Select Committee on Foreign Affairs Appendices to the Minutes of Evidence - Sixth Report



Memorandum submitted by JKX Oil & Gas plc

  Your letter to Mr Grizenko regarding the FAC's inquiry into the FCO's promotion of British interests in the Transcaucasus was passed on to me by our Guildford office.

  JKX established its first joint venture here in Georgia in 1993, some time before the diplomatic presence was anything more than an occasional visit from the Moscow embassy. Thankfully, that unsatisfactory arrangement ceased on the arrival of Stephen Nash and his team as the first British ambassador to Georgia since Oliver Wardrop in 1921. The good work has continued under Richard Jenkins and his new team who arrived during 1998.

  We have been working closely with representatives from the US oil company ARCO in some prolonged negotiations with the Georgian government and this has given us an opportunity to compare the US diplomatic style with the British one.

  The best that can be said of the US style is that it is firm. However, there are times when I have squirmed with embarrassment at its heavy handedness. There is also a tendency to give the Georgians what Uncle Sam believes is good for them, often very generously, but without listening to hear how it will be accepted, or even whether it is acceptable.

  The Georgians are a proud nation with a history of statehood and christianity dating back to the third century. Despite their current predicament, they are quite happy to look a gift horse in the mouth, particularly if its delivery lacks any finesse. The British approach, while sustaining a much more modest presence, appears to have been to get to know the Georgians better at all levels and understand how to approach them.

  Consequently the British are respected and, on the rare occasions that we have sought diplomatic help, that help has been valuable and effective as we found at a recent meeting with the State Minister organised for us and attended by the Ambassador. Another example of this contrast between the countries has been their respective efforts on the Petroleum Law and I have summarised the case history of this in the attached note.

  I hope this modest contribution is of use to your Committee, and if you wish to seek any other information on the subject, I will be happy to provide it.



  In early 1996 JKX Oil & Gas plc negotiated four Production Sharing Contracts for petroleum exploration and production operations onshore and offshore Georgia. These were approved by Presidential Decree on the understanding that the Georgian government would present production sharing legislation to the Georgian parliament as soon as possible. JKX and their senior Georgian legal advisor subsequently presented the Ministry of Fuel and Energy with a draft Production Sharing Law.

  Meanwhile the US Agency for International Development (USAID), through their Houston based law consultants Hagler-Bailly, had successfully imposed an Electricity Privatisation Law on the ministry, government and parliament with help from a little World Bank pressure. While in the Energy Ministry, Hagler-Bailly saw the embryo petroleum law and an opportunity to continue their help.

  The help took the form of numerous draft laws delivered by their team of expatriate lawyers. A key part of the USAID brief was to promote the privatisation of the State Oil Company—despite its inherent bankruptcy. These drafts were ignored while the Ministry of Fuel and Energy and the Ministry of Environment argued over who was going to have ultimate control of the industry—and naturally the income therefrom. This happy situation (for the lawyers) continued for about a year until informal discussions between the British Embassy and the oil companies active in Georgia at the time (the British JKX and Ramco, the Swiss NPL, and Frontera of the US) led to the dispatch in late 1997 of a 15 strong Georgian delegation to Cheltenham for a two week symposium on international petroleum legislation and regulation led by the Oxford based College of Petroleum and Energy Studies. The delegation consisted of representatives from the two key ministries, the tax department, parliament, Georgian Oil and GIOC. The Embassy arranged the visit with the support of the Know How Fund.

  Feedback from the symposium was positive, but Hagler-Bailly, now with World Bank support, continued to press for their drafts to be adopted. However, the ministries and the Embassy obtained further Know How Fund support for the dispatch of one of the experts (Blanche Sas of Denton Hall) to Georgia with the brief to prepare a new draft of the law from scratch. It should be noted that it was made clear to everyone that Blanche Sas's client was the Georgian government—with support from the Know How Fund.

  This critical transfer of ownership of the project from the British to the Georgians ensured that her draft, supported by some valuable follow-up work in a visit from Professor Alex Kemp of Aberdeen University, has formed the basis of the draft law now before parliament.

  I would congratulate the Embassy and the Know How Fund on this success for a fraction of the investment made by USAID in Hagler-Bailly. Enactment of the Petroleum Law will be a critical step in legitimising JKX's contracts in Georgia and will place Georgia well up in the league of countries with effective petroleum legislation.

March 1999

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