APPENDICES TO THE MINUTES OF EVIDENCE
Memorandum submitted by JKX Oil &
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.
CASE STUDY FOR THE HOUSE OF COMMONS FOREIGN
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
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
Companydespite 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 industryand 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 governmentwith 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.