to capital.

Potential availability of necessary management competence and motivation, access to markets and finance should favor private capital interventions in most of the region’s infrastructure companies. Privatization is not necessarily always the first choice to the state and its infrastructure companies due to the subsequent social reaction. At the same time creative restructuring, especially railway companies should be aimed in order to maximize companies’ efficiency and ability to draw from private capital during pre-privatization period.

To the contrary telecommunications, both its assets and operations, can be successfully employed by aggressive private capital already today provided a proper and modern market regulation could be established.

8 Caucasus Trade Facilitation Conference Tbilisi, June 18-20, 2001 Relatively modest presence of international capital in the region is a result of high sovereign risks, humble regulatory framework and deficient guaranties available for institutional investors. Regional governments’ efforts in attracting international large-scale capital into national economies of Caucasus states could hardly succeed unless jointly addressed and managed. Despite of the fact that complete economic integration between the three Caucasus states is not feasible in the near future, a consensus has been reached among all that the regional business co- operation could, and should be expanded with no delay.

In addition to improving overall business climate regional horizontal integration is also the ultimate key to advance industrial and market solutions in multi-modal transport, logistical services and transit.

Institutionalization of educational programs and training in the sector is likely to be one of the most efficient and affordable promotional exercises in order to attract foreign investments and secure necessary national and regional capacity to entertain equal playing field.

Strategies

1. Legal and regulatory framework

· Harmonizing the current legal framework across the three Caucasus states to grant similar sovereign guarantee regime to facilitate foreign institutional investor; · Harmonizing the current regulatory framework to justify bi-lateral and multi-lateral environment to enable and facilitate regional business activities (such as transit trade, multi-modal transport services, etc.); · Harmonizing the current taxation regime across three Caucasus states to ensure equalized level and procedures, including double taxation treaties.

2. Institutional and Corporate Measures

· Proper management of sovereign risk and foreign investor guarantees; · Establishing systematic dialogue between public and private institutions in order to promote regional business opportunities; · Establishing systematic dialogue between business community of all three Caucasus states in order to develop joint regional policy and project initiatives; · Participating in the formulation of regional trade and transport standards; · Supporting the long-term goals with the standardization work through financing models and priority mechanisms; · Increasing regional and international liberalization and enhancing the Caucasus transport and infrastructure companies‘ access to markets on equal and competitive terms; · Focusing on internationalization and competition, co-operation and technology in the multi-modal logistics chain.

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E. TRACECA: SUCCESS AND DIFFICULTIES by Vadim Vurdzeladze

Allow me to provide my own viewpoint and brief characteristics of events and steps undertaken within the framework of the program TRACECA, which took place at the turn of two centuries and dwell upon challenges that we are facing and tasks which we are planning to implement in future.

As you are aware, the EU program TRACECA was initiated during the conference held in Brussels in May of 1993. In the above conference participated Ministers of Trade and Transport form 8 different countries (5 republics of Central Asia and 3 republics of the Caucasus region). At the conference was reached a decision on initiation and implementation of technical assistance program, which shall be financed by the EU. The above program shall be targeted at development of transport corridor form the West of Europe to the East, crossing the , the Caucasus, the Caspian Sea and to the countries of Central Asia. Later, in-1996 –1998 Ukraine, Mongolia and Moldova joined the program. Within the Framework of “Basic Multilateral Agreement on Development of Europe-Caucasus-Asia International Transport Corridor” in March, 2000 in Tbilisi was held first Intergovernmental Committee session, during which Romania, Bulgaria and Turkey officially stated their readiness to join the TRACECA program.

Taking into consideration common interests of programs TRACECA and PETRA, beginning from the last year different departments of the EU have been holding consultations on merging of the above programs. In our opinion TRACECA corridor shall become logical extension of Trans-European IX-the corridor and transport network.

Allow me very briefly to dwell upon implemented activities and results achieved within the regional program TRACECA. Beginning from the year 1993 and up to now we have implemented 43 projects (33 of them being technical assistance projects and 13 – investments projects), total cost of which amounted to 99 600 000 Euro. We would like to state, that more than 50% of the total budget was targeted at implementation of Investment projects, which makes the program more attractive and creates favorable investments climate in the region.

Total cost of 13 investments projects amounted to 51 000 000 Euro. Georgia took part in implementation of 6 such projects, total cost of which amounted to 16 950 000 Euro, that is 33% of the total budget for investments projects. In 1995 in Azerbaijan 7 investments projects were implemented, total cost of which amounted to 12 000 000 Euro. 3 projects were implemented in Armenia, with total cost amounting to 4 900 000 Euro and one project in Ukraine, which cost 8 300 000 Euro.

I would like to draw your attention to some completed, ongoing and prospective projects of interregional program TRACECA, which are targeted at promotion of development of transport and telecommunication infrastructure. The above projects clearly indicate to importance and scale of globalization and integration processes in our region, which in our opinion is crucially

10 Caucasus Trade Facilitation Conference Tbilisi, June 18-20, 2001 important for achieving of economic growth and attaining stability all over the region. Such projects are the following:

1. Rehabilitation of “The Red Bridge” and construction of new automobile bridge at Georgian- Azerbaijan border with development of corresponding infrastructure, which in our opinion greatly contributed to the improvement of administrative procedures established for the border-crossing. 2. Design and construction of railway ferry terminal in Poti port with development of corresponding infrastructure. It must be stated, that notwithstanding skeptical attitude of some opponents, upon exploitation of the above terminal has been processed more than 700 000 tons of cargo and according to forecasts, there is tendency of expansion of geography of freight. Also, the terminal is serving untraditional cargo (Bulgarian tobacco and cigarettes from Afghanistan, outsize equipment for construction of oil-refineries in Turkmenistan and Uzbekistan), Polish , Belarus and Baltic republics truck haulage and etc. Operation of railway ferry terminal in Poti port and connections to Russian railway allowed establish direct railway connection with Ukraine port Ilichevsk and Bulgarian port Varna, that is, IX-th and X-th transport corridors of Trans-European transport network. Moreover, establishing of the above marine communication between Georgian Poti port and Ukrainian port Ilichevsk was extremely necessary for Ukraine during harvest period in 1999, when the country was facing energy crisis. At that time Azerbaijan provided to Ukraine more than 200 000 tons of diesel fuel. Later on President Kuchma stated, that marine connection between Georgia and Ukraine was of “vital importance”.

3. Provision of optical fiber cable and corresponding equipment for the purposes of improvement of telecommunications and signaling capacity of Azerbaijanian, Armenian and Georgian railways (Supsa-Tbilisi-Baku and Tbilisi-Erevan route, total length – 13000km; More than 120 railway stations shall be equipped with updated equipment). Upon completion of the project additional capacity of optical fiber cable can be utilized for development of telecommunication capacity on regional and national levels. We consider the above- mentioned as additional source of revenues for railways and the project shall assist in increasing their liquidity. The project is at implementation stage and estimated date of its completion is autumn of 2002. 4. Reconstruction of ferry terminal in Kazakhstan port Actau, which shall allow to connect directly Azerbaijan port Baku and Turkmenistan port Turkmenbashi. Estimated completion date of the project is the end of June, 2001. It must be stated, that upon starting of operation of Baku-Actau connection transportation of cargo of the Caucasus region countries shall be direct and accessible (no such roundabout routes shall be necessary as Russia, Turkmenistan and etc). Moreover, the above route shall be more attractive from commercial point of view.

Form prospective investments projects I would like to name the project on reconstruction of railroad-ferry bridge in port and corresponding infrastructure, which shall allow to carry out substitution of wheel pair. At the same time the above railroad-ferry bridge shall be a direct connection with Rumanian port Konstansa (IV-th transport corridor) and Turkish port Samsung. Tender on provision of equipment for the above project shall be announced in June, 2001.

11 Caucasus Trade Facilitation Conference Tbilisi, June 18-20, 2001 Regarding the projects of technical assistance, they are selected and approved in the same manner, as investment projects, that is, they are approved at annual meetings of official representatives of member-countries of TRACECA and mainly have institutional character. For more detailed information you can visit our web site www.traceca.org, where is published more than 60 000 pages and since May 1999 up to now the web site has been visited by 13 000 people.

While discussing implementation of the program TRACECA it must be stated, that not everything is always going smoothly, as we would have liked, though we are proceeding to work despite high competition on behalf of alternative corridors. We would like to thank leaders of the program TRACECA and express our gratitude to European taxpayers for their patience and trust in our success in implementation of program TRACECA.

We know, that railway tariff for transportation of analogous cargo from Novorossiysk, Bandar- Abbas and Tashkent and from Riga to Tashkent is substantially less expensive, than from Poti to Tashkent.

We know, that in Georgia and Azerbaijan in 2000 in comparison with1999 the volume of general cargo transportation through railway transit from and to the countries of central Asia, which is considered as one of main indicators of capacity of transport corridors has decreased by 15%.

Also, it must be stated that in 2000 in comparison with 1999 truck haulage has decreased substantially as well (by almost one third). The reason is that to transportation of a 20-ton- container from Poti to Baku costs 1900-2000 USD, while the same operation from Bandar-Abbas to Baku would cost 700-800 USD.

To have better understanding of the scale of competition on the market of transportation services, which actually during several last years has become very acute, I shall provide one example. Railway transportation of 20-ft container from Poti to Tashkent, considering that the length of the rout is 3050 km, costs 800-900 USD. It is approximately the same amount, as transportation of the same cargo from Vladivostok to Tashkent, while the length of the route is 8500km (twice as long as the previously mentioned route). It should be stated that we could provide numerous examples of the same type.

Taking into consideration all the above mentioned, National Secretariat of TRACECA and experts of the Ministries of Transport and TRACECA undertake analysis of tariff policy and other issues related to transit transportation in our corridor as well as alternative corridors on the regular basis. During working meetings of National Secretariat are developed corresponding recommendations related to increasing of competitiveness. Above recommendations are later considered at regular sessions of National Commissions of member-countries of TRACECA, which approve of recommendations prepared by the National Secretariat of TRACECA and at the same time develop their own recommendations and proposals. All recommendations are disseminated to line ministries and organizations for their response and implementation.

The work to be carried out is quite substantial and time-consuming. Quite frequently we have to modify certain decisions during implementation period, but we have already accumulated some

12 Caucasus Trade Facilitation Conference Tbilisi, June 18-20, 2001 positive experience in this regard. National Secretariats fully understand importance of TRACECA transport corridor for our countries.

If we compare data of the market of this sector for the year 1995-96 with current conditions, we can clearly see that differences are obvious. From the beginning of implementation of TRACECA program, that is from 1994, the accumulated experience has shown, that almost all member-countries of TRACECA (there are now 14 member-countries) state, that due to absence of one corporate approach to the concept of international and transit transportation the work carried out by all the above countries was not characterized by consistent and well-balanced policy, and quite frequently it ended up in sabotaging the program.

We would like to express our hope that all the drawbacks shall be left behind. Through numerous projects of TRACECA program many countries have become parties to some international agreements which regulate transit and promote harmonization of customs procedures. Of course we understand, that certain achievements shall take time, but we have already started dialogue regarding joining Kyoto convention which is targeted at simplification of customs procedures.

If you would be interested in having a look at the list of technical projects for the last two years published through our web site, you might pay attention, that majority of them are linked to the concept of sustained development of transport corridor, harmonization of cross-border procedures, unification of tariffs and transit fees.

Implementation of projects of this type and analysis of potential for rehabilitation of railway lines and automobile communications between Baku-Nakhchevan-Erevan and -Ingiri- -Leselidze shall allow unblocking of transport arteries of the region. Currently we are discussing the possibility of introduction of TRACECA visa. At the initial stage it implies simplification of transit crossing procedures and convoy on the territories of TRACECA member-countries. This issue may be included on the agenda of intergovernmental commission meeting, which shall be held in Tashkent.

In the conclusion I would like to state, that in the highly-competitive environment selection of route of transportation largely depends on the well known commercial triangle: “Service, Time and Tariffs”. All angles of the above triangle must be adequate, as otherwise we shall not be able to resist this harsh competition and retain our niche on the market. This would be unfair to European taxpayers, as well as considering potential of our corridors, to the idea of the “Silk road”, initiative, which is supported by our president and importance of which has been stressed on several occasions at Yalta summit meeting of GUUAM.

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